“At a time when many wealth professionals are staring at their shoes, there is a freight train approaching” – this is the warning of Paul Meader of Collins Stewart at a recent investment briefing in Geneva. And what is that metaphorical freight train? Sovereign debt defaults. “Get used to them.” says Meader, “They’re here to stay.”

The brokerage and wealth management firm believes equities may be cheap but, although interest rates are set to remain low for some time, bonds are expensive. There is also a very real risk of default with rates on Greek debt now at 25 per cent, he said. Governments may insist that it is business as usual and that they are acting to resolve the Greek debt situation but investors clearly do not believe them. And the debt situations in the UK and US are clearly unsustainable, even with radical austerity cuts and reneging on promises to the elderly for medical services and pensions. The demographic time bomb in the west is charged and ready to blow, Meader added.

The options to governments are clear, if they cannot commit to severe austerity measures or break their promises to the elderly in respect of pensions or health care, there has to be default in one form or another, Meader said. While explicit default in the case of countries like Greece is quite likely (Meader notes that Greece has been in default for around half of the years that it has existed since independence in 1832) other countries will probably seek other remedies less harsh than default or restructuring – another name for default .

These remedies include allowing inflation to eat at the purchasing power of the debt (the UK now has negative real interest rates) or allowing the currency to devalue (the US dollar is at a rather low ebb right now). It seems that sovereign debt may indeed be over valued at present, he said.

“We are cyclically encouraged but structurally depressed.” said Meader. While equities should continue to rally the bull market is mature so stock selection becomes more important. Meader added: “The tremors from sovereign credit worries will continue and eventually the tsunami will come. Preserving and growing capital in real terms will be a major challenge over the coming decade.”