Anyone with a crystal ball?

Look around at all the coasts bordering the Mediterranean, what do you find? Financial disasters, trouble, strife even warfare. Just cast your gaze on our south where, Tunisia, Libya of course and Egypt, have experienced warfare and civil strife, then the east, with Israel and Palestine always at loggerheads, Syria at the centre of worldly focus now, then on towards the north, where Cyprus, Greece – The Nadir? Italy, France and Spain all encountering grave financial difficulties such that the strain on our common currency – the euro – may force the mechanism to splutter and (hopefully not – but the chances are there) fail. And where are we, here in tiny Malta, amidst such turmoil? We seem to be on top of a small plateau, high on a mountain, overlooking the seas, watching as storm clouds gather around us. Indeed someone up there must love us! We have so much to be grateful for.

The stock markets are now a place for the risk taker only- Neville Curmi

But can our situation last? I trust it will, especially when we come to natural disasters; but I doubt we will be able to resist the full force of the financial tidal wave engulfing euro-land today. The price of oil, the strengthening of dollar, decrease in spending by our tourists, the weight of pensions increase as we live longer, permanent deficit financing, increase in our borrowing, all seem to be our immediate local dangers.

So what now? I regret I do not have the answer. When I posed the same question to an eminent financier friend abroad he told me “the world is in a mess, even if we had to look into the most reliable of crystal balls, we will not be able to identify the best way out.”

The truth is there is no quick fix, and the solution – once identified, must be a painful one which will not go down well with any electorate. It is a sword which cuts at both ends. The holder – the politician will guarantee himself failure at the next election – as all southern European former prime ministers will conform, while the receiver – the electorate, will have to endure a programme of austerity – not without protests of course with the uncertainty that follows.

What can we do in such circumstances? Very difficult, but playing safe I find is the best medicine. Defence is never the best way to win a football match but if one manages to achieve a status quo – not lose value in the meantime – one would have done well. So a zero – zero result would be considered a victory in these very difficult times.

The euro is in grave danger of breaking. I believe it will not, as the results will be grave. But you cannot have Italy on the brink of disaster under Silvio Berlusconi and now on the verge of a risorgimento under Mario Monti all within 15 days. Surely we are clutching at straws and hoping for the best? The indication is that we have not as yet formulated the correct course of action. It is quite clear that there is recognition for some form of closer fiscal integration, but how to get there is still very nebulous.

Therefore a diversification out of the euro is an option, into, yes that other companion in distress – the dollar. But really there is nowhere else to go. Even the Swiss franc is no longer an option for the moment as the Swiss National Bank has set a floor vs. the euro, with a bias to weakening rather than strengthening. For the moment, because the US has only one financial control centre, has long become an integrated economy and can act rather quickly, the dollar is the one which offers the best sanctuary.

What about gold? My pet investment. Yes, I still like gold. Which of your investments has increased by 20.2 per cent since January this year and by 168 per cent over the last five years? Not many, but gold certainly has. And if the financial problems continue to escalate over the short to medium term, then gold can still reach the $2,000 mark. Not this year as I had anticipated earlier – (highest $1,920 (9/11) and currently $1,710), but gold is consolidating between the $1,600 and $1,800 mark and as long as the price does not break below the lower figure, the bull is still running.

The stock markets are now a place for the risk taker only. There is money “in them darn hills” even in the stock markets, but only for the brave. The markets are basically worried about the way the euro debt crisis is evolving and the effect this will have on the world economy. We cannot see any rainbows yet.

This article is the objective and independent opinion of the author. The information contained in the article is based on public information. Curmi and Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.

www.curmiandpartners.com

Mr Curmi is a director at Curmi & Partners Ltd.