Markets on the Mend under a New Reality

What a difference! On Oct 10, at the height of the anxiety, markets looked like they were melting faster than a chocolate under the heat. Anxiety is now being relieved day by day. Good news is that much of the consequences of long standing systemic risk have been played out. Proper risk premiums have been or are being assigned to all real and financial assets. Financial assets boom and financial engineering of 1982-2007 has ended. Imbalances built up over the last two decades have finally begun to unwind. Anxiety, long held by a small minority of long-term thinkers, finally hit the masses. Long sought arrival of Armageddon has finally relieved this small minority of a huge anxiety as well. This same minority is starting to think ahead of the curve now and welcoming a level playing field to enjoy the fair game.

The real show begins now. So far swift and decisive actions by U.S. Government have stopped the complete meltdown of the U.S. and the world markets and immensely helped relieve anxiety of the masses. At the same time, the U.S. and world at large is quite fortunate to see a significant pullback in commodity prices feared by a global slowdown. That takes a tremendous amount of pressure off of an inflation front and brings a huge positive under such calamitous situation. This is calm after the storm. This is the time to pick up the left-over pieces and rebuild stronger than ever. U.S. is at the inflection point where its future market course will be dictated by its fiscal policies. If the policies are enacted to strengthen U.S. competitive position, U.S. will emerge even stronger. If not, U.S. will simply muddle along the path of gradually diminishing power at the world level. Power lies in the hands of our lawmakers and hence our population.

If U.S. embarks on the path of being a creditor nation versus a debtor nation, U.S. will restore its glory. Without that, it is hard to envision U.S. exercising the power it has wielded for the last fifty plus years. Much needed steps are curtailing and abolishing budget deficits, reducing corporate tax rate to increase its competitiveness, tackling Medicare and Social Security challenges head-on, investing in nation’s dilapidated infrastructure, setting and investing in long-term goals and visions instead of myopic actions, setting proper incentives for emerging industries, removing ill-targeted incentives for highly competitive industries, attracting foreign talent as opposed to shutting the doors on them, changing a culture of consumerism, etc. Let us wish ourselves luck. We are going to need a lot of it.