It doesn’t seem to make any sense here we are with high rates of unemployment, huge national deficit, the European Union having to bail out Greece, the banks not lending and yet the stock market goes up and up.

Its good news for investors who have remained invested in the markets but beware. Equity markets have risen progressively since the low point of March 2009, and this has led to a recovery in equity values but can this continue?

As you know if you are a client of ours or if you follow this newsletter our view is that markets will struggle in the second half of 2010 as we get an economic reality check.

The news is starting to report improvement in economic indicators and technically we are out of recession due to the positive figures reported for the last quarter so perhaps we are in a true recovery. Well I am sorry but let me drag you back to the fundamentals.

The current recovery as it stands has been fuelled by a huge fiscal stimulus which has led to a massive UK deficit which has to be paid back. The only way we can do this is by reducing public sector spending and raising taxes. Personal debt is at an all time high and consumers are already staring to pay back what they owe. Add this to an ageing population and low rates of inflation, consumer spending in the UK will fall away

Its not all bad news because once we start our true recovery and assets revalue it will give a tremendous long term buying opportunity

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