Top ten threats to the global status quo in 2007

As 2006 draws to a close, Jeremy Batstone of Charles Stanley is feeling bearish on the global economy. These are the ten economic trends to watch - and how to invest accordingly.

We round off another year's worth of Week In Preview publications by unleashing our most pathologically bearish thoughts as something of an antidote to the cosy continuation of the global economic and financial market status quo which form the majority of financial commentaries and City firms' base cases at this time of year. This is not to say that we at Charles Stanley have changed our base case expectations for 2007 within the space of just a week, but simply to reiterate the fact that the professional investor adopts a different approach to making money from the financial markets than does the financial media or the interested amateur. In a nut shell the professional looks at what is being priced into markets by reference to futures market pricing now. By then overlaying one's own perception of how one feels the markets may perform a view can be taken as to whether the markets are likely to be right or wrongfollowing which one can invest accordingly.

Our base case scenario (articulated in our latest monthly Investment Handbook) indicates that while US growth will slow to below trend, activity is still forecast to emerge at or around 2.5% for 2007. Whilst the dollar may struggle to retain its poise it is not forecast to collapse, particularly against sterling as the UK economy displays many of the same structural imbalances amplified by the US economy. Globally, growth is expected to become more balanced as the eurozone and Asia successfully pick up the baton passed by slowing cyclical US activity. Most investors are comfortable with this outlook. It implies that all threats are manageable, that the remarkable acceptance of risk from financial instruments can continue and that with the inflation threat quiescent and base rates in the developed West at or close to cyclical peaks, equities can continue their merry way upward.

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