Despite the recent stock market recovery, the economy remains in deep trouble. Even President Obama effectively agrees, recently saying in a Bloomberg News interview “It’s going to take a long time” for a full-fledged recovery, as households work off the debt accumulated during the real estate boom. Obama also predicted unemployment would continue to rise, up from its current 25-year high of 9.4% to 10%.
Most economists are in agreement -- this is going to be a tough year for the U.S. and global economies. It's somewhat unusual for economists to agree with each other, so perhaps this time they really are right. (Very few of them predicted the carnage of 2008, so it's possible they could all be wrong again … but I doubt it.)
Seven degrees of uncertainty
This year will be economically tough -- of that there is no doubt. But there is considerable doubt as to …
Allied Irish Banks (NYSE: AIB) and Bank of America (NYSE: BAC) to continue their recoveries, or will big winners of the past 12 months, such as Green Mountain Coffee Roasters (Nasdaq: GMCR) and Shanda Interactive (Nasdaq: SNDA) continue to make hay for shareholders in the year ahead?Whether inflation will take over from deflation as the economy's greatest challenge, and when.What will happen to prices on key commodities and precious metals, such as oil, gas, copper, coal, gold, and silver. So, hypothetically, is it a good time to load up on Chesapeake Energy (NYSE: CHK) in anticipation of rising natural gas prices, or should you consider paring back a stake in Newmont Mining (NYSE: NEM) or Goldcorp (NYSE: GG) because you think the gold price is riding for a fall?Whether President Obama's stimulus package will actually work, or whether it will leave lots of shiny new roads and schools but at the expense of a budget deficit that ultimately forces a massive devaluation of the dollar; much higher taxes for us, our children, and our grandchildren; and a general devaluation of U.S.A., Inc.I could go on. In a word, what we have is uncertainty. If the best economic and academic minds in the country don't know what's ahead, what hope do amateur economists like you and me have of accurately predicting the future?
None, although we probably have just as good a chance of being right as the experts do. These conditions are the worst since the Great Depression, so for many of us, we've never experienced anything like this before.
No shortcuts to wealth
I can't see the economy recovering before 2010 -- at least. House prices are still falling, and I expect them to keep falling throughout 2009. Deutsche Bank AG agrees, recently predicting U.S. home prices may fall another 14% before reaching a bottom.
Many Americans are heavily indebted, and it will take them years, if not decades, to pay down and eventually clear their debts. This time, there are no shortcuts to wealth.
Cause for optimism
The economy is reeling. The stock market has been volatile, yet may now be heading into a largely flat period that could last for quite some time. Yet I'm still optimistic -- because there is still money to be made in the market. Continued... |