There is a very real fear that this will remain a lingering sentiment; as they say, a crystal vase once broken can be fixed, but the cracks will always remain. This might be a lost generation of investors now that are so wary of stock declines that they won’t see the next big rally when it does come around (and it will at some time). It is a crippling fear of failure that has gripped the mind of this generation and you can blame a recessionary period coupled with high inflation or you can blame the mindset. Maybe you can pin the blame for this on both, but why even play a blame game?

Of course, two market corrections in the span of a period of 10 years means that conversation is now no longer about which stock is the one to go with and which one should be dumped like a hot potato. Almost all of them are being dumped with a vengeance and now talk is more about curtailing risk, saving cash and picking bonds over the raw charisma of stocks. Pulling cash out of the markets has been a stock in trade since the beginning of 2009, when markets first started to show signs of wobbly knees. That early weakness and the early flight of capital was the beginning of a free fall in which retail investors went scurrying for cover. Mutual funds, for long the poster boy of the stock market, has seen dollars flowing in and out of totaling up to almost a quarter of a trillion dollars since the beginning of 2008.

A quarter of a trillion; think about it.

Conservatism has well and truly set in and you can’t blame the average investor for being jumpy in the light of one of the worst downturns in the history of the stock market. Everyone wants to protect their savings and nest eggs, but it might be only years and not decades before investors return. All it needs is for something positive to happen and the masses will return. It’s almost as if you’re at the slot machine with your quarters waiting for someone to win big and those flashing lights and winning signs will get everyone to dunk their quarters into the machine. Everyone wants to win; the problem is everyone’s too afraid of losing right now.

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At least for now.

These zombies are not the kind you’ve grown to love (or loathe) in the movies though. The ones spawned by Hollywood moguls are more intent on carnage and just being dangerous in their own lumbering way. Conversely, economic zombies are the kind that are more passive and almost pass under the radar, but the damage that they do cause is in terms of tying up capital. This was best witnessed in Japan in the early ‘90s and the parallels to present-day America cannot be ignored. The real estate market went belly up over in the Land of the Rising Sun, and this led to deflation and a concurrent drop in the standard of living. But wait, there’s more! Hand in hand with these zombie consumers were zombie banks that drifted mindlessly (!!!) along without paying attention to their losses. And so as time dragged on and the losses mounted, these zombie banks ate a large chunk of capital out of the Japanese economy.

That’s just as bad as zombies that eat brains, maybe even worse.

The White House has probably already taken cognizance of the issue and has kept a close check on the banking institutions of America, closing down those that are insolvent at a steady pace while pumping funds into some at the height of the crisis. But while the government can get tough on banks, what about homeowners? If a homeowner default on a payment or is barely staying afloat in a sea of mortgage, what can be done about them? And did Capitol Hill even see this problem coming up, if at all? With an economy now riddled with debt-laden consumers wary to buy, it makes it so much harder to right the situation and the problem is a lot of these consumers will default on their debt. Progress is slow and tedious, and it’s almost a case of one step forward and two steps back.

Washington has, to their credit, tried to breathe life into an almost moribund cause by pushing mortgage rates down and offering subsidies but the real estate situation is le enfant terrible of the American economy and its crying out for more attention and loving care no matter how much it gets. Some say the situation is so precarious as to be the precursor to a double-dip. About 8 millions home have been foreclosed since the recession set in, and that leaves some erstwhile homeowners with cash to spend, but a credit history that has been shot to pieces. These people aren’t spending much money any time soon, and not the way they might have normally, if at all. And so these consumers are stuck in a limbo where their financial situation is alright but they do have some woes of them.

And what of the remaining homeowners that struggle to make their payments each month? Many fumble along in arrears, not in debt and not really solvent. Approximately 13 million homes are owned by those that are paying more money than their home is actually worth, and no one is getting the fact that there are losses being had. Washington’s initiatives have helped modify things, but it hasn’t affected the principal payment owed and so these houses too will be lost, eventually. And so we have the zombies, who are neither heroes nor zeroes. They don’t spend as much as they might have previously, but they’re wealthier than the median and they’re not spending their remaining wealth, they’re saving it.

That’s all very fantastic until you realize there are hardly any spenders and tons of savers. That means less of a climate for businesses to thrive and grow in and consequently reduced hiring. And so the plot thickens and the reel life plot becomes very real with no interval or end in sight. Someone needs to turn on the lights and show these zombies the light, but no one knows who or when that will happen.

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This is shown in the way stock value has dipped lower than might have been anticipated by doyens of the industry. The Dow Jones has tumbled 144 points (a loss of 1.4% across the board), and the S&P 500 slid by 19 points, still a loss of 1.7% on previous day’s trading. Nasdaq too wasn’t much different, taking a beating of 37 points, again a mystifying 1.7% lower than the previous day’s close.

It seemed as if stocks were recovering after two straight days of posting gains and this came on the back of solid earnings projected by such retail titans as Wal-Mart and Target. But even as the rally went on, traders held firmly on to their coattails and caution given lingering doubts about a double dip recession, and the only thing that sounds nice is the name given to this phenomenon. At the very least, traders are expecting the road back to be slow and so are holding on to their money as tightly as they possibly can.

All the weekly unemployed numbers and poor manufacturing figures only served to fan the flames of this overriding pessimism and it seems as if it will be some time yet before investors manage to put their money where their mouth is. Recent reports indicate that manufacturing in key regions such as Philadelphia are down to a 13 month low, and many onlookers are taking this as a sign that the worst of the recession is yet not behind us, leading to a double dip recession as experts are calling it. It is the same for HP that, despite beating their previous years sales and earning figures, still managed to lose worth during trading hours and after-hours.

Europe and Britain have felt the ripple of this with European stocks and the FTSE 100 slipping up by 1.7%, while the DAX in Germany and the CAC 40 too nipped lower by 1.8 and 2% respectively. Surprisingly Asia was immune to this as the Nikkei and the Shaghai Composite rose as did the Hang Seng in Hong Kong. Market breadth might be negative in the western world, but not all hope is lost as Asia has shown. In time, confidence and stock valuation should rebound.

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Travis Berge, Fed scholar and professor at University of California, used data from Leading Economic index produced by the Conference Board, and prepared a paper that predicts another recession for the US in next couple of years.

Most economists and researchers, by looking at the report, agree on the point that chances of another recession are rising, and if the administration neglects these indicators, impending economic downturn is inevitable.

These researchers tried three experiments, making use of leading indicators like index components and other elements, mentioned in the data. However, this test didn’t include bullish current indicator. The spread of Treasury bond interest rate and fed fund rate is quite steep, which is a strong indicator of economic expansion. They believe the Fed has interest rate near-zero, which inversely makes the steep yield curve an unavoidable conclusion.

Based on this steep curve, it becomes easy to say a recession would arrive any time in next two years. However, many believe two years is very long time to predict any thing concrete like a recession, and major steps taken today would actually work towards improving the economic condition.

However, the Federal Reserve is still unclear about how they would respond to weakening economic indicators. It seems like the only option they are left with is inducing central bank to buy more assets to keep deflation under control.

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The same group of economists testified at the Senate Budget Committee. They say the economic growth in 2011 would be gloomy, and the annual GDP would range anywhere between 3% and 4%.

Most economists believe it’s a very slow economic recovery. ‘It’s probably one of the slowest recoveries we have had since World War II’ said Simon Johnson, lecturer at Technology’s Sloan School of Management.

However, Joel Naroff, founder and president of Naroff Economic Advisors, is not very sure about the mediocre growth. He believes, if Washington doesn’t act quickly and fail to make major changes in monetary policy and fiscal policy, the economic growth would be lower than 2.5%.

Most believe Congress needs to take immediate steps to maintain decent growth statistics. The government especially needs to reshape the tax system.

The fear that Congress wouldn’t take any decisions pertaining to extending Bush-era tax system until elections in November can infuse instability in the economy. Tim Geithner, Treasury Secretary, said on Tuesday that not many people are expecting any actions from Congress for tackling economic instability until elections.

In the past few months, sluggish tax policy was one of the main reasons why consumer confidence fell in the country. Besides, uncertainty in other policies like Wall Street and Health Care reform also plays a parting the falling consumer confidence level. However, tax policy is one of the main ingredients.

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1. Economists expected rise in US orders of durable goods by 1%. However, it fell by 1% in June. Apart from volatile transportation goods’ figures, overall shipments fell by over 1.3%. The quantity of inventories lying in warehouses is increasing, which indicates goods are being manufactured but not purchased by consumers.
   
2. Chinese industrial output fell by more than 2.8% last month, major reason being weakening global economic conditions.
3. According to the data revealed by Economic Cycle Research Institute (ECRI), the weekly indicator index fell significantly, reaching as low as -10.5. This has never happened in the past, not even during 2008 recession.
4. Growth Index, as reported by The Consumer Metrics Institute, has not everbeen in positive figures since January 2010, and it has now reached -3.0. In August 2008, this index had reached -6.0, lowest since the great depression.
5. In May 2010, the US trade deficit increased becoming the largest one in past 18 months, in spite of decrease in oil imports by over 9%. This trade deficit is subtracted from GDP. Usually, increase in oil imports is one of the most dreadful concerns. In this case, even reduction in imports seems to be a futile attempt.
6. US Consumer Index too continues to fall in July, after a sharp drop in June. A robust economy must have consumer index more than 90. However, as of today, it’s just 50.4. Before the 2008 recession took place, consumer spending amounted to 72% of GDP.
7. Weekly unemployment claims in the US is steady at 400,000, which is the divider between recession and non-recession. These claims did not rise even during the recovery period. Contradictory to recent increase in companies’ profits, more and more workers continue to lose their jobs.
8. Ben Bernanke, Fed Chief, finally agreed the US economy is in bad shape. However, we can expect it to be much worse as he didn’t predict or even notice the arrival of recent sub-prime crisis, nor did he realize it till spring of 2008. So, if he now believes the economy is falling apart, it would be much worse.

Many economists are still optimistic, and believe these figures are simply due to the after-effects. Instead of improving, however, these numbers are worsening, and we can only hope someone notices them.

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Let us have a look at few most promising sectors that will dominate the market in coming 10 years.

Phone Technology

As of now, this is the fastest growing market, and demand for phones is increasing by leaps and bounds. In years to come, the world will need more technicians produce, troubleshoot, and manage this technology. This sector is highly depended on communication, which is also a promising sector in itself.

Certified Financial Planner

Most people around the world yet depend on financial planners to design their retirement portfolio, get out of debts, and make proper utilization of their resources. Hence, demand for certified financial planners would increase considerably with increase in population.

BioTechnology

Health issues in our society are on a rise, and existing resources are not adequate to meet increase needs. We will need more innovation and more strategies to solve this problem. So, this sector would certainly be very important at least for the next decade.

E-Commerce

Have you ever tried making money on the web? If no, start doing before the world saturates the market. Internet, introduced as information spreading medium, is now the best tool to make money from home.

Environment

Since last 5 years, ‘go green’ and ‘save our planet’ signboards have appeared all around the place. We are being more concerned about our planet and it health lately. Companies are going green, people have started saving energy, and scientists are coming up with many ways to save efficient resources of our planet. If this is just a fad, it’s here to stay for a very long time. At least, until we solve this problem.

Interactive Entertainment

With the increase in social media networks and people interest in the same, it’s evident that people want to interact with each other. They are, however, to busy to schedule it. This is where online interactive games come into role. Nothing is more refreshing than coming home from office and playing games online with your friends living in other part of the world.

Search Engine optimization and Tools

If E-Commerce is the next hot-spot, search engine optimization that helps websites to perform better with search engines, will certainly be in demand.

Infrastructure

If you think yours is a developed country, think again. As far as infrastructure is concerned, no country is developed. Many innovations are yet to be made, and most of the existing project requires maintenance and redevelopment. So, for at least next couple of decades, infrastructure is going to play a vital role in shaping nation’s economy.

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Most said we are on the path of recovery. However, falling unemployment rates, decreased consumer spending, dropping house rates, and unstable global cues are, unfortunately, not signs of recovery. Some economists, who have realized the graveness of this situation, have termed it as ‘Lost Decade’, which means a prolonged period of weak growth.

An economist and professor at Cal State University Channel Islands, Sung Won Sohn, predict the probability of having a lost decade is much higher than a double dip recession. According to him, major engines that push growth of an economy like consumer spending, housing, and exports, are all down. For the next few years, our country might not even grow at 3%.

However, if something like Lost Decade hits America, it would be like a never ending recession for most citizens. More people might lose their jobs, and major investments like stocks and bonds will keep losing value. They are losing value on their major investment, houses, as well.

A similar lost decade took place in Japan, which started from 1992 and lasted till 1999. During this period, the economy grew by less than 1% each year. Although such recession ended in 1999, it is still recovering from the loss and economic weakness it suffered.

This impending lost decade in the US is very similar to the one that occurred in Japan. They too had a housing bubble burst, which paralyzed major banks and financial institutions resulting in poor lending ability.

The Japanese economy did everything to haul the country out of such prolonged recession, which also included dropping the prime lending rate to near 0%, and stuffing money into the market by purchasing assets. However, most of these steps were ineffective.

Subsequently, the country went through brief period of deflation. Most business, to deal with falling prices, had to cut back on employment and production, a scenario that’s now common to all US workers.

The US has not been through major deflationary period after the Great Depression. The inflation rate has, however, dropped till 0%, which is a potential threat.

A double-dip recession would be comparatively less harmful than a Lost Decade, as it would not affect the country politically, financially, and socially as it may in the latter case. This may occur because the US relied on weak growth pattern. Even if the country is able to avoid a double dip recession, expecting only slow growth would be optimism.

However, many economists also believe there is drastic difference between Japan’s lost decade and this situation. Japan, in that period, was growing through a phase of shrinking population and over-dependency on exports. So, they suggest, lost decade is unlikely. We, however, have no option but to be optimistic.

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But the daunting trend seems to continue. Wells Fargo is about to cut 3,800 jobs and close down 638 stores in the financial division; the company announced on Wednesday. In fact, if this happens, the company may close down its consumer finance division, which offered non-prime loans to homebuyers.

They will downsize around 2,800 employees in next couple of months, and the other 1,000 jobs would be cut within next 12 months.

The need for separate financial division was eliminated when the company merged with Wachovia in 2008. However, they aren’t doing too well since they have had their own division.

The President of Well Fargo Financial, David Kvamme, says ‘the economics of Wells Fargo Financial channel is no longer reliable’.

Restructuring will cost the company around $185 million. Around $137 million of the total cost will appear in the second quarter of 2010, for severance. Other charges will show up in the subsequent quarter.

Although 3,800 job cut wouldn’t increase the unemployment rate substantially. But we are not sure whether it’s only this company or it’s a beginning of another meltdown.

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Tough times are gone. Unemployment rate have started diminishing, and people have started spending again. But there has been a cut in their spendings. This has put me in a great confusion. If people start spending considerably again, it would help in nothing but repeating the same cycle. Conversely, if people don’t spend more, the economy with certainly take a hit this year, and in the coming years.

In both the scenarios, it’s the consumer who would suffer. However, the latter one at least leaves us with some money.

Sometimes, I even wonder what’s the whole point of starting a new personal finance blog (except for personal income) if government, on the other hand, urges people to spend more. We, bloggers, are asking people to become frugal, but the government is defusing our efforts. It’s important for them to understand that having a low GDP in coming years would be better than having another economic crisis.

This doesn’t, however, stop me from writing useful personal finance tips. There may be several readers who would close this window immediately, grab their cards, and go out shopping. But even if one person understands what I am talking about, and cut down expenses, without bothering about the economy, I believe I have written a useful post. We have suffered only because we never took pains to save for the rainy day. Lessons are not useful if we don’t learn anything from them.

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