Pessimism is rife but we shouldn't overdo the gloom

ON UK INCOME

While economies in the West have slowed in recent months, activity in the US has held up well with a number of economic indicators showing little sign yet of material weakness.

However, the negative effect to business confidence from the falls in global markets during the late summer and early autumn will probably show through in reduced capital expenditure commitments in the coming months. It is important not to overdo the gloom. Stock market valuations globally have not anticipated a rosy economic environment for some time and now discount a major earnings downturn. While it would be foolish not to anticipate significant corporate earnings downgrades, equities look cheap relative to bonds, with the UK equity/bond ratio well above parity, which we continue to ...