-->Losing One's Way because of too many Signposts?
Outlook upon the 2nd quarter of 2004




Reviewing the economic news and data published during the recent three months, we run the danger of losing our way because of too many signposts!

As regards the impressive numbers referring to the economic performance in the year 2003, especially those in respect of the 4th quarter in the U.S., we should first of all put the same somewhat in perspective because downward corrections in the subsequent month do happen all too often. Additionally, there is the disturbing fact that the jobless rate is increasing despite a favourable economic growth, while the figures regarding newly created jobs apparently tend to be somewhat embellished. Finally, there is the crucial fact that for several months consumer spending has been following a downward trend, although this item amounts to 65% of the gross domestic product.

This obvious window dressing is entirely connected with the U.S. elections in 2004. The politico-economic mechanics allows only rosy estimates and trends to be propagated by the media. Although they are correctly interpreted here, the same are very often harnessed to serve other than strictly economic purposes. But the facts and their backgrounds reveal clearly what is involved: Wishful Thinking!

In our opinion, the interpretation of these often brightened figures to herald a new economic upswing is quite likely to cause a serious disappointment in the near future. The general stock-exchange recovery under way since March 2003 begins to show distinct symptoms of sluggishness. That's why many market watchers reckon with a recurrence of the bearish trend begun in 2000. Such a likelihood is even strengthened by the recent emergence of an almost dangerous carelessness and willingness to take speculative risks, which made many investors lose caution. The many imponderabilities, still existing or even increasing, are purposely overlooked or ignored outright.

Which are the stumbling blocks, visible to everyone, jeopardizing a correct assessing of stock prices? First of all, the optimal business figures published by many companies are due to savings of expenditures, savings impossible to be repeated in the year 2004. Moreover, at the beginning of the current year there clearly was a huge backlog of liquid funds for investment which were mainly funnelled to the stock market, thus strongly boosting the investment fund business. As regards the U.S., we now increasingly expect urgent measures to be adopted in order to remedy the twin deficits. For this very reason, Europeans are fearing the U.S. currency to act as a kind of Trojan horse. In his recent statement made in February 2004, the Fed's chairman has publicly stated that an increase of interest rates may be envisaged during the current year already.

In political terms, the past twelve month have further burdened the world with additional unsolvable problems, which will continue to worry us even after the re-election of the President now in office or the election of a new one. The dollar now facing a new round of depreciation strengthens the conviction of those market watchers who expect prices of raw materials to increase due to inflationary trends prevailing in the U.S. The antagonism of the world's power blocks - i.e. the U.S. on one side against China/Russia/Europe on the other side - is just beginning to take shape, but it will burden us with more worries than we can foresee at present.




Inevitably, the military super-power U.S.A. will one day attain the limits of its capabilities because financing has become impossible. Once the exports will be confined to sole armaments technology, it is predictable that America runs the risk of declaring bankruptcy because of unviable power politics coupled with astronomic indebtedness.

You are familiar with our traditionally prudent assessment of the economic situation, a caution which has markedly increased once again due to recent events. In turbulent times, liquid assets and cash on hand are more important as solid assets than the hope of improving prices of stocks and bonds.

Zug, 15 March 2004