The volatility is continuing with investors remaining nervous and uncertain in respect to the future. The quarter was marked by days of extreme volatility and poor investment sentiment due to concern in slowing economic growth in Australia and China, companies reporting lower profit expectations and/or downgrades prior to the commencement of the profit reporting season and sovereign debt issues in Europe.

It would seem that the circumstances in Europe would indicate ‘the Greek’ voluntary debt restructure may not be achieved.

• S & P has now lowered the credit worthiness of several European countries;
• A number of countries in Europe are technically insolvent and there is the potential contagion for Ireland and Portugal,
• This austerity program aimed at reducing instability will inhibit growth for many years.

The result of all of the above is that it will be difficult to reduce debt in a low growth environment. In the private sector corporations and consumers are saving, not spending. Lastly there is an ageing population that is attempting to finance their retirement.

Significantly in 2012 there are elections in Germany, France and the USA and a change in leadership in China which may slow the economy further. Governments are not noted for making decisions in elections years.

From the USA the economic numbers appear to be improving, however I consider that the US consumer will remain challenged in terms of income and wealth and will remain constrained by debt. The sales results to date have been disappointing. Job growth continues to be mediocre, failing to make any significant impact in the overall unemployment rate. The housing recession is moving into its sixth year and with the continued downward pressure on real estate values and new homes supply exceeding demand. Up to 49% of houses with a mortgage may have negative equity in their property. The cycle of foreclosures and lower prices will constrain the spending of households and consumers.

Notwithstanding the above the portfolios during the quarter were flat. There have been significant price movements in some shares that will perhaps continue for the next 2 to 3 quarters. Shareholders for whatever reason are selling down holdings and generally are not able to look further then the last announcement, sometimes this is justified, however in respect of the holdings of the portfolio the management of most companies are aware of their responsibilities towards shareholders.

The news continues to be bleak. However, with the passage of time this will change. The longer this continues the closer we are to the start of a new economic chapter.

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.