It seems that every news medium I turn to for information on the economy and the financial system is discussing whether we have returned to "normal," and/or whether we are at the precipice of defining a "new normal."
With the Financial Crisis officially one-year behind us, what can be expected for the Global Economy?
Regulation
• Expect more government regulation in the financial sector.
• Will some of the Federal Reserves regulatory duties be shifted to other/new agencies?
Taxes
• The top Federal Tax rate is near the lowest in history. Politics aside, funding bailouts, healthcare, and war costs money. Expect taxes to increase.
• Many states (perhaps none more than California) are experiencing fiscal crises of their own. It remains to be seen how these states will generate the revenue they need to remain solvent.
Rates of Return
• Tried taking out a CD or depositing cash into a money market lately? With interests at rock bottom, banks are certainly encouraging investment elsewhere.
• The “stock market”(S&P 500) has generated a huge bounceback so far this year. How much of it is in reaction to last falls severe contraction (only 8 of the S&P’s 500 companies showed a positive return on stock prices in 2008)?
The US Dollar
• The fluctuation in value of the US dollar has continued to influence the value of stocks that are priced in dollars. Watch for dollar valuation to continue to fluctuate
Unemployment
• Generally a lagging indicator, unemployment still looms large for the global economy. Companies are posting profits in spite of a smaller workforce, or because of added efficiencies? Time will tell.
With 2009 largely a “recovery year” for the market, I think that 2010 will go a long way to defining normalcy going forward. These and other considerations will remain important going forward.
