I am new here but like what I see in both the blogs and forums. I don't know if it is appropriate to repost things that were posted on another message board. If I am out of line, maybe someone will tell me.
For the past year or so, most of my forum comments have been posted as TwoHoot at the Investor Village Oil and Energy message board. This and other comments can be found at
http://www.investorvillage.com/smbd.asp?v=1&category=A&dValue=&rValue=&nmValue=&pmValue=&nhValue=&NewCount=&pt=m&mb=14535&SearchFor=&Subject=&DatePostedMin=&DatePostedMax=&RecommendedBy=&AuthoredBy=&MinRecs=&FilterType=Things have changed enough in the investment world to render many of my investing guidelines obsolete. Maybe I am wrong about that and this time isn't different at all. Here are a few of the things that have changed in the past three years that make me think my decades of investment experience is mostly useless in the current environment:
1) Consumer Spending is unlikely to return to previous levels for many years, if ever. Consumer spending is 70% of our economy.
2) The residential and commercial mortgage markets have been effectively nationalized. It will be difficult to obtain any kind of credit without government blessing henceforth since any loan will have to compete with government guarantees (ie - be riskless).
Also, keeping bad loans on the books (whether at the bank, FED or under the shelter of GSE's) ties up money that could be used to make new loans. Credit will be tight until losses are recognized and put in the past.
3) The nature of labor unions has changed with the advent of the SEIU's tactic of representing both labor and management as a political lobby dedicated to increased government spending in specific areas. It is likely that "stimulus" programs will be "targeted" rather than for the general benefit of the overall economy.
Other things that characterize the "New Normal" include the stupendous increase in deficit spending by government at all levels, declining tax revenues at all levels, and high unemployment. Those things have been talked to death so no further mention seems necessary.
I think these trends characterize the "New Normal" and there is little chance of returning to the "Old Normal" anytime soon. If (big if) so, then we need to develop new approaches to investing that take them into account.
The key to investing in the "New Normal" is to estimate when government spending will exceed the government's capacity to tax, borrow and create new money. This should show up first at the city, county and state level. We will know when their checks won't cash and no larger government entity comes to their rescue that the "New Normal" is a disaster.
Cordially,
TwoHoot
