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Fear is back

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Uncertainty on the Greek bailout and the capacity of the ECB to keep up with the Italian and Spanish bond purchasing programme are bringing fear back into the markets. News from the U.S. are not more promising either as the unemployment situation didn't improve and several banks were sued over mortgage bonds.

Given the context of the slow European response to the Sovereign debt crisis with unrealistic request to the Greek Government I think that investors are right to worry about wealth preservation as a possible recession has to be taken into serious account.

- Central Banks Limits
Central banks can launch further interventions but there is a limit to what even central banks can do. In Europe the heavy austerity measures will certainly impact growth negatively.
Some of the European peripheral countries would have probably been in better shape without the Euro as they now have no monetary tools at their disposal and depend on the will of countries like Finland that renewed his request for collateral from Greece. To some degree it is clear that some countries like Greece might not be able to deal with their huge debts solely with further budget cuts.

- Banking Confidence
European banks have seen their stocks plunging this year. Without prompt action to ensure confidence in European banks there will be little hope for sustained growth in the Eurozone. Similarly, the situation in the U.S. is far from better with the new lawsuit targeting banks for $196 billions. With few exceptions, for example Swiss Cantonal banks, investors have little or no confidence in banks. As a result banks are not likely to increase lending and boost growth.

- Strategy: bold but safe
In this environment of fear long term investors can benefit from low valuations in stocks (especially in Europe) but have to protect their portfolio through holdings of precious metals like Gold, Platinum and Palladium or a broad commodity basket. A recent report shows that platinum deficit might reach 135,000 ounces in 2012 and palladium might increase its current deficit from 405,000 ounce to 570,000 ounces.
In terms of stock sectors I recommend consumer staples and healthcare as defensive strategies.