Debt Crisis by XTB UK - The "Return of Capital" not "Return on Capital"

By Xtb Uk Ltd, PRNE
Monday, November 21, 2011

LONDON, November 22, 2011 -

Investors had better get used to extremely difficult UK and Global market conditions and a new definition of risk, since the corrective process that is underway will take many years. We believe that those who can successfully navigate the numerous market perils and maintain their purchasing power will eventually be in a position to pick up distressed assets very cheaply.

Safe havens that could help investors protect their wealth will be gold, high-quality stocks with sustainable cash flow that pay a dividend and potentially the currencies of nations that benefit from their natural resources.

Potential pitfalls that could be avoided include exposure to the broad stock market indices, overvalued property markets, debt instruments such as bonds which may not be as credit worthy as they appear, and banks/ financial institutions as a consequence of counter-party risk and stretched balance sheets.

The Long Road Back To Solvency

The McKinsey Global Institute study found that historically such an unsustainable build up of debt is followed by a prolonged period of deleveraging during which consumers, businesses and eventually governments reduce spending in order to pay down debt. Rebalancing an economy is a long and painful process. In an environment of prolonged deleveraging, an investor’s primary concern ought to be the return of their capital rather than the return on their capital.

Those that can preserve or protect their capital will have the opportunity to take part in what might be the asset sale of a lifetime. As bubbles burst and assets are marked to their true market value, those with capital will be able to pick up these distressed assets very cheaply. As Richard Russell once said, “In a bear market, the winner is he who loses the least.”

The material provided by XTB does not contain (and should not be construed as containing) investment advice or an investment recommendation, or, an offer of or solicitation for, a transaction in any financial instrument.

For further information please contact Ben Mountifield or Alexander Orban, XTB UK LTD, tel +44(0)2033941700.


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