The "New Norm"

As you must know, we are in the midst of the worse recession since the ‘Great Depression’.
If you listen to the government mouthpieces, pundits and financial gurus, we are starting to
see positive signs of recovery. Most of them are saying when we emerge from the recession, we will be entering a ‘new norm’ that none of us have experienced before. What will this new landscape look like?

The first thing we’ll see is more government in your face. Significant regulation, massive
government spending and tax increases will be unchecked. As a direct result of the Treasury bailout, the government has been taking over banks, insurance firms, ‘Government Motors’ and any other industry that wants a cheap handout. Then the government officials want to implement a national healthcare system, energy strategy and education reform. Did one ever see a state or federal government run a program or business efficiently and/or productively?
Since the tax increases will not pay for all these social programs, the Treasury will have to
issue a lot of debt and print a threatening amount of currency, both of which they have been doing for the last nine months. Since inflation is nothing more than a government printing massive amounts of currency chasing too few goods and services, this will directly result in a long tidal wave of inflation coming at us for years.

On the personal side, people will have less income, save more and spend less as a direct result of the above government actions. Credit standards under regulation will increase
keeping marginal people out of the market. Credit card companies have already cut their lines of credit and significantly raised their interest rates. Credit card debt and writeoffs will be a major economic issue for many years. Purchasing power will steadily erode as a result of relentless inflation coming. Also, as a result of rising inflation, interest rates will climb dramatically on mortgages, car loans and credit cards reducing what people can afford. The days of conspicuous consumption, McMansions and house ATMs are history.

Since the consumer traditionally spends about 70% of GDP, the ramifications to business growth will be greatly curtailed. Inventories will be kept to a minimum. Job growth and wages will be kept moderate. Unemployment will stay relatively high and only improve slowly. Without jobs, demand for housing, cars and services will remain low. Lower business revenue
and growth will mean lower tax revenue for all these wonderful government programs.

Translation, the ‘new norm’ of the economic environment will be characterized by higher inflation, high taxes, and more government , lower consumption with higher costs and fewer jobs. Is this a vicious circle? Is this a ‘new norm’ or déjà vu of the 1970s with stagflation? They say history repeats itself.

When President Reagan was elected in 1980, he said government could not fix the problem, it was the problem. He had the Federal Reserve turn off the printing presses and inflation fell
from 19% to 1% over the following 20 years and the economy had the greatest 25 years of growth. If you are over 50, you have been there and seen this act before.

For insight on how to invest for this ‘new norm’, read the following article on strategy and tactics for investing in this environment.

Investment Strategy for the "New Norm"

After reading the above article on the ‘New Norm’ predicted by the experts coming up
on the horizon, you may be wondering what you should do with your investments. If the ‘New
Norm’ is even close, it will be long lasting, erode most of your purchasing power and be very
frustrating. Real returns will be in the single digits, not the weighted average annual returns of 10.2% for the last 100 years. The strategy is very straight forward, based on common sense and capital preservation, while maintaining purchasing power.

One will need to be highly diversified with key tactical investments allocated in line with your risk tolerance and time horizon. These include hard assets to offset inflation, fixed income to smooth volatility and equities to provide growth. Inflation proof assets will include commodities, gold, real estate, energy and inflation adjusted bonds. Fixed income components will be composed of short-term duration, high quality bonds and municipal bonds. Equities must include international large cap firms focused on the PacRim. Domestically, your portfolio should be weighted to small and mid-cap companies with above average growth projections.

Finally, large capital stocks with significant dividend yields will stabilize your portfolio and help
maintain your purchasing power. Most of this investment strategy for the ‘New Norm’ is based on common sense and an understanding of the financial markets. If you would like the guidance of Quest Financial Services, Inc. or know someone who could use our help, call (888) 323-3456 for a complimentary consultation and a detailed review. It could take you many years to recover what you have lost in the last 9 months and then find that the value of your investments will have lost a significant amount of its purchasing power. Remember, procrastination is your biggest enemy. The government will not take care of your lifestyle in retirement. You must take responsibility for your own retirement. Call us today. We look forward to meeting with you in the near future.

(c) Quest Financial Services

www.questfsi.com