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The Road ahead for US: Surviving Shocks and Crisis in 2009

January 26, 2009

Article sent to Seeking Alpha on Jan 24th 2009

United States is going through an unprecedented shock, which can be surely realized by the deluge of news [mostly bad] coming from the various news sources and analysts.

Yours truly, have also been guilty of the crime, but there is no denying, that the situation is indeed grim. My last article “2009-What to expect and what not to expect” drew quite a lot of attention towards my opinion that, unemployment levels will surge. Though the present unemployment rates look pretty dismal but both the absolute and the relative numbers are yet to match up with that of early 80’s.New York Times has [with all the good graphics] come forward with two graphs, [Figure 1] recently which pretty much sums up the scenario and the formations

The bad news: It’s gonna go worse.

Continuing in the same vein, barely a month has passed when three banks have already pulled down shutters. NATIONAL BANK OF COMMERCE,IL ; BANK OF CLARK COUNTY,WA and 1st CENTENNIAL BANK,CA has closed down.

But I believe, there are certain developments which Americans should actually rejoice, but unfortunately its importance will be neglected in the present dire situation. What is this, I will discuss shortly, as it has nothing much to do with economics.

I have time and again reiterated on my blog that the best thing Obama can do to the economy is… do nothing. Absolutely nothing. I am a bit of a supporter of leave-it-to-the-markets-to-sort-it-out camp and only this action will ensure that

  • Dollar is kept from weakening on the back of multi-trillion dollar bailout
  • The root cause of a weakening fiscal policy will be addressed

Although Obama, I still believe can only delay the inevitable by handing out bailouts, but he has done surprisingly well in at least one area. This area is what I was talking about previously. This is his quick action on lifting ban on stem cell research.

Why?

The effects will be multi dimensional. For decades, America has single handedly neglected the real engines of growth- science and technology. The era of dot com startups and quantitative finance research has shifted the academic focus from nut and bolt research to the economic aspect of it.

At this point, I think it will be prudent to make a few disclosures: I myself am a financial market speculator and a person with a strong engineering and mathematical background, and hence don’t hold any Luddite grudge against the speculators. 🙂

But there is no denial, that almost martial focus on science and research can only bring back the ‘edge’ to US. By continuously opposing free immigration policies, an effective variable from the equation is taken away.

And Obama certainly has taken the right step. The allowing of stem cell research is a big symbolic step forward, because, hopefully an entire generation will wake up and take to sciences in a bigger way, just as the space decade attracted the young Americans like never before.

Now coming back to the question of surviving this economic crisis, I strongly believe that there can be multiple approaches to this issue. For individuals who can invest across borders, should do it with a strong focus on Far East and Asia.[Case in point: China seems to be in quite a fix, as OECD’s CLI Indicator indicates a recession, reading at 88, similar to Thailand in the depth of Asian Crisis]

And those who wouldn’t like to experiment with newer geographies would do well, with moving to gold.

T-bills are proving to be a darling of masses now, but yields are at multi-year lows, hence effectively squaring up any use. But again, if the rational is pure speculation then speculation is a serious business and hence never be taken without sound knowledge [Caveat Emptor!]

I would be extremely tempted to hold bearish opinions on dollar, yet markets are yet to confirm this view. And hence, it doesn’t hold much water. But I am ‘expecting’ that fundamentals of trillion dollar bailouts will come to bite back the dollar and hence the commodities should show some good amount of rally.

Disclosures: None

Disclaimer: Most of the instruments talked over here are speculative in nature and thus should not be taken without proper knowledge of risks in place.

Related Readings: 2009-What to Expect and what not to expect

First Bank Failures of 2009

The Road ahead for India

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