Recent market commotion reflects concern many
have had about the state of the US and global economy for some time.
One thing Washington officials agree on is that the debt situation is
an issue, yet clear action to solve the problem has eluded them.
The borrowing cycle cannot continue without increasing fundamental
weakness in the economy.
However, for some investors this
turmoil spells opportunity.
As the saying goes: “A bend in
the road is not the end of the road…unless you fail to make the turn.”
Bears believe that the economy
may indeed be in a worse mess one or five years from now.
I agree with those concerned about the economy.
Perhaps we recover, perhaps we have a meltdown.
A prudent question is to ask what the nature of that meltdown may be
and a prudent action is to plan for all scenarios.
The aggressive increases in new money, spending and borrowing could
lead to higher inflation which could
drive virtually everything up in price (even the Dow).
This type of crisis includes increased unemployment and sluggish
business growth, combined with much higher prices for food and other
staples. This could lead to
increased crime and even less ability for municipalities to keep basic
infrastructure intact.
The Bureau of Labor Statistics tells us
that $100 of buying power from 2009 is equivalent to $105.21 today.
Joe Public may beg to differ.
In 2009 the average price of a gallon of milk was $2.979; today it is
$3.503. In April of 2009 Joe
could buy 238 postage stamps for his $100, today he gets 11 less stamps for
the same $100. In this period a
gallon of gasoline went from $2.031 to $3.743.
It is likely that Joe’s retirement plan and home is worth the same or
less than a few years ago and unlikely he has gotten a significant raise.
In some cases Joe could be laid off or have seen a massive drop in
his home value.
Many are feeling the pinch of a weak economy:
jobs still scarce for many and business is struggling in many areas.
Unemployment remains very high –the numbers show the number of people
actually receiving unemployment benefits – they do not typically reflect the
large number of people who have given up and stopped searching for a job and
do not reflect the large number of new government jobs.
These government jobs cost
taxpayers significantly, do not add to overall national productivity and
in many cases represent a contribution to the burdens on business brought by
larger government. If Joe is
lucky enough to have a job but is a doctor, laborer, financial professional
or business owner he has likely seen an increase in regulations and a
decrease in his ability to do his job.
What is the bright side?
By understanding the issues we can plan for various economic and market
conditions. By understanding
where opportunity lies we counter the fear and paralysis that has kept so
many on the sidelines and over-allocated to cash.
(As Winston Churchill said,
“When you are going through hell, keep going.”)
The good news also is
that there are many
hard working, adaptable and able people.
Numerous people harmed by the financial turmoil of the last few years
have emerged stronger, with new
careers, new innovations and new knowledge.
Great businesses can exist in any environment.
During the great depression some great innovations, companies and
fortunes were built.
Now
more than ever it is time to invest
in companies with sound management and ownership structure.
There is amazing opportunity globally in emerging markets that are
growing regardless of what else is happening in the world.
There is also opportunity in areas that have been hit hard and now
show value. Wise investors
thrive when they can find value and value can be easier to find in times of
turmoil, correction or uncertainty.
Great managers thrive in the face of challenge and adversity, it is
in markets such as this that solid management and planning shines.
Our world is changing rapidly and, like all times of great change,
there will be remarkable fortunes made and lost – there will be those who
are harmed and those who come out ahead.
By employing a strategy that
seeks out value, prudence and focus on quality management, hopefully you
will be in the latter category no matter what the future has in store.
