In a post from last year, I was sharing with you the scary picture of a recession that did not look like anything close to what we had experience… except the 1929 crisis. (this graph focuses on stock decline and unemployment).
Here we are, one year after and an amazing jump in the stock market since this post and many people, from journalists to pundits, are now hanging to every piece of good news, hoping that this time we’re out of the woods.
Well, to be honest, I’m still not convinced and even if my knowledge of economic theory is limited I’m just trying to look factually at available data:
- Unemployment in the US is still above 10% (above 16% if you count discouraged workers, part-timers than would prefer full time jobs and marginally attached workers), and without the social net Europe possess this means an even more tremendous pressure on people’s savings (if any are left) and standard of living.
- Nearly 25% of the US mortgages are still under water (meaning that homeowners owe more on their mortgage than their house is worth. 10% owe 25% more than they house is worth! Combine this data with the previous, i.e. what if such a person loses their job and need to sell their home, and you have a sure recipe for disaster. Interesting to note though is that most of those underwater mortgages were is specific states (with up to 70% of mortgages underwater in Nevada!)
- There are more and more talks about a commercial property market bubble (though it seems small in the US compared with the one in China)
- The public deficits in most (all?) industrialized countries is staggeringly high
- Home sales are still at a record low and foreclosure very high
- I’m not aware of stock market booms of 50-70% (As we witnessed last year) that were not followed by some kind of dip right after (if not a crash in most cases, significant dips are not uncommon)
- One data point that does point to a more positive outlook
And to put these data points in pictures:
So what to conclude from all this?
Well as far as I’m concerned I draw the following conclusions:
- We’re not out of the woods yet, even if the worse seems to be well behind us. To quote Churchill after the blitzkrieg: “It is not the end, it is not even the beginning of the end but it is, perhaps, the end of the beginning”, and to be fair I’m fairly sure we’re beyond the end of the beginning.
- Uncertainty will abound for quite a while still. Spending, financial risk taking and over confidence are maybe not the best thing to focus on right now.
- But as in all crisis, there will be some pockets of extreme growth and the ones who will find and act on those will succeed far beyond what’s possible in boom time. Historically, many fortunes were made in time like those. The trick is “only” to find those pockets of opportunity.
- In the meantime, as I prefer to miss a potential growth than to stress on potential heavy losses, I’m being super conservative on my investments until later this year at least. I’m also trying to lock-in future costs now as I doubt the rosy hypothesis of a Suze Orman of an average 8% long-term growth of investments make any sense right now.
I’d love to hear your thoughts on this!