The Great Debate

Welcome to the Teenies, sorry about those returns

-James Saft is a Reuters columnist. The opinions expressed are his own-

As we say goodbye to a decade so abysmal it never even earned a nickname, it is time to take bets on how the coming 10 years will shape up in economics and financial markets.

Welcome, then, to the Teenies, a word that will describe the decade as well as the small returns in financial markets and the shrinking financial sector it will bring.

So, let’s run through some themes for the 2010s:

Banking – The decade will end with meaningful reform of banking in place, but what is not clear is if this happens soon or only after a new banking crisis brought on by an unwillingness to take tough steps now. The likelihood is that regulation limits leverage and causes the share of the economy captured by financial services to shrink. It will be a lousy decade to be a shareholder, but given the government backing, perhaps not a bad one to be a bondholder.

It will be a great decade in which to have credit skills; even if the ratings agencies escape meaningful reform, everyone is going to want to do their own homework and a shrinking banking sector will open up highly profitable opportunities for alternative avenues of credit.

Investment - Just as the last decade started with dot-comfever and ended with unease, the next one will be all about reconciling oneself to moderate returns and figuring out who is hurt worst by a world of slower growth, less volatility and less debt. My theory is that a balance sheet recession means growth in the developed world for the next few years will be restrained at best. The past few months have been heady, but don’t be fooled, it will be very hard work to make an overall portfolio return even 8 percent. As those expectations slowly deflate, pension fund risk will become much more important in investing. General Motors will not be the last icon partially brought down by its obligation to retirees.

from Ask...:

Out with the old year, in with the new

Despite the incessant drumbeat of poor economic data -- consumer confidence fell to a record low in December and the price of single-family homes plunged in October -- the majority of Americans are optimistic about what is in store in 2009.

The Marist College canvassed 1,003 Americans about their expectations for 2009 on December 9 and 10 -- days after the National Bureau of Economic Research confirmed the United States had been mired in a recession since December 2007.

Expectations for a brighter future were higher among younger generations with 64 percent of those under 45 having an optimistic view compared with 52 percent for those 45 or older.