Monday, October 10, 2011

Uncontrolled Musing

When I start thinking about future, my mind exploding without control, particularly current events and state of our economy. There is no definite answer to following questions.

  1. Are we at recession or depression or nothing?
  2. Occupywallstreet will become a revolutionary movement or just like tea party, it will also subside?
  3.  President Obama able to win job bill or it will go under water.
  4.  If we are not in recession, what is the status of this market?
  5. What will happen to 401k, IRA and other investments?
  6.  Are we bear market or bull market or pig?
  7. How many more days (months/years) we need to worry about our job?
  8.  When will my home value improves?

The above all are somehow interrelated, a better economy spurs growth which will eliminate all uncertainty. But no one here able to pin point what went wrong and how to fix it. If we know the answer, we could have somehow fixed this mess already.The issues with unable to fix current state of economy are,

Very complicated: This economy structure is complicated than before. Globalization added more complex. No one can predict what is going on in the economy.
Baby Boomers: There are more social welfare created by baby boomers which strains our economy. Politian can’t touch these because fear of losing vote bank
Weak Banks:  Strong economy needs strong banks but now banks are weaker and to make things worse, European banks holds sovereign bonds, those are vulnerable to default.
Aged population: Developed nations are facing more and more aged population, which creates social burden
Other Reasons: Low consumer confidence, deteriorating housing market, high fuel cost, weakness in emerging market etc

What will happen – A radical perspective
So what will happen next, that’s the question pop up everyone’s mind. But most of us and most of the time deep dive into current events to get confused. But I think answer is very clear than we think. We will be like this for some time, 15-20 years.

Japan Model: We are exactly now at the state of Japan model. Since 1980s Japan economy is in very slow growth but it didn’t become depression because some companies did really well. The same thing happening here also, the stocks like Apple, Amazon are doing great in spite of bad market condition. This trend will continue for near future.
Housing market: Price will recover in some places quicker than others, for example, in Midwest some manufacturing activities could spur growth than Sun Belt southern states.
Stock Market: For next decade or so, we can experience some highs and lows of stock market. Stock market will oscillate between highs and lows very often. The conventional wisdom of “Invest in low to make money in high” may be obsolete. The new wisdom is “invest in right companies and forget it”.
Job Market: Job market is something hangs on in middle because cash rich companies have to hire and others also hire because of baby boomer’s retirement. The part time jobs will become big market.