After a 20-year consumption binge, an unrealistic dependency on asset appreciation in home and stock prices and what Oaktree's Howard Marks terms "a willingness" to take on risk at all levels of our economy, the future is one of higher savings and a lower standard of living, one of reduced expectations and, in all likelihood, substandard investment returns.
It is not the end of the world, but it is a different world.
"The two most powerful warriors are patience and time."The heavy economic and policy lifting lies ahead. The "great unwind" of debt and the toxic holes in the capital of our financial intermediaries, coupled with a "cooked" U.S. consumer whose leverage was at an all- time high going into the downturn and whose net worths have been devastated by lower home and stock prices, pose as powerful headwinds and suggest that there is no quick fix. As investors, we are now on heightened alert as we no longer should consider what might go right with our investments, in our asset classes and/or with the companies in which we research/invest. Our first task, now and for the rest of the year, is to consider what might go wrong. At any moment, a reasonably strong rally could develop. Indeed, the downbeat tone of this very column could be reason enough to be more optimistic and to conclude that negativity has been materially discounted in share prices. My hope and the hope for the markets remain centered around the new administration's announcement of a comprehensive and coherent approach to cleaning up our banks' toxic assets, arresting foreclosures and successfully unclogging the transmission of credit. I suspect that the deliveries of such proposals are close at hand and, depending on their scope and acceptance, may represent a positive for the oversold stock market.
-- Leo Tolstoy
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