I have highlighted about the unique of the "Financial System Cycle" in my earlier subject, it is started with economy grow, higher GDP and most economy data showing improvement & growing sign. At that moment, the overall market sentiment is bullish, people are getting easier life with low unemployment rate, wages increase, everyone is willing to spend and being so optimistic about the economy. This subsequently supporting and extending the economy grow period, for ex: Demand is created during economy grow, things are getting more & more expensive when the supply is less than demand, this apply to the stock market as well, stock price increase align with organizations grow.
This is the early stage of the cycle that creates the negative side effects at the other end - "the Economy Bubble", such as high commodities like crude oil, rubber, palm oil - Commodities Bubble, properties price flying - Property Bubble, finance interest increase - Credit Bubble. These are some of the bubbles that lead the inflation higher and "Eroded" the "Paper - Money" value at the same time. In the other way, it generates the illusion to people who think they are as rich as they owned the money they have at that moment. The truth fact is their paper value is eroded by the inflation silently without making known.
That means that we have to work harder and smarter to compete and tackle the problems like inflation. However, when things are getting tougher and people are feeling less optimistic and confidence about the economy, they tend to slow down the spending and increase the savings. Remember this may be just one of the tiny factor leads to the "Bubble burst"!
Refer to the past records in the history, there are many proven huge economy crisis happening, some of the famous and recent crisises are year 1987, year 1997 Asian Crisis, year 2001 IT crisis, year 2008 United States Sub prime Mortgage crisis. All the bad news just kept flowing out to the market during economy crisis or "Depression". For instance the global stock market crash after peak in early 2008, GDP came down, unemployment rate increase, many companies close down etc... This again shows the "Danger" is just around the corner whenever things are almost perfect! Just be more alert and cautious with the wonderful data in the future!
Anyhow, whatever happened is happened, and I strongly believe that "Everything happens for a reason". The latest data shows the number of millionaires and the total of the wealth (especially in Asian) are much more higher compare to the data shown in the end of 2007, pre 2008 bubble burst! So, it is up to you whether you see it as a crisis or an opportunity! The richer get much richer in every economy crisis! I do not mean that this is 100% the possible, but at least you will have the higher possibility to get benefited if you "Choose to see the Bright side".
Let's move forward to analyse what will happen after the crisis and the possible problems are going to happen in the coming future. First of all, we have to admit that thanks to the global economy stimulus packages to pulling us out from the pool! The hard work pays and getting fruitful results which I believe everyone is feeling it now. It has been 15 months after the bottom of the crisis, all the economy data is improving significantly and we are out from recession - The "Recession" is declared after GDP data is in the negative region for the 2 quarters continuously.
Nevertheless, the economy is showing some clouds again since the beginning of May 2010 when some of the economy data shown is not as ideal as most economist predicted. One of the poor data is unemployment rate in United States and European countries still do not showing signs of good improvement yet. The unemployment rate is still hanging around 9.7% stubbornly. The other weak signal is commodities prices are reverting down again while China is trying to control the overheated economy condition. While most of the data are still showing positive grow by comparing year-to-year basis, some have actually started showing negative grow if comparing month-to-month basis.
Overall, the current economy condition is definitely in a good recovery path. It is just the matter of how smooth the journey is? Can it be sustainable? How solid and how fast is the recovery? Is the stimulus package works and will it leads to overheating and other side effects behind the scene? Below are some of the points that I feel we should cautiously monitor the progress and react accordingly, it is always better to keep the "Awareness" high enough to avoid unnecessary troubles ahead.
High Unemployment Rate:
The unemployment rate in Unites States and European Unions is staying at the high side (~9.7%) stubbornly, it is expected to remains high and coming down gently over the next few months towards 2011, to align with economy recovery path.
Assets/Properties Prices Decreasing:
Assets like properties price in United States and European Unions still do not showing much improvement, the housing price in some cities still dropping. this may indirectly impact consumer spending sentiment.
China Economy Overheated:
Assets like properties prices in Asian countries (Excluding Japan) are showing "Bubble" sign, the housing price has been increased substantially and breaking records high. This may caused by the "Hot money" over speculates side effects! China is trying to overcome and slowing down the properties prices recently. Some analyst predicted the "Asset Bubble" is going to burst in year 2012!
Weak Consumer Spending Sentiment:
Consumer spending sentiment in United States and European Unions are decreasing since June 2010, data shows most consumers prefer to "Save more" even though the fact is most of them are earning more at the moment. This may bring the question of "Is the economy growth can be sustainable without stimulus package"? Looks like there is very high possibility the consumers have to bear the "higher responsibility" and "more importance role" to grow the economy now and in the future. Thus, the consumers need to have to "courageous" and willing/must spend more! In the other way, the command is "do not save"!
High Liability/Debt:
After several huge stimulus package supporting and expanding the economy growth, most of the governments are in over "Highly Debt" now. Such as Japan, United States, European unions like Portugal, Italy, Greek, Spain, which also called (PIGS). The governments have no choice other than cutting down the Debt to avoid being "Bankrupt". In order to funding to stimulate the economy, most countries have issued Bonds with paying higher interest rates. Now, the problem is some of them are actually tight up with "Short term bond", and subsequently going to be due in near period starting this year end towards year 2012. I personally do not feel comfortable and doubt all the highly debt countries can escape from this "Overly debt crisis"! It may burst in year 2012!
The Key messages to everyone:
The message I would like to share with everyone is after taken all the considerations above, we have to be very cautious & sensitive with the economy data announced. Nevertheless, we are no doubt in the right recovery journey, with a little noises & interferences appear to distor the path, which I would comments it is very common as life is just like riding a "Roller Coaster". The point is if we have reach the half of the recovery, meaning that there is another half to reach the "Peak"! Base on the calculation, I presume it may happen between July 2011 - July 2012! When it happen, it will be easily few times more serious than the year 2008 crisis, that is the reason I call it "The Greatest Depression Beyond 2008 Financial Crisis"!
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