SELF DEVELOPMENT BLOG

Economic Forecast 2010 – Get Ready for Financial Success

Posted By admin on October 15, 2009

A well known CEO of one of the biggest software companies in the world once said: “Predictions are a dangerous thing – especially those that pertain to the future.” It is with full consciousness of the treacherous path a forecaster must walk that I will embark upon the dangerous but exciting journey of predicting the economic environment of 2010.

We are coming upon the first year anniversary of the scariest financial meltdown most people alive today have ever seen. Suddenly, in a short period of time, some of the largest and most respected financial institutions in the world were on the brink of collapse, requiring the US government to quickly intervene by injecting liquidity into the financial markets, a move that was quickly followed by other governments around the world.

In the midst of the chaos, one sacrificial lamb was not spared. On Monday, September 15, 2009, Lehman Brothers, a well established Wall-Street investment firm filed for bankruptcy. The unimaginable downfall of one of the titans of Wall Street was a rude awakening for many investors who were not aware of the severity of the situation, and what followed was a state of panic that brought the words “Great Depression” back into day-to-day water-cooler conversations.

In the aftermath, the stock market lost more than half of its value, and even investors with well diversified portfolios invested across many asset classes lost a considerable amount of their hard-saved money. Unless you had all of your money in cash – and mind you, even money markets accounts would haven been endangered if it weren’t for swift action from the Treasury and the Fed – there was no place to hide.

Now, about one year later, the Dow Jones Industrial Average has gained more than 40% since its March lows, and the S&P 500 has achieved about a 50% gain.

The stock market is one the best leading economic indicators. Historically, the market has predicted with remarkable accuracy what is to come in the next 6 to 12 months. And that is the primary reason I am predicting that 2010 will be a year of economic growth that will bring many opportunities to investors, entrepreneurs, large corporations, and employees alike.

But the stock market is not the only positive indictor that is pointing to an economic recovery next year. The housing market, the main culprit of the economic meltdown, is showing signs of stabilization, which is very encouraging. Much of the stimulus money approved by Congress has not yet been fully deployed, so there are more incentives underway which will also help with the recovery.

Many investors have been so scared by this once-in-a-lifetime financial crisis that they have placed a significant portion of their money in cash, despite of the near-zero returns provided by savings and money-market accounts. Soon, this money will have to make its way back to work again, and when it does, a roaring bull market will ensue. If you are skeptical, you may find reassurance in the fact that history in on the side of the bulls. Check out the article Profit from Stocks as the Great Recession Comes to an End for a detailed account of how the markets have performed after the end of the last 10 recessions.

Are there risks? Of course. A terrorist attack or a severe pandemic of the swine flu could play havoc with the economy. An increasing deficit will put pressure on interest rates, and big government spending could result in increased taxes which would put a damp on the recovery. As the economy recovers, eventually inflation will stick its big ugly head out again, and liquidity will have to be removed from the financial markets in order to cool down inflationary pressures.

But assuming we don’t face any major catastrophes, the Fed is able to manage interest rates effectively, and government spending and tax increases don’t get totally out of control, 2010 has a good chance of becoming one of the most opportune years in a long time for your financial success. So what should you do to prepare? While others stay in cash, invest aggressively. While competitors retrench, gain market share. While many give up on their entrepreneurial dreams, start your business venture now.

So there you have it – a bold, dangerous, and unprotected prediction for 2010. Worst case, I can always find console in the fact that optimists live a happier life.

Here is to your financial success in 2010!