Spending Depends on Feeling Secure Financially
Regardless of today's statistics or of what the pundits say, there is a fear today that the stability of jobs, or of retirement income, or of the sufficiency of savings, will not be sufficient for a person's well being in the future. So people are reluctant to increase their spending and to demand more goods and services. Yet, people know what they want, and when the situation appears stable enough, they will make the expenditure. The longer this economic malaise goes on, the greater the pent up demand.
How Does One Become Wealthy?
The advantage of hindsight is a wondrous thing. Almost every one of us can look back to some time in the past and say, "If only I had bought "it" back then." If you had bought "it" back then, the price of the real estate, or stock or goods, would look very cheap in hindsight. Those that have the foresight and wisdom to commit when everyone else is fearful are usually the ones that appear so smart in hindsight. Great fortunes are made by those having the intestinal fortitude to take the plunge when others are running scared.
The trick of course is to know what to buy, and when to buy it. That is why one engages an investment advisor, or invests in a hedge fund when the ones investing your money also have their own money at risk.
What to Expect in the Near Future
There will be a period, perhaps a longer period, when the economy and the stock market, will sputter along and appear to be range bound. If you look at the history of the value of the stock market, or of any investment grade asset, there will be periods when the value shoots up at a fierce pace, and then falls back and periods when prices seem to be up and down within a relatively narrow range. We believe that we are currently range bound,
But a good undervalued stock will rise in a range bound market also, and if you are invested when the next big jump in value occurs, you will look very smart (in hindsight). Make no mistake. History's patterns repeat themselves.
How Downturns Turn Into Prosperity
It is a sad truth that when a severe downturn occurs, the pain to so many is very real. However, like all things, we tend to generalise. Some, who are badly hurt in a downturn, suffer for extended periods and some never recover.
But what really happens is that in the carnage of each downturn, the seeds of the next big deal are sown. Some of the people and companies of this downturn will never recover. But some will recognise the next big wave and jump in that direction. Those people will ride the next big crest and become fabulously wealthy. The world will forget those who were devastated and will recognise the winners and flag bearers of the next big wave.
And until the next downturn, the economic wealth and spending power of those new fabulously rich, will be considered and reported as prosperity.
Economic Cycles Continue
Think back to each previous cycle. Let me mention just a few of them. Did the railroads produce great wealth? Yet who considers railways the big deal today? Did communications (telegraph, then telephone, then cable, then fibres, then satellites and so on) produce great wealth? Yes, each succeeding wave brought new wealth to new people. Did computers produce major wealth creations like IBM? Was Yahoo revolutionary? Did the internet spawn thousands of rich companies before the crash of 2000? Did Google wow us all? Is social networking the big deal? And so on. Cycle after cycle.
Each time, those who waited and jumped on the bandwagon late in the cycle, got hurt as that particular cycle collapsed. And rapidly thereafter, a new big thing caught fire and new wealth was created.
A Double Dip Is NOT TO BE FEARED
Downturns always occur. To be afraid of a double dip will blind you to future prosperity. The next big wave always occurs (except when war or similar catastrophes interfere).
Hedge Funds are in the business of always searching for the next big thing. A good hedge fund manager should help you jump on the next big thing before you can recognise it.
And by the way, the economy has not really recovered yet so there will be no double dip. The economy will struggle and be a little better or a little worse until the next big thing creates a new class of wealthy people.
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