The Eye of the Storm

As economic indicators deteriorate (such as household income levels)  it becomes clearer that this is the calm before the storm. Yes U.S. debt was downgraded and yes markets are extremely volatile right now; however, we have yet to see unemployment spike or riots break out en masse. These are the very obvious trends of the future. The worst is yet to come.

Politicians think they understand economics, but the truth is any buffoon can run up deficits by making promises they cannot keep. Not many can practice fiscal sanity. Greece is about to blow up and politicians need to take the hint that raising taxes and promoting austerity does not work. This is a simple-minded approach to a complex problem. This is the kind of solution I would have proposed after taking one economics class. Please, let’s think about reforming the monetary system in the EU; sinking more good money after bad is not the answer!

America will follow the path of Greece, except in a slightly different form since we can print our currency. There will be no quick fix to our unemployment problem because it is a structural issue. The public sector need to contract from what I perceive to be a bubble top in government. In addition, our economy is shifting in the same way it did following the Great Depression. In the short run, farmers were out of work and Americans suffered. However, we emerged from the Great Depression as the single greatest economic power in world history. Following this crisis, we will do just fine. Believe me. But the next 5-10 years will be very, very painful.

Although I have the reputation of being very bearish, I am investing aggressively in this environment while the average American is scared out of their mind. I don’t approach investing with fear because I am not doing this blind. Eventually I will be more bullish on America than just about everyone. Right now, my bullishness is being expressed in real estate in distressed markets. But all tangible assets will rise soon. People who can step ahead of this trend will do very well.

The Eye of the Storm is a post from: Expected Returns

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