Investors counting on a V-shaped recovery without a marked increase in consumption are delusional. This is apparently the view from analysts at Ovannis Capital.
Reportedly contained within a recent client e-mail, the statement suggests that with the economies of the UK and the US dependent upon consumer spending for as much as 70% of their gross domestic product (GDP), it is likely that high relative unemployment, a proclivity to pay down debt rather than extend it and the broad-based withdrawal of credit facilities will prevent the return of pre-credit crunch mass consumption.
Ovannis Capital e-mail apparently goes on to advise clients to divest themselves of any remaining exposure to retail stocks with the exception of the large blue-chip defensives like well-known supermarket names like Wal-Mart in the US and Tesco in the UK.
The firm suggests selling the stocks into strength which effectively means disposing of them when the overall markets rally.
Ovannis Capital also cite the rise in the cost of everyday items like fuel, food and utilities which have an impact on consumer budgets as another reason why shoppers are unlikely to increase discretionary spending.
Despite central bank and governmental claims that deflation is the greatest threat to economic stability, Ovannis Capital maintain that the measures taken to combat what it calls an illusory concept are inherently inflationary and points to the declining value of both the dollar and sterling against other world currencies as stark proof.