March 14, 2008
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Living in a recession/depression
I tend to be fairly pessimistic about our economy. that's not a new thing with me; twenty five years ago I got worried about the stock market and shifted all my investments to muni bond funds and fixed annuities so missed the big market run-up - somehow or other I still managed to end up ahead, but that's another story.
I see our economy beginning to hiccup itself into a major slide. Even though the stock markets may still occasionally rally, the basic U.S. and World economies seem poised to dive into a major collapse. Our fairly-cheap-energy driven economy no longer has the basic underpinning (cheap oil and coal) it is used to, is showing signs of strain, and things ain't going to get better anytime soon.
Philosophically, we can adopt the attitude of the stoics (cultivate our own garden and don't fret over what you can't change) or we can look for new ways to overcome our personal economic problems. "Living Green" will probably take on a whole new meaning and become synonymous with "living frugally". As we run out of pollutants the world may begin to cleanse itself but many of us whose lifestyles are based on polluting are going to have a hard time of it.
Attitudes will have to change and this change will be forced on the unwilling by harsh reality. Mental attitudes will go a long way toward creating a successful life in hard times. Optimism will get you a lot further than anger.
I'm old enough to actually remember the great depression (1929-39). Nobody I remember had very much, but they seemed to get along better. There was a rather remarkable change in politician's attitudes which we may see again.
What's your attitude toward the impending economic change?
Comments (9)
I've linked you
I moved all my stuff to bonds and cash and low low risk investment, and I'll probably keep it there for a couple of years. I expect to anyway. But I don't want to miss the upturn when it happens.
I think it's crazy that folks are still buying ridiculous vehicles that are so inefficient, living so materialistically. I blame the government primarily because the administrations reaction on september 11 was to tell people to go out and spend spend spend. And the economic stimulus plan is the same thing. "Here's a few bucks, go buy yourself a big tv".
Really, people need to get serious about living lean. Because we may not have any choice and the rest of the world is just a whole lot better at that than we are.
The problem with moving all your stuff to bonds and cash and low low risk investment, and probably keeping it there for a couple of years, and not wanting to miss the upturn is that any upturn probably won't be in any form identifiable with current investment practices and may be a long time coming.
To use the Great Depression ('29-'39, but really beginning in some sectors and countries in 1922) as a horrible example; many careful savers saw their savings wiped out by inflation, many careful investors saw the most conservative institutions collapse, and many whole economic sectors simply disappeared, as well a many banks closing never to reopen, and many cities and towns defaulting on their bonds.
I simple don't think most of us realize just how devastating a general economic collapse can be - think of a tsunami.
And this doesn't take nature and loss of basic markets into account. Remember the "dust bowl of the '30s. Farmers' children actually starved to death in some cases.
I've got a lot of money in money-market accounts whose sole virtue is that they are very flexible and easy to liquidate in a hurry.
As children of the depression, my wife and I never have really embraced the "throw-away society" and we never will - we remember.
I'm really nervous about it. I'm just starting to have enough money to "invest" .. and I am not sure I want to put my money into stocks at all. I know I can open up an IRA account. Maybe I'll get an IRA composed of CDs? Bc... I am terrified of loosing way too much money. I'm nervous about not being able to afford to move out of my parents house anytime soon because I won't be able to find a loan. I'm worried about getting a loan and then getting screwed when the banks bump up their rates.... I dunno. Everything is just.. terrifying.
In "Boom-times" it's really hard not to make money. The problem comes in slow-down times which the stock Brokers euphemistically call "Adjustments". Adjustment means somebody lost some money.
The best investment strategy is:
1. Never invest more than you can afford to lose - Never go into debt to invest. Don't cry over paper profit losses.
2. Keep some ready cash around - Savings accounts and money market accounts will do. At least a year's wages.
3. Never put all your eggs in one basket - ALWAYS go with professionally managed conservative mutual funds - but keep an eye on them.
Personally I took three flyers once when I had some money to lose:
I invested in one of the first computer software companies - mismanagement cost me the whole bundle.
I invested once in a Federal Savings and Loan - did well for a while but I stayed too long and got caught in the S&L crunch - lost it all.
Finally, I invested in an expanding, very good, very prestigious liquor store in South Florida. Sure thing - right? Well at least I got some really good and expensive wine when they went bankrupt.
And those were all investments in fairly good times (1970's-80's)
Actually I made mine in savvy real estate - but I got out early and put the profits in secure Muni bond funds (no tax!)
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