Economic analysts’ forecasts for the coming months indicate a slow recovery. The financial crisis of 2008 is still unravelling and the domino effect is evident in many sectors. With daily news headlines persistently negative towards asset values, you could be excused for thinking: How can we contemplate investing in anything at the moment?

The perception of reality is important here. The first reality was created by the scientist Sir Isaac Newton when he put into words the concept of gravity: “Whatever goes up must come down.” The second reality was created by economists and triggered by governments and central banks around the world: Whatever has come down must go up!” This is all because of the third reality, also a cliché: “Money makes the world go round”.

So, with the assistance of generous government stimulus packages, coupled with an expansionary monetary policy and interest rates that are now at levels not seen since the 1960s, we can look forward to brighter times in the future. Through lower interest rates, tax breaks and cash handouts, businesses and households are being given the chance to pick themselves up, dust themselves off and look for opportunities to resume their spending and wealth creation activities.

Over the last 100 years, there have been many severe financial setbacks in the global economy.  They include several wars, the Great Depression, the OPEC oil crisis, the 1987 share price collapse, the Asian financial crisis and the Tech wreck. 

It is true that the magnitude and depth of repercussions caused by the 2008 Global Financial Crisis are greater than previously experienced. However, while asset markets have shown peaks and troughs, the overall price movement is upward in the long run.

We don’t know when the bottom of this cycle will be confirmed, but we do know that the generators have been started by committed governments and central banks on a global basis to overcome the effects of the credit crunch. While lower interest rates may not be favourable for some investors, and many borrowers are likely to focus initially on debt reduction rather than spending, we can only be better off in times to come.

This period of business restructuring, cost-cutting, debt reduction, lower interest rates, and budget deficits are all part of a much larger picture and are common factors at the bottom of a business cycle. The cycle will continue on its course as it has done many times before. 

March 2009