Why 2010 May Be Quite Similar to 2009


If you did well this past year, I guess that’s a good thing!

Friday is my market day and it seems that with the new year some realignment of the big picture is in order. Note of optimism: When you know what’s going on you can properly position yourself to benefit from its leverage. No condition is ever entirely good or entirely bad. So here’s what’s going on…

“Sentiment Oscillation” or “Paradigm Shift”.
That’s the reason for all this mayhem. As general conditions continue to change (as they have since 2007), so will the general mindset. From growing to sustaining. From net profit to net loss. From Investment to saving. From short-term gains to long-term advantage.

Let’s focus solely on economic facts:

The How:

  1. Internationally Governments have already allocated rescue money that will be spent over the next few years
  2. They have also lowered Interest Rates which spurs a higher inflation of credit
  3. When Rates rise savings gains precedence and production falls decreasing the supply of goods and labor
  4. Less supply causes over-demand and higher prices for real goods and commodities
  5. When commodities prices rise, they tend to cut into expenses thus lowering profits
  6. Lower profits and demand for cash decrease momentum of corporate investment and the stock markets decline
  7. Lower Markets lower the sentiment of the consumer and spending decreases
  8. Less sales means less revenue and retail venues under pressure go under causing a Commercial Real Estate bust
  9. With Investing and Equity down and out people turn to Savings and Cash
  10. With Bond markets already pressured by higher Interest Rates and a debt laden currency people begin to turn to Precious Metals and Tangible Goods

Why:

  1. Someone say Bailout? Trillions have been spent and Trillions more will
  2. With the lowest Interest Rates in decades credit is merely being deferred
  3. Businesses decide to save rather than reinvest profits
  4. This one’s tricky but the former ALWAYS leads to latter
  5. Even if businesses raise prices, profits will fall
  6. Bond yields begin to resemble stock dividends only with less apparent risk
  7. Higher stock prices are always met with consumer exuberance
  8. This has already begun but has been prevented by soon ending rescue funds
  9. With higher Interest rates CD’s and Money Market funds begin to make sense again
  10. This is what happened during the 70’s as Real Interest Rates remained negative

Investing Advice: If you are going to “invest”, you must understand that the next 10 years will be similar to the last. Much higher prices for real goods, much lower valuations for equity and paper. This is because we’re doing the same things over (lower rates, more issuance of credit, more debt to pay off). These are times to seek under-valued out-of-favor securities.

Business Advice: If you are going to do business, I believe you will be better off than many people trying to make ends meet on unemployment checks and the reason for that is the ability to be proactive. Your success is what you make of it, and if you’re determination is deep then no recession or even depression could abstain it. Focus on providing customers with durable and consistent value.

Fundraising Advice: If you are in the legions of the eager financiers trying to keep the lights on in your non-profit, raising for a local charity or even seeking capital for your small business, remember that people are always searching for the best place to put their money. Your job is to provide them with the sense of value that its going to the right place for the right reasons.

Have an awesome weekend!

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