The tough will become tougher

The crisis we are facing now that is affecting every household is unique in the sense that, it's the first modern world global crisis. In other words, what is transpiring in front of us now is history making. Even for those who are in relatively good shape right now are keeping a nervous eye to all the events that are unfolding in front of them. I am sure that, security is the most demanding but unfortunately, the least available commodity in the world at this moment.


The bubble generated by excessive credit is the culprit of this crisis. The burst of the bubble caused the collapse of the consumer spending and thus dragged the economy into recession. In turn, now it's the deteriorating economic situation that will drag the credit market and financial system into further turmoil. For those who have cash cushion and do not have heavy debt exposure, they will come out of this crisis, potentially as big winners, IF, they can avoid making costly bear market mistakes, and invest wisely when both the economy and the stock market finally reach it's darkest moment. I do not change my view that, that darkest moment is still far away, probably will occur in mid to late 2010. A lot of the market wizards are calling for 4th quarter of 2009 as the turning point, let's hope I am wrong and they are right.


I am still expecting a bear rally from this point on. I initially thought that this rally could last couple of months and could pull the S&P back to 1050 level. Now, I am afraid that, I have to change my estimate and call for this rally to be a short lived and we would be lucky to see 1000 level. Regardless if I am correct in the prediction, it's extremely important to realize that, this could be the last chance for us to preserve whatever we have so that we can be one of those big winners when this is all over.


Obama's plan of expanding US infrastructure could be a medication for the job market, however, it is a poison pill for US dollar in the future. Ironically, before this global crisis is over, US dollar is a relatively safe heaven due to the fact that, US is the country that the public believe will have the least possibility to bankrupt and fail. That also explains why people are scooping up US treasury bonds like there is no other place they can hide their money. Cash is king for now. However, once the recession is over and the economy starts to pick up steam, the true color of the greenback will show and the devaluation of the US dollar will eventually start. It would be foolish to believe that, the US dollar will keep its value after all those new greenbacks are being printed rapidly to bail out this country.


Unless you do not believe the economy will recover, otherwise, it would be foolish to not recognize that, commodity price will eventually steam ahead again in a not very distant future. The current drop in every commodity element is the simple effect of supply and demand. And the balance will turn again unless you believe the world population will simply stop consuming forever.


While it's important to survive this crisis, it's equally important to identify the sectors that will mostly like to come out of this crisis and lead the market. The worst hit sectors are always the first to recover and those are the sectors that you want to get into when the darkest moment arrives.


There is no doubt that, the situation now is very tough, and it will get even tougher before it's all over. For those people who are tough enough to sail through the storm, the experience will make them even tougher as well. For those who have children, this is also a good time to show them how a family should stick together during a tough time. It's at a tough time like this that, love shows it's true magic.


If history is right, this crisis will be eventually over and the world will resume it's growth. And history is always right.