The real economy is fractured!

When asked about the impact of the French Revolution, Chinese leader Zhou Enlai said that it was too early to tell.

The world is experiencing the continuing impact of the fall of the iron curtain and the integration of 3 billion people into the free market economic system. Unfortunately, these new entrants are realizing that the erstwhile evangelists of free markets don't like free markets anymore. They now want to change the rules of the game.

I was in Istanbul about a month ago. A good friend of mine there mentioned that there is something seriously wrong with the world when a postman in Switzerland can work 40 hours a week and can afford a three bedroom house with a garden and a car and can vacation 10,000 miles from home for a month every year, while a PhD in biochemistry in India, working 80 hours a weak on path-breaking research earns one thousand US dollars a month and can barely make ends meet.

The problems in Europe are only the beginning. The standard of living of people around the world is dramatically going to change in the next 10-15 years. This is going to have an impact on demand and on supply.

I am very optimistic about the future of the human race. But, we have to go lower before we can go higher. Too many people in too many places have gotten used to getting things easy. The world is a difficult place, free markets and capitalism are brutal masters and people will have to start working very hard to remain competitive. Even that may not be enough! If someone has been overpaid for a long time, he or she may realize suddenly that the game is up.

The world is drowning in the supply of everything. Demand is collapsing and there is nothing anyone can can do about it. The outlook for commodities looks poor. Oil could go to $30 per barrel and stay there for a long time. The problems this will create in places like Russia, Mexico, Venezuela and the middle east can only be imagined. Steel and iron ore are probably the bubbles of the century.

Keep lots of cash. The s*?t is about to hit the fan! This time it will be the real economy and it will be painful.