Thoughts on the gold price.

In the following I have tried to sum up in ten points my analysis of the economic and financial situation.

There has been much coverage of the economic problems of Greece in the past few weeks. However, Greece is not an isolated case, even if there are a number of factors at play that makes the country’s situation particularly dangerous. On the contrary, what is happening in Greece reflects a development that investors should take very seriously and that could have a significant impact on the behaviour of the financial markets in the coming years, namely the massive deterioration in public finances. This development calls for some comments:

The rescue package adopted last week by the members of the eurozone could temporarily help Greece refinance itself in acceptable conditions in the coming months. However, the package has not changed the fundamental situation:

This week marks the first anniversary of the end of the most recent bear market. Between October 2007 and March 2009, the stock markets lost around 54% (using the MSCI World index in euro as a benchmark) before gaining 62% since then. (Mathematical calculations being what they are, an increase of 62% after a slump of 54% means that the markets are still well below their October 2007 level).

At the risk of sounding repetitive, there seems to be very limited upside potential for the stock markets of the industrialised countries over a three to five years time horizon from end-2009 levels. This may seem surprising after a decade of stagnation on the markets: however, it is the result of the extreme overvaluation of equities at the end of the 1990s.

This time last year, I wrote that the New Year tradition of making forecasts for the year to come was an even more perilous exercise than usual. My reasons at the time were linked to the lack of visibility on the economic situation and the uncertainty on the banking landscape.

The inconsistencies that were predicted by many economists when the euro was introduced, but were masked by the favourable economic situation between 2000 and 2008, have now come to light with the problems in Greece.

In the following, I try to answer some of the main questions people have posted on the blog in the past few months.

Below, I offer some answers to five questions that have been frequently put to me.