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Commodity Investing Shell Shocked
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New York: November 08, 2010
By John Stephenson

The American political order was upended as angry voters decided that change was needed. Furious and frustrated Americans sent Barack Obama\'s Democrats packing in the midterm elections, passing control of the House of Representatives to the Republicans and sending a blunt message that the status quo just isn\'t good enough.

The list of grievances is long, but for Main Street USA it boils down to a sense of despair that after two hard years, life hasn\'t improved for the average American. Joblessness remains stubbornly high, house prices remain depressed and the economic prosperity hasn\'t materialized. Not only that, but since taking office the Obama administration priorities seemed to be on bailouts and dizzying changes to the health-care that no one seemed to favour.

The bailouts that the Wall Street wizards, the architects of the financial tsunami of 2008/2009 received, also struck a raw nerve with Americans. While the White House asserts that flooding Wall Street with money helped prevent a second Great Depression, to most people it doesn\'t seem just. The average citizen believes that for all the government intervention they have little, if anything, to show for it, other than the debt they will pass on to their children.

Making matters worse, the banks that in many cases deceptively lured Americans into mortgages they could not afford got off scot-free for their reckless behaviour. Instead of acting contrite, their sloppiness and greed in pursuing foreclosures has exacerbated the housing crisis.

A recent report by the London-based Legatum Institute highlights what many Americans have been feeling—that things may not be as good as they once were. In its global ranking of prosperousness, the U.S. has fallen to 10 th place amongst the world\'s most prosperous countries with a 14 th place ranking. After being hammered by recession and the ongoing harassment of terrorists\' threats, the U.S. placed 14 th in per capita GDP ($47,702), well below first place Norway ($52,964).

For investors in America\'s benchmark index, the S&P 500, the period from 2000 to 2009 ranks as the worst decade in nearly 200 years of American stock market history. Not even the 10 years encompassing the Great Depression was as dismal for U.S. investors as the one we have just witnessed. By the time 2009 drew to a close, the S&P 500 index finished the decade 24.1 percent below where it had started—despite having two 50-percent-plus up moves. Investors would have been better off investing in almost anything other than the U.S. stock market.

For long-suffering investors in the U.S. stock markets, the prognosis doesn\'t look good. While health care, telecommunications and banking may be a better buy under a right-of-center House of Representatives, a gridlocked and deeply divided government will not be of much help in rebuilding Americans\' faith in the future. Central to a sustained recovery for investors will be a return to trend economic growth rate, but the recession of 2008/2009 was anything but typical.

In one study on economic recoveries following a financial crisis, authors Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard found that the peak-to-trough decline for stocks averaged 55 percent and lasted three and a half years. For housing, the average decline from the peak was 35 percent with the slump lasting for an average of six years. The academics also found that, in the country where the crisis occurred, government debt usually soared in the aftermath. The reason was not so much the impact of a major stimulus package, rather, it was the result of a drastic decline in government revenues as businesses suffered and citizens lost their jobs. Sound familiar?

With politicians offering nothing but platitudes and empty promises on how best to exit from the morasses and without any serious straight talk on the country\'s plight, shell-shocked investors should look further afield for investment opportunities. Resource rich countries such as Canada and Australia offer stronger growth and are indirect plays on the only area of the world experiencing strong growth—Asia. While policy makers in the U.S. and Western Europe are grasping at straws to find ways to boost economic growth, Australia has just announced yet another surprise interest rate hike to curb strong economic growth. Perhaps its time to change more than the just your congressman!

StephensonFiles is a division of Stephenson & Company Inc. an investment research and asset management firm which publishes research reports and commentary from time to time on securities and trends in the marketplace. The opinions and information contained herein are based upon sources which we believe to be reliable, but Stephenson & Company makes no representation as to their timeliness, accuracy or completeness. Mr. Stephenson writes a regular commentary on the markets and individual securities and the opinions expressed in this commentary are his own. This report is not an offer to sell or a solicitation of an offer to buy any security. Nothing in this article constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits and losses. We, our affiliates, and any officer, director or stockholder or any member of their families may have a position in and may from time to time purchase or sell any securities discussed in our articles. At the time of writing this article, Mr. Stephenson may or may not have had an investment position in the securities mentioned in this article
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