I’ve been receiving emails lately from people asking questions like:
“Is the stock market experiencing a true recovery or is this just a bear market rally?”
“Do you think we’ll see a V, W, U or L shaped recovery?”
“Should we expect deflation or inflation?”
“When will my house be worth as much as I paid for it?”
“How should I invest my money? Stocks, bonds, cash, real estate, gold, or foreign currencies?”
“Is the recession really over?”
Some are saying that I’m prescient (have knowledge of events before they take place). As much as I wish this were true, it isn’t, I promise. I got out of real estate and stocks before many others simply because I stopped listening to mainstream and acknowledged the writing that was already plastered on the proverbial wall.
Like many of you, I hear and read convincing forecasts made by a variety of so called experts who support opposing arguments and recommendations. And each time, I try like hell to take a step back and take a gut check. What seems to make the most sense to me? Is there evidence to support it and if so, who or what is the source? What emotion am I feeling and what does this emotion “want” me to think? What is the worst thing that can happen if a particular forecast comes true? How can I reduce the risks associated with various outcomes? And last but not least, what decisions will allow me to sleep well at night?
I’m hesitant to share my recession outcome opinions with others for a few reasons: 1) I don’t want anyone to make decisions based on my guesses, 2) Discussion of possible outcomes often turns to politics — and political discussion tends to get overheated, 3) Some might take perverse joy from pointing to this post in the future, with a wagging finger, telling me how wrong my guesses ended up.
But I’ve decided that I’m as entitled to guesstimate forecasts as anyone else, so here it goes, for nothing more than entertainment value and for exposing my potential bias. Normally I provide hyperlinks to information, statistics and educated opinions that support my writing, but not today. If you want to read the news or hear what the “experts” are saying about this stuff, use Google, turn on the boob tube, crank the radio or grab any newspaper. There is no shortage of opinions thrown about. Please come to your own conclusions.
Here are my gut-check guesstimates on the future of the economy:
I think the stock market will climb a bit more, then retest the March lows. Minus some funky blips, I think we’re in for a long “L” shaped recovery; or really, one that looks more like a long bathtub:
(March ’09) /\_____________/ (several years later)
Note: The bottom of my tub diagram should have an overall slow gradual curve to it plus a few wicked and jagged up-down points but I don’t know how to illustrate this with my keyboard. My bathtub edges should look taller, too. If it wasn’t so close to my bedtime, I’d draw you a picture instead…
I think we’ll continue to experience deflationary pressure. I think the Fed will continue to “stimulate” the economy but will face an upward battle trying to make it stick. If and when deflation is curbed, measures will be needed to tighten the money supply to prevent hyperinflation. I think these measures will be taken. From what I understand, it is easier to curb inflation than it is to stop a deflationary spiral.
I think housing prices have further to fall in most areas. Besides the probability of an overcorrection, Baby Boomers are beginning to hit retirement age and because much of their net worth in real estate and stocks has been wiped out, they will be downsizing en masse. McMansions will languish on the market or they’ll be repurposed into multi-family or extended-family units. Commercial property will be hit with a sledgehammer.
I think I will continue to stash most of my cash because with deflation, cash is king. When I do buy ETFs (only the ones that are experiencing upward momentum), I will keep tight stop losses in place. I will take a look at the currency market (certainly not my area of expertise) to see whether or not it’s a good fit for me. Overall, during this extremely volatile market, my main focus is capital preservation. This keeps me sleeping as snug as a bug in a rug.
In this economy, I think one of the best places to invest is in one’s own skills and education. I think vocational schools will see an increase in enrollment while universities see a marked decrease.
Entrepreneurs most likely to succeed will be the ones who bootstrap, sell low-priced necessity items, entertainment or services and keep overhead extremely low. Most of them will operate from in-home offices.
Because I think prices will continue to fall, I will continue to put off large purchases.
And finally, as painful as the process is likely to be, I think the Great Recession will ultimately be the Great Shake Up our society and planet needs to get on the financially and ecologically sustainable track. (Wow, that’s a mouthful.)
Okay, now it’s your turn. What do YOU see in your magic crystal ball? Please share your opinions and guesstimates in the comments. Have fun and play nice.