Use the news to hedge your bets

If you take note of the headlines you will see that they continue to focus on the slump in stock prices and assurance in the American capitalist system, some economists caution that such analysis of the current economic climate are based more on propaganda than on real market conditions.

Brian Henderson, Vice Chairman of Merrill Lynch Europe, believes that “It makes great headlines and sells newspapers” during an interview with the Foreign Policy Association.

“It is too simplistic to say that the problem is one of confidence in the U.S. [market]. There is a realistic relocation of assets based on a market perception as opposed to a political issue or as opposed to some kind of social concern of the degradation of the American image.”

Stephen King of London's Independent points out why such relocation is taking place. “For foreign investors, the United States has lost its allure,” King writes, noting that those who put their money into American businesses have failed to “extract the financial returns that should be their due for having invested in the U.S. New Economy over the past few years.”

“For much of the past decade, America has been the dynamo of world economic growth. It seems now to be disappearing into a double dip and there's no one around to seize the baton,” says another piece in The Independent.

“Forget Enron, WorldCom and the possibility that much corporate profit in recent years is was just sleight of hand, it is this huge macroeconomic shift that underscores the gathering panic in stock markets.”

Adding to this the shifting economic patterns quoted by some pessimists, there is the capricious terrorist threat that persists to undermine the world economy. A threatening U.S. attack on Iraq has also kept global investors alert.

“Among economic elites, there's a foreboding that something – terrorism, corporate scandals, a dollar crisis, a stock market crash, a Japan crisis – is leading us we know where not,” wrote Robert Samuelson in the International Herald Tribune last month. These fears are suddenly becoming realised.

The Economist disputes these events are certain to happen.

“It is in the nature of capitalism to make progress in fits and starts. To some degree, lurching cycles of sentiment are part of the process – the price paid for superior long-term performance,” write the editors. “A few things are broken, and should be fixed. These tweaks would not make American capitalism less American: they would make it truer to its own principles. If they can be done, it will work even better.”

With all this in mind, it cannot be all doom and gloom. We have to think positively and believe that where past recessions have managed to claw back to a more than respectable positioning, this can also be said for the current downslide.