Economics and the stockmarket

OK, so much for posting every 1-3 days.  I just have too much going on right now - and my career unfortunately (or maybe fortunately) doesn't depend on this. 

So some random thoughts today from my own thinking about the current state of the global economy and the financial markets. 

First, unlike most of the previous economic downturns, the US caused this downturn, so coming out of the current recession will require the banking sector regulatory framework to be fixed so as to instill some confidence in both domestic and foreign firms and investors that nothing like this will happen again.  Also the US housing market is still not good and there is a threat of a collapse in the commercial real estate market which makes things risky in terms of a new wave of corporate bankrupcies.  In this sense the US is likely to come out of the recession late compared to other countries.  Put in economic language, the US usually drives the international business cycle, but this time it will lag the international business cycle.

Second, the state of the euro area is in flux right now.  There is no certainty about a European Monetary Fund (EMF) coming into existence, which would calm the markets and also instill some confidence in the future of the euro area.  There is also considerable doubt about how sustainable the Greek fiscal austerity measures will be from a political perspective, so this still creates some risk of contagion to other euro area member states.

Third, the Chinese economy has done remarkably well over the past few years, but the housing market there is precarious, and the bubble could burst quite easily, creating asset deflation and causing some banks and loan providers to be in serious trouble. 

So what does this all mean for where to put your money?  If you're keeping it in the US right now I'd put it into technology stocks as this is where the US clearly has a comparative advantage and will benefit from the pick up in economic activity that will clearly come first in the rest of the world.  Other than that I'd pick a Canada fund if you really want to be in North America as the Canadian dollar tracks the US dollar, and also the Canadian economy really doesn't have the (fiscal and real estate) downsides of the US economy.

I would take a sizeable amount of what you have and put it abroad - the emerging economy funds, Eastern European, Japanese and Gold funds are all good and will likely give you a better return over the next few years than you'd get from a US stock fund.  Nordic funds are also probably a good bet as apart from Finland none of them are members of the euro area, and also African funds will likely do well (if you can find any!) as the Chinese are continuing to buy up land and develop resources there.

Anyway, please let me have any comments you might have...I am actually thinking of starting a website solely devoted to offering this type of service!!