America's Financial Future

Sunny Bal’s first post to JustOneOpinion.com elicited several insightful comments and questions, none better than those from Jon Waalkes. In particular, Jon asked, “I look forward to hearing your personal opinion on the way out of this recession – or is it a depression? Where are the opportunities for the future? What will the social landscape look like in the future? Will the middle class exist for working America?”

Here are Sunny’s responses:

“We are in a Depression, and this period of chaos will lead to new social and economic behaviors that will morph into the next equilibrium. They will look quite different than the ones we have just given up. I do not know how this new model will look like but I do have some thoughts:

“The new model will be global. The distribution of wealth will narrow. Uncontrolled free markets and corporate behavior will be regulated to a greater extent. Geographic boundaries will continue to shrink.

“A host of social norms will develop to counteract the pain of the coming rise in unemployment and the criminal behavior it will spawn.

“Religious extremism will have to give way to the more communal needs of survival in the developed economies.

“The human mind and our DNA for survival will foster the consumption/production equation that Jon is concerned about. Remember the ‘rats in the tub’ story (see inset at end of article). The key issues are when and how.

“I believe that risk management is critical in a period of chaos until the new paradigms emerge. Many of our past behaviors will not work in the emerging situation, and new behaviors will have to be validated by society before they can get traction as a norm.

“Strategies for portfolio management are no different. A broad index is likely to underperform as only a ‘few boats will rise on this tide.’ The needs for validation and constant performance feed-back are critical as conditions change; ‘Buy and Hold’ will not work in many instances. A strong intellectual curiosity and need to validate new trends and behaviors will be a key component to success in this endeavor.

“If you are concerned about where you should invest your money, you will have to think ‘outside the box.’ We live in a dynamic world, none more so than today. Those who wisely invested in cash over the last six months will soon have to reconsider where they want to invest their savings.

“A clear picture will not emerge for sometime. It’s more important to focus on actions to be taken now till the clarity of a new paradigm eventually emerges.”

It is in the DNA of man to survive—even more so in the nature of mankind. The more battle-tried we are, the better our survival instincts and the stronger our confidence in our cumulative ability to succeed. One veteran financial advisor put it this way:

“During World War II, German U-boats operating the Atlantic ran unchallenged, sinking merchant ships and leaving survivors stranded in lifeboats, sometimes for weeks, without rations or water. Inexplicably, the youngest and fittest sailors in those lifeboats were often the ones that didn’t survive. For years this phenomenon remained a mystery, until it was realized that the veteran sailors survived because they had been through earlier crises. The younger, inexperienced sailors perished because they saw themselves as trapped in a hopeless situation, often jumping overboard into the cold North Atlantic.

“In the 1970s, researchers tested the survival theory by immersing mice in a tub of water. They found that the mice would swim for a brief time, then give up and drown. However, if they were “rescued” and taken out of the water before drowning, when they were returned to the tub they would swim for hours. The difference was that they had hope.”

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