Harbinger to Global Slowdown or Crisis

The recent episodes of stock markets melting down and the story SG losses in the derivatives market is just a small taste of what I think is going to be a slowdown or crisis that will blow the entire world.

The US sub-prime loans had been on the horizon since early 2007 and it has now shown its teeth twice, first during June-July 2007 and now January 2008. It seems that cycle of boom-bust had shortened to half-yearly episodes.

With current increasing prices in everything from fuel, food to other commodities, a slowdown might not be necessary bad thing, considering that it will help moderate the prices down to acceptable levels. The idea of a economic slowdown may not appeal to many, but in my mind, a slowdown can actually help bring more sanity to the incredible prices of property, stocks and other asset-inflating bubbles. Although, it has not reached the levels of tulip-mania, I feel the euphoria of the past couple of years has really brought a level of over-valuation on everything.

Comparatively, a full blown crisis will not be a welcome event of course. I have been reading that people think that Asia will not be affected significantly as we now have more rising consumption of India and China. But I beg to differ. The global economic machinery cogwheels are all interlinked. Any part that is being damaged will definitely impact on others. The domino effect cannot be discounted. The only problem is that such economic meltdown can just occur in a flash, a disruptive event that can just pop out of nowhere. Globalization has made us all highly depedent on each other.

Furthermore, the US has a lame duck president at least until November 2008. With the Iraq quagmire unsettled, the incoming president could either be an elderly gentlemen, a woman or a African-American, which the US has not have had before. How can this affect his/her effectiveness, no-one can be sure, but definitely sweeping world events can be overwhelming and determine whether his/her legacy can endure for generations to judge.

So, where does it leave Average Joe in this uncertain times? Well, just be prepared I guess... and adopt some prudent measures like keeping enough cash, limit investments to dividend yielding instruments, and avoiding large purchases at least for the time being.