My situation

I’m retired, heavily invested in both domestic and foreign securities and get my income from good commercial real-estate. I’m wondering if I should stay or get out of that schizophrenic market…

First, let’s talk briefly about Confluence

The Confluence

meeting of two or more things: a meeting or joining of two or more things, or the place where two or more things meet or join

Our economy and markets are currently at a critical confluence. Unlike previous crisis, several huge factors are simultaneously at play:

-         Real estate price collapse (began in the USA, starting to develop in the UK, etc.)

-         Financial liquidity crisis (started domestically, but spreading fast into the rest of the world) and relatively low interest rates leaving central banks limited options

-         Skyrocketing commodities and food prices

-         Widespread globalization with a level-playing field that will drag income down in the so-called “developed countries”

What in my view could happen in the next six month? (to December 31)

NEGATIVE

-         Real estate will remain “constipated,” that is, prices not falling fast enough to spur enough activity in the sector

-         More “skeletons” to be discovered in financial institutions’ closets; in addition, the lack for lending activity will constrain revenue

-         Hopefully high prices of oil and other commodities will stabilize (I don’t think they’ll decrease) as demand is lower through economic slowdown

-         Competition from BRIC will keep on intensifying, not just in the manufacturing sector, but also in the service and other “white collar” sectors.

-         Stock market will continue to go down

POSITIVE

-         New president will have to place priority on the economy; how this will be done is a big question mark

-         Serious research on alternative energy may begin

What in my view could happen in the next three year? (to e.o. 2011)

NEGATIVE

-         Significantly less disposable income

-         Natural resources will remain in high demand

POSITIVE

-         Real estate prices will hit bottom

-         Financial institutions will be back to health; the USA will need to balance its budget (out of Iraq – Assumes Obama is elected)

-         Research on alternative energies will start producing results

-         Stock market at par with Jan 1, 2008 level

 
CONCLUSION

In view of the above – which is not pretty – I should liquidate all my equities ASAP and sit pretty while this nightmare scenario is playing out. In a couple of years, when the real estate market hits bottom, I should be able to pick up a few good bargain!