Evercore Pan-Asset New Year Predictions, www.pan-asset.co.uk

Jan. 15, 2009 - PRLog -- www.pan-asset.co.uk

We say farewell to 2008 hoping that 2009 will be a lot better, but fear that it will start worse. 2008 has been a good year for Evercore Pan-Asset, as we have been remorselessly pessimistic about the prospects for the world economy. This has allowed us to offer advice to clients to stay in cash and other relatively safe investments, preserving capital whilst all about us crashes. It is still not what we would like to be saying, as like most investors we prefer to have something to be optimistic about.

According to the UK government forecasts, 2009 is going to be better. It foresees
more pain in the first half, followed by recovery in the second half. On this analysis
we are living through a sharp but normal cycle. The combination of low interest rates,
the extra liquidity now being pumped in frantically to the banking system, and the
fiscal stimulus, will start to raise order books and spirits in July. This would mean the
prospects for equities will improve, making them a strong buy now.

A second scenario is a development of the Government’s. If it is right, then there is
a danger it is overdoing the monetary and fiscal loosening. The huge sums now
being tipped in, coupled with low interest rates on both sides of the Atlantic, could
begin a nasty period of future inflation, once we have lived through the remaining
disinflation of the downswing in the first half of 2009. This would mean buy equities
for the first part of the recovery, but be ready to bail out again when the authorities
realise they have overdone the monetary treatment.

The third scenario is the one more people in the market believe. Many say this is not
a normal cycle. The banks are badly damaged, so the extreme monetary changes
are necessary but may not yet be sufficient to turn the economies round. Banks will
need to carry on raising additional capital. They will report more losses on existing
loanbooks, as the recession takes further toll on mortgage debt and corporate
lending. It will take a massive monetary and fiscal stimulus to get over the huge
losses and the savage forces of the downturn.

Property prices will fall further, corporate bankruptcies will increase and the world will
live through several quarters more of pain, before resuming slow growth. There will
be no early repeat of the credit explosion which powered the last decade of exciting
world growth.

On this scenario there will be a bigger bubble in government bonds, as the flight to
“quality” continues, and cautious investors look for something better than deposit
rates geared to a fed rate of around zero. Gradually funds will be committed again to
stronger companies through the corporate debt and equity markets, as
recapitalisation proceeds, and as people start to see through the worst of the
downturn.

So what do we recommend?

We suggest that investors needing long term growth and protection against possible
future inflation should start to buy equities in the stronger economies, with additions
in corporate bonds. The bonds backing companies that are not going bust are
cheap, but there remains a period of uncertainty over company prospects during
which some will go under. It should also be possible during the next six months to
pick up some cheap inflation-linked stock, which will be friendless at a time of
deflation, which could be a good insurance policy for the longer term. Investors
seeking a positive return over inflation but not wanting much risk should stay
cautious, and recognise that in the lower inflation year we are entering that also
means lower nominal returns to do the job.

We still think the UK is one of the riskiest places to invest, given the very large
deficits the private and public sectors are both running. We recommend placing more
investment elsewhere in stronger economies backed by more fiscally prudent
governments.
-Evercore Pan-Asset Capital Management Limited
John Redwood, Chairman


Evercore Pan-Asset Capital Management Limited is authorised and regulated by the Financial Services Authority.


To learn more please visit our website www.pan-asset.co.uk

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We belive that carefully considered asset allocation decisons is the cruicial part in the investment management process and argue that identifying the correct asset classes in which to invest is more important than selecting the underlying stocks.