It is all about politics

Over the past few weeks there have been a series of reports showing positive news relating to the economy in many of the world's leading markets.

It has even been suggested that the U.S. has not actually suffered a recession as the downturn was only in the last quarter of 2001, whereas, technically, a recession has to show a downturn in two consecutive quarters.

Certainly, Greenspan, the Federal Reserve chairman, has been moderately 'bullish' about the economy and appears to be supported by figures showing a large reduction in America's unemployed.

Interest rates are at lows not seen for decades in most of the industrialised countries. This should be an incentive for industry to borrow for development and consumers to purchase the house and or goods they want and thus fuel the economy further.

In the latter case, this may be happening, as we have seen retailers on both sides of the Atlantic declaring increased sales and profits. This is also an indication that individuals are not in fear of losing their jobs.

The fact that interest rates are so low means that many individuals cannot achieve their retirement and other goals by leaving money in the bank; something that I have mentioned previously in this column.

My daughter is a professor of Economics, and in her language, "All the fundamentals seem to point to a rise in the stock markets." So why isn't it happening?

Well, to a certain degree it is. We have seen a number of surges on the announcement of some of the above-mentioned data, but then we have seen nervousness and profit-taking.

Although predicted growth has been marked down in both the U.S. and Europe, there is growth, and Europe is still expected to be the fastest growing area of the worlds major economies, with countries like the United Kingdom still faring well.

It's all politics, so what is it?

I believe that most of the nervousness is not due to Economic data, but more to political realities. The "war against terrorism" continues unabated and the "will he, won't he" debate as to whether Bush will lead the U.S. and its allies to attack Iraq causes as much, if not more, worry to investors than possibly Saddam Hussein.

There is also the dichotomy of Bush giving one speech after another in South America expounding the virtues of free trade while at the same time placing swingeing tariffs on imported steel to protect the U.S. industry, and, possibly, enhance his re-election chances next time around.

So back to a question I have asked, and answered, in this column many times before "What should I do?"

I said at the beginning of the year that I believed that the markets will not show real momentum until the second half of the year, and I still believe that.

But whether I am right or whether I am wrong, there is no question that the markets are where you will find real growth over the longer period. Therefore, the average individual cannot afford not to be in them if he or she wishes to see a real increase in their savings.

The longer the market continues to hover or even fall, the nearer we are to the upsurge that we all know will come. We just do not know when.

For those of you who remain sceptical, 'drip feed' your money in to a good mutual or unit trust fund to take advantage of the dollar/euro/pound cost averaging until you are certain that the market has turned and, in the words of the good old British Broad-casting Corporation after it suffered a breakdown "normal service has been resumed."

The author is director of marketing with Towry Law International, Dubai.