Expert View: AmBushed on the road to recovery

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A New Orleans woman died recently at the age of 82. The local newspaper carried her last wish - no wreaths or cards, but rather, "donations to any organisation that seeks the removal of George Bush from office". Now there's a new year's resolution.

As we enter 2004, US politics are the deciding factor for investors as never before. Thankfully, an artificial kick-start to the US economy is dragging us all out of recession, but it must be an earnest hope for 2004 that the whole exercise acquires a more robust foundation. We desperately need corporate America to start investing seriously, increasing employment and taking the burden away from the indebted consumer. The US has done this before, in the early Nineties. Let's just hope they pull it off again.

The problem is political. President George "Deficit" Bush worries me with his policy of tax cutting with money he hasn't got. The federal budget deficit could reach close to $500bn in 2004, only to be dwarfed by the massive trade deficit (some commentators forecast $545bn in this coming year). No wonder the dollar has been falling.

The US, with its provocative foreign policy, has added other, new risk factors for world markets. Last year, for the first time, I was asked by a client how I factored terror into my assessment of individual corporate bonds. Never has anti-Americanism reached such heights in Europe, let alone in the Muslim world. This feeling translates quickly into general anti-capitalism.

Meanwhile, in retaliation, some American commentators are busy writing Europe out of the globalised future. They argue that the Franco-German engine at the heart of Europe is stalling, if not seizing up. 2004 will be a decisive year in this clash of economic models. Certainly, the German government's prediction of 1.7 per cent growth for 2004 looks highly anaemic against a US economyrampaging away at 8 per cent. This is the year those of us who prefer the European social model must push for faster reform of the economic foundations that support liberalism. The game will be US vs Asia otherwise.

Here in the UK we are, as ever, caught somewhere in the middle. Our economic growth prospects for 2004 are better than Germany's but worse than the States'. Our deficit is worrying in absolute but not in relative terms. If the Government goes a little slower on spending, it might avoid the tax rises that could threaten recovery. In this regard, the replacement of Blair by Brown cannot be a market wish.

And what for stock markets themselves? In 2003 we at last buried the Great Bear. Will 2004 be the year the young Bull stumbles? The rise in some lower-quality parts of the market - particularly the smaller IT stocks - has been breathtaking. As the recovery broadens out, and investors become more sensible in their judgements, we could see a switch back to the blue chips.

Let's hope we have finally come to the end of corporate scandals and boardroom greed. Last year shareholders flexed their muscles. There could be further problems in 2004 when they learn how to punch.

And what does the new year hold for those of us who work in the markets? This has been a tough recession - reduced incomes for the lucky, unemployment for the rest. Looking forwards, things should get better. Wall Street shows the way here too. Philip Purcell was really quite bullish in his outlook for Morgan Stanley in 2004 when he reported a 28 per cent rise in profits recently; likewise, Hank Paulson reporting a 42 per cent hike at Goldmans.

Any improvement will be most welcome. With Gordon Brown raising the early retirement age from 50 to 55 (a fantasy in most banks), we need to get on with our savings plans. Happy New Year.