As we turn a corner into a new year, great uncertainty still looms in global markets. Europe lacks the financial firepower to overcome the debt crisis at the moment and political resolve is quite thin. Meanwhile, the rest of the world is prone to contagion.
In this week’s video, I am highlighting Michael Platt, a hedge fund manager who is solely sticking to short-term U.S. Treasuries and German bonds. As argued by Platt, and in line with my views, Europe still faces very large hurdles to restore economic growth and reduce its debt load, prompting a heavily fixed income weighted allocation with lower risk exposure.
While I wouldn’t necessarily be 100% on the sidelines in fixed income since there are still some select equity ETF opportunities, the overall message is right on. Europe’s debt metrics are atrocious and illiquidity in the European banking system is of great concern, with many banks inching toward insolvency. Plus, borrowing costs are still high in Spain and Italy with other Eurozone members at risk of losing their investment grade status.
Although I don’t want to be a pessimist, markets will continue to experience significant headwinds in 2012. Let’s enjoy the holidays while we can before reality sets in again.