The United States Still The Economic Beacon of the World

By Haider Ali

Posted: 6th July 2012 09:10

European financial markets seem to be in a state of flux due to a variety of ingredients that have managed to combine to create a disastrous recipe of epic proportions.  Much of the economic policies coming out Germany have led to the likes of Spain and Italy, both economic powerhouses in their own right, head towards the path of bailout monies from the European Central Bank.  This in turn has made much of Europe divestible as economies continue to stagnate.
 
Investors are rightly turning their gaze towards the United States as for many there at least lay a sanctuary that may see a return on a modicum of investment.  .  Despite the United States of America itself having to deal with a colossal burden of debt numbering in the trillions, that it has heaped on itself via wars in Afghanistan and Iraq, some believe there is potential in the country yet. 
 
Even with the United Kingdom and Europe having a dominant share in hi-tech companies, emerging markets in Asia allowing its manufacturing exports to carve out a niche for itself, it is still companies from America that are coming to the summit of Forbes league tables.  With general elections looming, the American dream should be considered far from over, as traditionally many feel this is a golden opportunity to invest and yield great profits. 
 
The housing bubble was one of the more pertinent contributors to the global economic meltdown that had occurred in 2008.  Many people working on average wage incomes thought they could take out mortgages on houses, then develop the estate and sell them rapidly for a profit.  Of course many hundreds of thousands lost out as the recession heralded fastened financial belts leading to a shrinking housing market and house repossession.  But digression aside, the housing market is at its most alluring since the end of the 1960’s with prices very low and affordable mortgages combined making it far easier for first time buyers to get onto the property ladder.  It also presents a great opportunity for those looking to buy up estate.
 
Investing in equity markets in the United States especially compared to Europe seems a far better choice because of the painstaking measures they have had to take.  The United States is dealing with the debt head on whereas Europe is throwing hundreds upon hundreds of billions trying to shore up gaping black holes of deficit that can be filled.  Investors as a result are refusing to invest in bonds being issued out of Frankfurt in the hope that the tide can be stemmed. 
 
Of course it would be shrewd not to overestimate the elections and the impact they could have on stock markets.  The volatility of stock markets in general should always be a stern indicator when decisions are being made on what to stocks to purchase, as often is the case few bare fruit.  One only has to analyse the 2008 election in which media coverage reached fever pitch when advertising and endorsements were at an all time high and people in general could not get enough of Barack Obama.  The stock market went down a remarkable thirty seven per cent according to Standard and Poor Five Hundred annual figures.  This was primarily due to the world going through one of the worst economic crises since the Wall Street crisis of 1929.
 
However if history is anything to go by, in the twenty-one election years gone by since 1928 the Standard and Poor Five Hundred has delivered marvellous results in all but four of the years.  In the election year of 1980, when Ronald Reagan took on Jimmy Carter, the stock market rose a massive thirty-two per cent, so there is room for optimism.
 
There are a variety of obstacles that potential investors will have to overcome.  With Obama a slight favourite ahead of Republican candidate Mitt Romney, should Obama be elected speculators face more red tape and bureaucracy from Washington.  Political wrangling between both the Democrats and Republicans over key economic issues such as the raising of the debt ceiling could also act as a hindrance to potential investors.  The debacle ultimately led to Standard and Poor having to decide on downgrading the United States credit rating for the first time in history having a detrimental impact on stocks. 
 
The setting up of investment funds is one way to gain access into the US markets.  Funds such as AXA Framlington American Growth or the Legg Mason US income fund are safe bets for speculation, as they seem to be steadily growing.  The UBS US Growth fund is another that has delivered more than solid returns in the last few years.  It has managed to yield returns of over sixty per cent.  Certainly takes a lot of brain power in a financial era plagued with burdensome regulation and wily politicians looking to exploit the crisis for their own gains.  To have made such remarkable gains in a turbulent market is a credit to shrewd investors that see the potential in making money and profit when many others are making substantial losses.
 
For first time investors the potential for bear-traps is far greater than those speculators that have become accustomed to the hustle and bustle of stock markets.  Besides looking at which investment funds make the most money, you should always look at the reputation and track record of the fund manager.  By doing this you help minimalise the risk that you take when investing.  When the market has corrected itself it is perhaps the wisest time to speculate, perhaps nearing the time of autumn just after the new United States President has been sworn into office.


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