"I think you are on the money as far as Japan is concerned. However, the macro issue of sovereign default risk will remain a massive headwind for markets. Western governments and societies cannot afford what people feel entitled to. It does not make me feel secure in any asset class at the moment (aside from gold and pms)."

Eoin Treacy's view Thank you for this interesting email. As you rightly point out most Western governments cannot afford the pension and healthcare entitlements voters have committed them to over the last few decades. It is important to be aware of the issues, but as investors we need to be solution rather than problem focused. If something is impossible, then by definition it cannot happen. Part of solution is likely to include significantly older retirement ages, the disappearance of early retirement and major reform of the healthcare industry.

A major sovereign default is a possibility in the next few years but I suspect not a probability. Emerging markets generally have much healthier balance sheets than the OECD. The details of the Eurozone's Greek support package are increasingly being ironed out. The USA has the reserve currency and the economy is returning to growth. Dubai was bailed out by Abu Dhabi. The value of UK Gilts remains questionable as long as we remain ignorant how fiscal tightening will proceed after the election but a default remains unlikely. In summary, I view the risk of a major sovereign default as relatively low over the medium term.