Background on the global crisis
Why is there an economic crisis?
The crux of the problem has to do with debt—both private and public—in most Western economies. Two key features stand out in this crisis:
1. Debt levels in the United States and the Euro Zone are quickly approaching a critical threshold. Irresponsible spending fueled by cheap debt have placed their economies in a trajectory of paltry growth that can only be achieved by increasing infusions of debt. This is clearly unsustainable.
2. Their governments are artificially driving interest rates to historic lows to provide cheap credit. This approach is only a palliative. It will only delay the inevitable deleveraging necessary for these economies to regain a more solid footing.
Attempts to deleverage these economies have proven to be ineffective. The austerity packages for troubled European economies have resulted in social unrest. Further unrest may pressure governments to plan for an exit from the currency union. The recent impasse in the Greek election coupled with the likelihood that the country will exit the Euro Zone undermines the instability of the Euro especially if the other distressed members such as Italy, Spain and Ireland also decide to exit from the common currency.
Given this scenario, the availability of cheap credit to placate social unrest is preferred by governments as a means of buying more time to find a workable solution. No meaningful reductions in government spending to deal with deficits are being enacted in 2012 because it is an election year in the United States as well as a number of countries in the Euro Zone.
Paltry economic growth in the Euro Zone and the United States for the foreseeable future can lead to a global contagion. These consumption-
Repercussions in financial markets
Global financial markets are increasingly reflecting investors’ sentiments on the crisis. Price volatility in various asset classes is a tell-tale sign that the investing public is desperately trying to seek a safe harbor from a perceived global contagion. Knowledgeable investors are aware that more difficult times are looming on the horizon.
The artificially low interest rate environment is creating dislocations by making risk artificially cheap. It is only a matter of time before these dislocations are overpowered by the market as participants seek to find the appropriate equilibrium. When the inevitable correction takes place and interest rates move higher, the prices of speculative assets and those with poor fundamentals will be pressured to fall.
Investors holding these assets will inevitably experience substantial losses with little or no hope of recovery.
Exploiting opportunities in times of crisis
At Knightsbridge Advisors AG, our fundamental strategy is rooted in acknowledging the adage that the key to overcoming a crisis lies in avoiding the dangers that arise and exploiting opportunities that present themselves. Our firm has developed the expertise to conduct a thorough and independent approach to the research and analysis of investment opportunities that are designed to lead the recovery during these uncertain times.
Our investment philosophy is rooted in principles that have withstood the test of time because they focus on fundamentals and best practices. We do not subscribe to making the quick buck by exposing our clients to high risk. Our investment recommendations are well-thought out and designed to yield favorable results over the long term.
Financial crises are actually the best times to invest into equities. All great investors know that “the best time to buy is when there is blood on the streets”. This is analogous to buying during a sale and getting the best deals in town. Low valuations for fundamentally sound companies inevitably yield significant returns over the long term.
The biggest mistake most investors make is to buy at or near the end of rallies and sell at a loss. Their inability to resist the urge of perceived safety by following the herd generally leads to financial losses. This is rooted in the casino mindset where the lure of making returns in a very short span of time overpowers an understanding of the facts and sound principles. We do not offer this because it simply does not work. We are committed to long-term performance because this is what really matters.
Our team of experienced and independent-