This whole credit crisis, it’s very real, a lot more real than the government or the banks want you to believe. As this and many other developed countries shed jobs, consumption will continue its downtrend. Further productivity gains fueled by technological progress will accelerate the job losses. Also, it doesn’t seem as though the giant corporate chiefs have any plans involving pay raises for the average worker. Further, if we don’t fix this health care problem, real wages will continue to get smaller as health costs explode. Verdict, slow to no growth for a number of years.

Savings rates are growing rapidly as people shy away from increasing their debt loads and everyday spending. Mortgage defaults continue which are resulting in lower real estate values which means lower overall wealth for the average consumer. People just don’t have the money to spend.

The sectors that I think are likely to get hurt the most by this inevitable decline in consumption – travel, high-end retail, electronics retailers, computer manufacturers, defense and energy. The sectors that should perform the best – commodities (as the dollar continues to plummet), discount retailers, biotech and software.

But still, even those sectors that I think will do the best should really be framed as “suffering the least.” We are all going to continue to feel the pinch in our wallets, decline in our asset values and rising health costs. What are we to do? Well, selling all your stock now is probably a smart way to hedge your losses. I think that there will be a nice entry point in late ‘09 and after another recession due to the fed being forced to raise rates come next spring.

This is all actually good news for consumers though. As we lose our power to buy, demand for goods is coming down. Just go to your local Best Buy and you’ll see 42″ televisions for 500 bucks. Go to Target and you’ll see 80% off a lot of items. So, just because your 401k or your IRA climbed back 50% or more in the last few months doesn’t mean we’re out of the woods. Be careful, invest wisely, take it easy with the exuberant positivity. It’s still very, very bad out there. Ask Michigan. Ask California. Ask 2 out of 10 people who are functionally unemployed. Not sure if you realize this, but the Great Depression lasted about 4-5 years in America. So we’ve got at least a couple more years to go! Be careful!

P.S. Thanks GOP. You really made the economy awesome. Can we have our money back now?

Related posts:

1. The Republican Party Should Be Called: The Pretend Party
2. Compound Interest Sucks – Unless You’re the Lender, Then it’s Great!
3. How To Rob America, by Hank Paulson
4. CNBC Since Obama – Way More Annoying.

Tags: 401k, AMERICA, asset values, bank, best buy, California, computer manufacturers, consumption, Depression, discount retailers, energy, gop, health costs, Michigan, Money, mortgage, productivity, productivity gains, real estate values, retail electronics, technological progress, travel, Wall Street

This entry was posted on Tuesday, September 8th, 2009 at 6:50 pm and is filed under Money. You can follow any responses to this entry through the RSS 2.0 feed.