At the end of the day, I don't know what the stock market will do this year. I always keep in the back of my mind the expectation that the market is f...
At the end of the day,
I don't know what the stock market will do this year. I always keep in the back of my mind the expectation that the market is forward-looking, albeit in an irrational manner. As odd as it might sound, this year is going to be the year of government policy. It's my view that government policy (not just at home) will have more influence over the equity market going forward than any other factor.
And it isn't just what gets done; it's how it is perceived to be getting done. Virtually everyone but me wants massive new government spending to stimulate the weakening economy. I'm just not sure that borrowing a lot more money to spend on new infrastructure is the answer to our problems. To me, this is only a band-aid solution. To me, there isn't really a policy solution to the economy's problem, even though we're going to get a lot of new policies in the near future.
We need better regulation of Wall Street's financial engineers and we need tax incentives to create a green economy, but it's time for us to get our fiscal house in order. In my mind, one of the big lessons of the subprime mortgage mess is that individuals and institutions have to be reasonable in how they maintain their balance sheets. Government is no different.
But, this view is irrelevant to what's going to happen anyway. I suppose that the outlook for road and bridge construction looks good. This leads me to the biggest risk facing investors and the economy going forward: inflation. I predict that inflation will resurge significantly over the coming years, as governments around the world print loads of new money. If we take this and a resurgence of commodity prices, we'll have the makings of another significant problem in the not-too-distant future. This is why it's so important for all of us to get out financial balance sheets in order.
In my experience analyzing the stock market, I've never seen a central bank act so quickly to appease investors than the current leadership at the Federal Reserve. My fear going forward is that government leaders will employ the same mistakes of creating short-term policies for long-term problems.
It's going to be an interesting year, there's no doubt. The best actions going forward are to watch the markets carefully for select opportunities, pay down debt, and start saving for the future. It's a back-to-basics strategy that I think is appropriate for the next few years.
Profit Confidential
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