I have learned quite a few lessons in the last few months following the interesting developments in the global economy. For one, the analysts’ guesses about the future are as good as mine, as yours and as fortune tellers, witch doctors and Nostradamus followers. That does not prevent them from showing up on TV newscasts and business magazines’ front pages, and with straight faces declare the “oil prices are expected to reach $150.00 a barrel by year end” and with the same straight faces state that “oil prices will drop to $40.00 a barrel by Christmas”. No responsibility, no consequence.
Nobody predicted this global crisis, nobody knows when it will end, nobody knows how deep it will go and what the long term consequences will be. Nobody knows the effect on global economy, on the industrialized countries, the post-industrialized countries, the emerging markets. It’s all guesses. And since it is, I can throw in a couple of my own guesses. I’m positive that if you look around, you would find a few “economists” or “analysts” or “financial advisers” who think along similar lines. But I promise you, the reality will be different, and if turns out that I nailed it, do me a favor, do not credit it to my brilliance, my deep financial understanding, or to my Ph.D. in Economics from Princeton (I have no such thing). Credit it to pure coincidence.
- America will re-industrialize. Over the years the US gave up most of its manufacturing power to developing countries around the world. The reason was obvious and simple – price. The results are felt in a devastating way now. Low price occasionally means less control, low quality, and worse, no means of manufacturing at times of need.
- Economies cannot be based solely on consumption.
- Booming economies, particularly in the emerging markets are going to experience a slow growth if not a downturn. I believe it needs a little elaboration. Countries based on manufacturing need consumers to buy their products. When the consumers are tightening up, the effect is felt in the manufacturing countries. These countries MUST use internal consumption to stay afloat. Countries not ready for this massive change will undoubtedly experience a massive slowdown or a recession.
- Booming economies, by the way, buy (or used to buy) outstanding amounts of raw materials. It’s evident already that less aluminum, iron and cement is being purchased. For the countries producing these raw materials this will deal a devastating blow. The possible good outcome – the demise of fossil fuels. About time!
- Stock prices must reconnect with what the companies do, with the products they make, with the value they provide the world.
- The way people invest their money may have to be revised. Buying a stock at 9:00 in the morning, and selling it at 9:15 for a few pennies profit may be
- Instruments of investment such as derivatives, CDOs, CMOs and a multitude of others may either become a thing of the past or much more regulated.
- Double digit growth on a quarterly basis is nice, and may occasionally happen. Expecting it to happen every single quarter may cause some companies to cut corners, to practice business in a less than ethical way.
- People, should consume what they can afford. Consuming today based on money that may or may not come tomorrow is an irresponsible activity.
- My grandmother used to say “save money on sunny days, for the rainy days that may be coming”. Save some money, it’s not shameful. Plus you or your family may need it one day.
- Don’t forget that risk exists. It’s real. Real estate actually can go down, so do incomes, stock markets, even currency.
My own predictions are simple. Consolidation in the financial institutions around the world. Stock markets down globally. Developing countries (but not exclusively) defaulting on their external loans for two main reasons: less export for whatever they are exporting, and devaluation of local currencies which will eventually lead to the inability to pay external debt. Unemployment will go record high globally. Real estate will adjust down globally. Some very familiar names in the consumer goods will simply disappear or consolidate with others. The automobile, pharmaceutical, computing, and consumer goods manufacturing ecosystem will undoubtedly look different a year from today.
Bottom line, the way I see it, the world is about to change. Significantly. When and where the change will conclude? Nobody knows. Certainly not me.
Do I have an advice? Very simple. Try to keep your job. Try to limit your consumption and don’t let anyone convince you that consumption drives the economy. It may be true statistically, but individually, we all know, if you can’t afford what you consume, it will catch up with you. Be conservative in your investments, don’t fall into the double digit quarterly profit scheme. Some people actually made a lot of money from those creative investment instruments, but many lost fortunes. Lastly, don’t get too impressed with people who live in big homes, drive expensive cars, go to fancy restaurants and expensive vacations – they may be mortgaging their future for the present. It’s never a good idea.
And finally – brace yourself. We live at a globally defining moment. Like the Dow Jones Industrial Index, or the NASDAQ, it is about statistics. But we, the people, have a much more individual experience than the stock markets. The Dow and the NASDAQ don’t have families to feed…
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