2011 was the year of black swans - those highly improbable occurrences that turn the world economy on its head. So what black swans could be in store for 2012? Central banks losing control over inflation, as a result of their policy of monetising sovereign debt to excess; or perhaps European growth in excess of 1.2%, a positive scenario that no economist is forecasting on today.

The end of a cycle

According to the macroeconomic analysis of Patrice Gautry, UBP’s Chief Economist, we are now at the end of a cycle. The West’s growth rate has kept one step ahead of the spiral of debt that was fuelling it, but now we have reached the end of that road: household and national debt simply has to be reduced. As testified by the frantic talks among leaders, the mounting political and economic threats unequivocally call for higher savings and a rebalancing of growth - which means more investment, less consumption and lower trade imbalances.

The two greatest challenges for states and central banks in years to come will be, firstly, to implement austerity policies that are able to reassure the markets without plunging their economies into a deep recession, and secondly, but just as importantly, to reduce the debt burden by creating a little inflation, but without allowing prices to spiral out of control.

Gold, the ultimate store of value

Chief Investment Officer Alan Mudie argues that the traditional idea of portfolio management - based on the premise that riskless assets exist - has become obsolete. UBP has therefore opted for a pragmatic implementation of its convictions, ignoring the models of the past.

Government bonds can no longer be considered risk-free; this is why UBP continues to favour high-quality corporate bonds, except those of the financial sector. For investors who focus on returns, high-yield bonds offer attractive returns, even in this slow-growth climate, because of the current strength of companies’ balance sheets.

For several years UBP has been expanding its expertise in gold, a key asset to invest in today, and where our strategy has proved beneficial to clients. Alan Mudie points out that gold is the only asset that can get us through this crisis and that it is the ultimate shield from the risk of monetary chaos and the depreciation of currencies. He concludes that right now UBP is much more focused on return of capital than return on capital.

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