Investors have been cheered by Greece's acceptance of yet another austerity plan but this is a typically short-term reaction. Greece is in deep financial trouble and so are a number of other European countries. Austerity may be the only way to sort out its troubles but the process will be painful and take time. In the meantime, recession or sluggish growth at best is the outlook for the whole of Europe. While the US and Asia are showing signs of improvement, the global economy is unlikely to grow sturdily for some time.

The war drums appear to be beating over Iran and there are suggestions an invasion could take place in May or June. The Washington Post has reported that Pentagon chief Leon Panetta believes Israel is likely to attack Iran in two to four months. Obviously, the repercussions of such actions would unsettle investment markets but weapons companies, gold and oil would rise so it is good to have a contingency plan if this eventuates.

Every day seems to bring better news from the US economy, particularly on the employment front. Because the US economy is so dependent on consumer activity, a virtuous cycle often develops where more jobs leads to more consumption which increases economic activity and leads to more jobs. The USA's easy-hire, easy-fire policies for staff seems to lead to a more responsive economy. The recovery is still fragile however and let's hope nothing disturbs it.

Orders for US durable goods rose more than forecast in December, figures just out show. This is the latest in a series of indicators that suggest the US economy is recovering. While it is true that the pace of recovery is among the slowest ever after a recession, it is nice to have some good news and some hope for the future after a fairly ugly year in 2011. Now is a good time to be investing in US stocks, methinks.

Oil prices, and oil company stock prices, are rising as tensions increase between the US and Iran. However, this is a one-off and temporary situation and oil prices won't be sustained at current levels until global growth prospects pick up. Given the length of time it will take for Europe to get its act together, and the probability that Japan's economy is shrinking, means the prospect of a continual firming in oil prices is unlikely. Investors should treat the current political uncertainty as an opportunity for some momentum trading, but be prepared to take profits quickly.

The downgrade in credit ratings of many European nations, while unsettling, should not be a huge surprise. The extent of problems with sovereign and bank debt in some countries is such that default and withdrawal from the European Union is the most likely scenario. No doubt there will be a lot of squawking and flapping before that reality is realised.

I have been updating my financial models today, plugging in updated earnings estimates, prices and anticipated growth rates. There are few outstanding investment opportunities presenting themselves right now and, given we are close to the holidays, the potential for the recent support level in share markets to not to be held and yet more uncertainty in Europe, now is not the time to be throwing a lot of money into equities. Far better to increase your cash and hit the beach with peace of mind.

Gold prices have been sliding in recent days, raising concerns in some quarters that the 11 year-long gold boom is over. However, it is equally likely that we are in a regular dip that may only be temporary. The US$ has strengthened recently as investors move away from Europe and this has reduced the dollar value of gold. However, buying by China is running at record levels and Indian buyers, who have been out of the market for some time, are said to be taking advantage of the current dip to buy. I believe that, as long as central banks continue to print money to try and solve their problems, that gold will go up in value. Look for the dip to bottom out then buy some more.

Given the doom and gloom which still pervades the world's capital markets, it makes a nice change to see Barton Biggs, the former dot.com analyst star turned hedge fund manager, showing some bullishness. “US big-capitalisation, US stocks and Asian stocks are the best houses in a fairly tough, bad neighbourhood," he said this week, as he increased his weightings to shares. Biggs has a pretty good track record and another guru, Warren Buffett, has been buying up large in recent months, so the rest of have to hope they are on the right track.

Germany's increasing dominance of European debt rescue efforts, including proposals to exercise more control of the budgets of other countries, is raising age old fears that the EU was supposed to quash. Past political tensions and wars had much to do with Germany's size and dominance in the region and countries like France and the UK were keen to deal with that after World War II. Since reunification in 1989, however, it has been harder to keep the genie in the bottle and it seems likely that further financial stress in Europe will lead to political tensions with as yet unforeseen consequences.

Ratings agency Standard and Poor's has threatened to downgrade most of the European nations, including powerhouses Germany and France. A little while ago that would have given investors the opportunity to panic and sell down their shares yet again. This time, however, shares have ticked up a bit. Either investors are starting to become to immune to panicking over Europe, realising that its problems are going to take quite some time to resolve, or there is hope that the possible downgrade will persuade the Europeans to sharpen up their act and make some meaningful progress on solving their problems. EIther way, a more measured tone in the markets is good for investors.

News that some major US banks are to be sued by the Massachusetts Attorney General, and possibly those in other states, over dodgy housing foreclosure practices would in a fragile market have been prices plummet. Therefore, I am encouraged that the US market barely moved, even though the prices of these banks and other financial institutions fell. This bad news is being offset by positive signals from other parts of the US economy, which gives me some hope for the near term at least. No doubt there will be other surprises, mostly negative because a lot of issues facing the US, Europe and most of the rest of the western world are still some way off from being resolved.

Sometimes, America's insularity can work in its favour. US residents are famous for their lack of interest in anything that happens outside the country's borders and the media follows suit, with 'international' news, if any, focusing on Americans abroad. A rare positive about this tendency is that American's don't get fearful about what is happening in the rest of the world, unlike most other people. While Europe is in danger of falling apart under the pressure of sovereign debt and banking issues, latest consumer confidence statistics in the US have shown strong growth - the fastest rise in eight years. Since the US economy relies so much on consumers, this offers hope that it will recover and, ironically, this will be a boon to the world economy and limit the damage from Europe.

Investors have reacted badly to Germany's inability to fill a bond issuance programme and Chancellor Merkel's statement that she doesn't support the issuing of an EU-wide bond. This seems like an over reaction since Germany has missed filling a number of bond programmes in recent times - not because investors have any concerns about the country's financial strength but because the interest being offered of a little over 2% just isn't attractive enough. If Merkel doesn't support an EU-wide bond, she presumably has a better plan and this at least should be considered before running for the exits.

A lack of agreement among key players involved in both the European and US debt rescue efforts suggests there is no easy solution to the issues and that hard times cannot be avoided. Germany and France are poles apart on the subject of allowing the European Central Bank to pump money into the financial system by buying sovereign bonds (much as the US Federal Reserve does in America) while Republicans and Democrats have failed to find a way to trim their country's deficit. Unfortunately, those who choose to ignore their financial problems eventually have a solution forced upon them and that appears to be the likely outcome in both cases.

Warren Buffetts’ many billions of dollars of investments in US shares in recent months offers a lesson for us all. If you can find a good company at a reasonable price, then you should actively ignore day to day fluctuations in the markets, economic statistics and kneejerk media headlines. As he said yesterday on his first trip to Japan (where he is likely to invest) he is looking for “businesses that will be around for many, many decades.” Do you have confidence that all the companies in your portfolio meet that criterion?

Legendary US investor Warren Buffett has proven to be a generally smart investor for several decades now, so his enthusiasm for shares in the depressed third quarter this year has to be taken note of. As it happens, statistics out this week from the US show that economy is starting to recover in a number of areas, including consumer spending, business spending and housing. GDP growth is estimated to running at a decent 3% - 4% annual rate in the current quarter. Naturally, an improved economy is good for corporate earnings and share prices, so it appears Buffett is in the money again. Mere mortals like the rest of us could do well to follow suit.

Another dour day on the US market overnight but, despite volatility, the Dow is holding on to its higher levels to which it has risen in recent weeks. As long as it does this, there is hope and I am dripping money into the market. Events in Europe are not good but I am getting a bit battle weary and find it hard to believe that the earnings good quality companies in this part of the world are that vulnerable to what happens on the other side of the world - at least in the short term.

President Obama has spoken out against China's exchange rate, which is pegged to the US$ at what many see is an unreasonably low level. Trying to pressure the Chinese to do anything is a difficult job and Obama may be premature in attempting this. China has committed itself to increasing imports and it is in the interests of its economy to do this, which means it will happen. As a result, it also will be in China's interests to see its currency rise, which will make its imports cheaper - which also means it is an inevitability.

One reason the European Central Bank is reluctant to use its trillions of euros in reserves to help out ailing members is its fear of stimulating inflation. Germany in particular, having experienced hyperinflation in the 1930s, is particularly paranoid about it. However, there has been no sign of widespread inflation in countries where there has been a lot of fiscal stimulus. One exception is food prices, which seem to be escalating. In the UK, latest figures show food and drink prices rising at an annual rate of 5.8% and a forecast of 7.5% has been made for continental Europe. In the US, it has just been calculated that an average family Thanksgiving this year will be 13% higher than in 2010. In India, food prices are up 12.2% over the past year on average. Since the price of food affects everyone, but the poor more so, expect further social unrest if this trend continues.