Market watch--the view from inside: the sub-prime disaster and subsequent stock market turmoil has left most of us confused and uncertain as to what to do next. It seems that every specialist has a different view on how we should react.

AuteurDonnellon, Brien
Fonction MONEY

History has shown that financial markets have never been particularly stable and that every decade will have its crisis, however Deutsche Banks' CEO Joe Ackerman believes governments should step in because he no longer believes in the market's self-healing power. In his opinion if the market cannot heal the wounds it sustains as a result of its own behaviour, then it must be discouraged from taking risks in the first place.

Others say tighter regulation could weaken the very economies it is designed to protect. Let's take a look at the opinions of some major players.

UBS writes that in the first quarter of 2008, equity markets worldwide have fallen sharply and credit spreads have continued to widen as investors have become increasingly risk averse. Economic data has deteriorated, especially, but not only, in the United States.

The Federal Reserve has cut U.S. interest rates. While such policy action will, in time, ease pressures in both the real and the financial economy, it is uncertain when this will be. UBS expects 2008 to be another difficult year.

Real Estate: House price developments in the United States and the Eurozone have been highly synchronised in the past, highlighting the risk that the U.S. bust might be followed by a crash in the Eurozone.

However, UBS expects the Eurozone will avoid a surge in mortgage defaults and bankruptcies as a result of more conservative lending practices, smaller rises in interest rates and the lack of home equity withdrawals.

The recovery is likely to be much more muted and protracted than the one that followed the dotcom bubble.

Back then, industrial economies quickly recovered on the back of cheap credit and soaring housing markets. But this medicine has lost its effectiveness.

Credit Suisse says the credit crisis continues but Fed loans and rate cuts may help prevent a deep U.S. recession. They believe that equities offer value and may rebound in spring but appear vulnerable to new corrections for many months. Inflation risks persist.

They recommend, for example, that we hold very short-dated bonds and expect an upward trend for commodities but also expect corrections ahead.

Deutsche Bundesbank: Despite the slowdown in growth towards the end of 2007, which was by no means surprising, the outlook for the economy has not significantly deteriorated. We have not, for ex ample, seen major revisions to corporate budgets outside the financial services sector, or steep declines in consumer confidence.


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