whateverworks

My Long Term View

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Looking at the charts showing additional sub-prime and less-than stellar loans still to come due, I don't see a real turnaround in the economy for at least another year or so. Most people who need to move sell and buy homes over the summer while the weather is nice and the kids are out of school. I believe home sales over this summer will be dismal and by fall foreclosures will be even more prevalent. So much of our economy is dependent on construction, real estate and financial institutions that I just can't see a real turnaround yet.

On an encouraging note, the prolonged bear rally in stocks has inspired businesses to hang in there. The government has stepped up to start badly needed reforms in financial regulations. This has mitigated the situation and given us time to adjust to tougher circumstances. Therefore I don't anticipate a full-fledged depression.

With any luck by the summer of 2009 we will be in position for a decent home buying season and before the end of 2009 will have started to pull out of recession.

However I don't foresee another big, expanding economy and a huge, long bull market for quite a while. Our banking/credit system has a long way to go before it is really healthy again. Plus, I am guessing inflation will continue to be a problem. Most importantly, the US is no longer the controlling top dog in the world. Having just started to read Fareed Zakharia's "The Post United States World", I am looking forward to his ideas on how the US can participate and prosper in a more equal global economy. Naturally this will require adjustments.

If this recession and bear market have a silver lining, it is that it has caused us to more quickly come to grips with our changing world. Of course for several years job-seekers have been aware that more and more positions are being outsourced. Stock traders have become increasingly aware of interesting foreign companies they want to invest in. I had thought that 2007 was the year that ALL members of the active investing community had shifted to the view that we are now operating in a new, challenging, truly global economy. But from the impressions that Jamie Duglosh wrote about after he came back from the Money Show, it looks like some still believe in easy money from the US markets.

In any case, IMHO 2008 is the year that the rest of the US becomes aware of the challenges (and opportunities) involved in globalization.