According to a Geneva-based estate planning group, the main risk with the current eurozone sovereign debt crisis and the US deficit crisis is that they may both become ‘self-fulfilling prophecies’.  Philippe Szokoloczy Syllaba, founder of My Global Advisor, believes that “the economy may not be doing that badly and businesses, especially at multi-national level, are actually doing fairly well.”

He said that recent, more favorable US data does not point to a severe recession as stock markets seem to indicate. He cited among other indicators, the latest US jobs report which showed that the economy had added more than 100,000 jobs in September, exceeding analyst expectations of 60,000.

The problem, says Szokoloczy, is the constant bombardment in the media of predictions of doom and gloom. “If business hears that the world economy is going to collapse, that banks are in bad shape and a major recession is looming – are they going to hire and make new investments?  Probably not.  They put such decisions on hold to the point that the economy does indeed risk starting to slow down. It can then become a self-fulfilling prophecy.”

The only way to head off the prophecy becoming reality, he believes, is for European politicians to get their act together and reach a consensus for coordinating European action rather than focusing on local election politics.  “Their inability to take action puts off the investment community who see the world as being run by politicians over the past 2-3 years.”  His hope is that eurozone countries will find an acceptable solution as quickly as possible to organize a partial Greek default and avoid a contamination of the European banking system.

Szokoloczy believes the US has managed to limit damage in recent weeks but it needs a more long-term strategy to bring the deficit down to a reasonable level. “The US has no long term plan to reduce its deficit. (Federal Reserve Chairman Ben) Bernanke’s idea has been to pump money into the economy in order to restore growth and wait for the US to be in a better shape… So far it cannot be said that this has worked. It may have helped stock markets temporarily but not the economy, at least not yet. We are really navigating in unchartered territory. It may be even worse to let market forces adjust themselves without intervention.”

So what does he advise the clients of My Global Advisor which specializes in assisting a limited number of high net worth individuals and families focusing on capital preservation and asset appreciation and transfer across generations?  

“We will continue to see high volatility for some time and shocks may be more frequent and more violent than in the past. It is probably wise to reduce exposure, to keep some gold and to pay close attention to actual measures being implemented by authorities.”