An Economic Reset

Ulli Uncategorized Contact

The last couple of days I talked about the long-term impact of last year’s market collapse. The dark side of the burst credit bubble will be with us for a long time and most people have no idea yet how their lives will be changed forever.

Wishful thinking by the Fed and the government that we can continue with a consumer driven economy will be a fallacy. Stimulus packages will not have the desired effect and will do nothing but burden future generations with debt. For the past 30 years, the American consumer has been the proverbial hamster on the wheel stuck in a rush of an ever increasing spending spree.

Those times are over as this busted credit bubble was the final nail in the coffin. No more housing ATM, or overloaded debit cards along with easy access to credit. The impact of the now deceased consumer has had a worldwide impact as the Asian export economies are in a freefall as Mish at Global Trends reported.

Something has to fundamentally change in the way the future economy will function. I am not sure exactly how it will turn out, but I agree with Steve Ballmer, CEO of Microsoft who described the world economy in these terms:

Ballmer said that economic growth in the last 25 years was fueled by innovation, globalization, and debt–and that the current levels of debt were unsustainable. “In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent,” he said. “Last year, private sector debt as a percentage of the GDP: 300 percent, far more leverage.”
…
“In my view, what we now have will be a fundamental economic reset,” he said. “The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.”

While this fundamental reset is something that I have been thinking about for a while, it’ll take some time until the policy makers of this country realize that we will not return to the old “buy now and pay later” system at any time soon.

This maybe a dire view to you, but keep in mind that change also offers great opportunities for the creation of new concepts and companies. Investment wise, you can get a head start by patiently following the trends in the market place and making your decision when upside breakouts occur.

With so much uncertainty upon us, I firmly believe that trend tracking is the only way to keep your head above water and your portfolios safe. If you followed along last year, and avoided the sharp losses that many suffered, then you’re way ahead of the investing public.

There is a good possibility that this volatility will continue and lower lows will be made at sometime. Do your fellow man a favor and pass on the link to my free newsletter and this blog. Millions of people are not familiar with these concepts; you can make a difference, which could save someone’s portfolio from further destruction.

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Comments 6

  2. Uli – your excellent columns largely focus on the equity markets.

    It would be interesting to hear your views on the government and corporate debt markets where substantial opportunities may exist.

    After all, all that dormant low-earning cash is not necessarily optimally disposed in questionable MMFs knee deep in garbage assets dependent on government bailouts.

  5. A Chinese statement on wealth says
    “A family’s wealth will not pass 3
    generations” and this is similar to
    Solar Mortality Theory prediction-
    socio-economic upheaval occurs every 3 solar cycles like a clock. Historically, after every major war, a major depression occurs-
    usually about 1 lifetime apart.
    WW2 did not end with A-bomb it continued in guise of Cold War then Gulf Wars. Next up” GDII,
    a 2nd Great Depression- just as
    The Great War became WWI later on

  6. Hi Ulli,

    Yes as one person has already said that he made his money in the equity markets over the past 20 years. We were experiencing a secular bull market during that period of time(1982-2000)in which it is easy to make money as long as one did not panic at every little correction. Take a look at 100 year chart of the DJIA and you will soon realize that we are in a secular bear market that can last 12-20 years before the next secular bull market starts. So there may be 3-11 more years to go on the next secular bull market begins. I have friends that think they have to keep looking for and buying stocks all the time and really don’t pay much attention to timing based on cycles etc.

    L.G.

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