As the Future Unfolds

It has been a while since I have written an article; I have been reading more than I have been writing: professors are making sure that what we learn in class will help us identify and analyze market information from a Finance and Economics perspective. It would be quite naive to assume that Canadians would not be affected by the global economic slow-down. The United States is one of the world's largest consumer; when credit is not as readily available, demand for luxurious goods and services falls, hence prices will fall -- less consumer spending = declining sales, in a painful, but simplistic nutshell. Furthermore, briefly speaking, any country that trades a lot with the USA is affected in the sense that there are possible exposures to the sub-prime mortgage investments meltdown as the housing bubble burst. In essence, there was little or no cash-flow to any of these investments -- sub-prime mortgage home-owners did not have to pay until a certain year, then they would face escalated mortgage payments. Ironically, simply put, consumers were encouraged to spend more than they can earn; that was where things went out of hand....

Perhaps, this sounds like déjà vu? Indeed, one of my very first blog entries talked about smart spending. While there may be no crystal ball that perfectly predicts the future, take this also into consideration: the things we consume require various resources; not every resource, however, is replenishable. We want it. We want it now. We have the money after all; be it cash, credit card or otherwise. While money do not grow on trees, trees take a whole lot longer time to grow than the time it would take to accumulate your annual salary. If such reckless spending were to continue when times are good again, and if the world is consuming more than the rate of production, the lack of supply will drive prices up to meet demand. (See WWF article)

“Losers live in the past. Winners learn from the past and enjoy working in the present toward the future.”
-Dennis Waitley

“He who controls the present, controls the past. He who controls the past, controls the future." - George Orwell

It's easy to simply blame anyone for the infamous credit crunch, but the market is essentially demand-driven in nature. As consumers, we should be responsible with our personal wealth. Once the money leaves our hands in exchange for our wants and needs, we have no further control on how others use that transferred wealth. Trust, however, is an important basis in the financial markets -- while free-market is important in achieving economic efficiencies, consumers should be protected from fraud/greed; this is where regulations would prevent gains by few in society. Nonetheless, consumers should always be aware of the risks they are taking -- be cynical of investments which promise huge returns in short amounts of time; huge returns require taking huge risks. Similar to dating in a way, do not date huge risks if they do not make you feel comfortable; safety first.

To sum up, to date "Rich", as consumers, we need to watch our weight when it comes to spending, relative to what we earn; unnecessary debt is flab, which will take several years to shed/pay off. Also, we need to be comfortable with ourselves in the sense that we should control our emotions when it comes to investing; a bubble will burst when it gets too big. So what if we missed the band-wagon on real-estate investing? Big deal. There will be other opportunities (or fishes in the sea) -- if you're lucky, value-investing (investing in under-valued assets/companies) might bring wealth. Here's a mighty R-word that attracts "Rich": research.

Nobody said that dating "Rich" is easy; there will be ups and downs. The future is unfolding itself of the turmoil as we speak.


Disclaimer: this article is not intended for any academic purposes; this article reflects the views of the author, based on some fundamental economic principles. Please note that even though central banking has not been included, central banks do play an important role in the economy. Therefore, it is not wise to cite this article for any research purposes. Reader discretion is advised.