Market Strategy:The Deleveraging Process and the Investor

The politicians in Washington are now facing up to years of deficits and expiring tax breaks,and there will be real consequences for investors.They need to take care of spending first,according to Stephen Wood,PhD,Chief Market Strategist at Russell Investments.Even if everything goes right,you're looking at -1% GDP.If everything goes wrong,there will be -4 GDP.
If no agreement is reached on the budget,sequestration will come into force.Sequestration means government spending being take out of the economy.This is what deleveraging looks like.How much government are we willing to pay for?That's going to be less than in previous years.
Investors are going to need to look for a globally diversified,mixed strategy.Look at commodities and emerging markets.
We need to manage expectations of investors.People are being forced up the risk spectrum.They're gonna need more risk to get the returns they're accustomed to.
We've gone from apportioning revenue to apportioning debt.The process isn't that fun to witness,but the end result will be good for our country.
Dr.Wood conducts research on the economy,capital markets,portfolio strategies and investor behaviour.He interfaces with Russell's institutional clients and retail partners to communicate the firm's perspectives on the global market,investment process and portfolio management.He is a frequent guest on business television.

Managing Director:Don't Bank On Banks

This decade is the worst decade for bank revenue since the Great Depression,in the view of Mike Mayo,Managing Director at Credit Agricole Securities.After a financial crisis,things don't go quickly back to normal.Be prepared to muddle through.A muddle through scenario beats alternatives like failed institution MF Global.
U.S. banks are picking up some loans from Euro banks.You can increase funds for lending,but you can't create borrowers.U.S. debt to GDP is 8 to 1-worse than Greece.We don't have enough proper auditors.Citigroup's have been in place since 1969.
You don't have proper accounting,which creates a crisis of confidence.Let's have auditors sign their names to be accountable.Let's have less regulation,but hold the top people accountable.
We're not having capitalism the way it's supposed to operate.I feel a lot more concern about capitalism when talking to Dick Parsons,Chairman of Citigroup.Just change the characters.Bank CEOs do more damage with ill-conceived incentives,Mike Mayo noted.
Mr.Mayo,a longtime banking analyst,is the author of "Exile On Wall Street."Credit Agricole S.A. is the largest full service bank in France.It ranks second in Europe and eighth in the world.

Advantage View:Market Thoughts From UBS

We have a dichotomy in the market:1.We need to see better macros,and 2.We need to see something better out of Euro policy makers.Our bias is to believe that the longer this continues,the weaker the numbers will be;our bias is to the downside.
We need more clarity out of policymakers,both U.S. and European-but especially European.I'll believe it when I see it.We haven't seen any evidence they are taking concrete measures.Given the 17 parliaments,it's by definition a slow process.
We favor U.S. equities such as consumer staples and defensive cyclicals such as tech.There's a lot of risk with industrial cyclicals and energy.Materials and industrials are lagging.
Over the next year or two,China will see 7-8% growth.It's not falling off a cliff,but slowing.Near term,event risks out of Europe and decelerating GDPs get us quite concerned about global equity markets.Medium term,we are constructive on equities.
Jeremy Zirin is Chief Equity Strategist at UBS Financial Services.UBS offers wealth management,investment banking,asset management and business banking services to clients worldwide,as well as retail banking in Switzerland.

India's New Spending

The government of India will be adding new fiscal stimulus,increasing the deficit to 6.8% of Gross Domestic Product.Finance Minister Pranab Mukherjee said total spending will go up by 36% to 10.3 trillion rupees,or 214 billion dollars.Infrastructure spending will rise to 9% of GDP by 2014.The tax code will be simplified;credit provided to struggling exporters;and defense spending increased.Stocks fell on the news,with the Sensex index dropping 5.8% as investors doubted the wisdom of inflating the national debt.In the U.S.,some economists are calling for a second stimulus package,while France and Germany are worried about further deficit spending.

Two Worlds

According to Jim Owens,CEO of Caterpillar(CAT),we're seeing a bifurcated world.While Europe and Japan are slowing markedly,the emerging markets are doing extremely well.Their explosive demand continues.We have long been a champion of global engagement.It's important to continue with trade liberalization,opening markets to American exports.We export a lot of mining and construction equipment to Colombia.We really need to cultivate trade relationships.We are a large net exporter to China.Since the North American Free Trade Agreement,real Gross Domestic Product growth has accelerated in all three signatories-the U.S.,Canada and Mexico-Mr.Owens pointed out.