2 posts categorized "Current Affairs"

10/19/2009

The End of The Recession? Don’t Be So Sure.

 

There is little that delights a politician more than being able to state that a recession is over.  But much like trying to identify when a recession starts; it is difficult to determine when one ends.  Because many scales in the economy move in different directions, when one thing gets better, some other things remain stagnant or even get worse.

 

Everyone’s favorite yardstick is the US stock market.  Indeed the market has its fingers in many pies.  Stocks can be sold for cash or used as collateral for operational loans.  Stocks are where most Americans have sunk most of their retirement savings so when stocks rebound Americans get a bit more confident. In economics “confidence” is a code word for “more spending” and “more spending” means more people need to be hired to paint your nails, sell you a plasma TV and mow your lawn.  The market’s rebound then, offers a little to be excited about.


A little.

 

The thing to watch in this supposedly-soon-to-be-over-recession is unemployment.  High unemployment is a heavy ax that cuts into that ballooning confidence that an equities rebound creates.  If you don’t have a job you won’t spend much.  Even if you do have a job, high unemployment still scares you because that means there is a dude or a dudette out there who is willing to do your job for $5000 a year less.  So with your job hanging by a string, you hold onto your cash almost as much as your unemployed neighbor.

 

The message here is keep an eye on your spending and your long term commitments.  Save as much as you can (timeless advice even without a recession around.) 

 

 


 

07/28/2009

The Stock Market Doesn't Repeat Itself But It Does Ryhme

The short answer is kind of.  There is a saying on Wall Street that the market never repeats itself but it often rhymes.  While the media loves to preach the doom and gloom sermon when the market takes a plunge, Wall Street is no stranger to scams, plummets and reckless greed.  Join me for a stroll down memory lane:

·         2000 The internet bubble bursts.  Many people claim it is the end of college kids starting billion dollar corporations in their dorm room.  Of course a few years later we have YouTube, facebook and twitter.

·         1998 The hedge fund Long Term Capital Management collapses.  Treasury Secretary Robert Rubin calls it the worst financial crisis in 50 years (perhaps he was in a coma for 50 years?)  Many demand it should be the end of hedge funds.  What happened?  A roaring market and more hedge funds. 

·         1997 The Asian currency crisis sends a hammer stroke to the financial world.  One that lasts only two years.  Afterwards Asia explodes into an economic boom.

·         1987 On October 19th the stock market has its largest single day loss in history.  The well respected economist John Kenneth Galbraith worried we were headed to another Great Depression.  Many experts believe the crash was due to the freshly popular computerized trading, a form of trading that some argued should be illegal.  What happened?  The market quickly recovered and computerized trading became common place.

·         1970 In June the railroad conglomerate collapses creating at the time the largest bankruptcy in US history.  Years later we have quasi government run Amtrak and the private commercial shipping company Conrail.  Did the sky fall?  (Yes, yes I know Amtrak is always late but it still runs.)

·         1938 For those who think Madoff has never happened before check this out.  In 1938 NYSE Chairman Dick Whitney (known as the “White Knight” of Wall Street) is convicted in one of Wall Street’s most notorious scandals.  President Roosevelt himself, upon hearing the news cries out “Not Dick Whitney!” 

There are plenty of other dates in Wall Street’s history where experts and journalists have cried that the sky is falling.  But we are still here.  By the way, scams, plummets and reckless greed will all happen again.  And we’ll still be here.