In a recent discussion on the economy and recession I was confronted with an opinion that while vastly different to mine made so much sense I finally realized we are screwed. I’ve held out hope that the worst part of the global economic crisis is at hand now and soon we will start to see companies recover. Maybe no economic boom, but certainly no depression.
Unemployment is higher then in years, savings at historic lows, ARMs still adjusting people out of homes, credit card debt high, there is no way it could get worse. But then the comment, all these people getting laid off are living off already taxed credit cards and soon, with no “extra” money to pay off debt and current living costs they will have little choice but to file for bankruptcy. This will only cause a recession to fall into a depression.
I was at a party recently and the question of how to tell when a recession becomes a depression came up. The best answer I heard, “when your mother-in-law moves in”. Well, I hope she likes the unfinished basement because there isn’t enough money around to get it finished right now.
Like a waterfall in slow motion, Part One
2 years ago
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When it happens to someone else, it's a recession; when it happens to you, it's a depression.
There is the typical psychology going on now, "OK, IF the market comes back and gives me another chance to sell, I'll take it this time." Don't hold your breath. Then it's "I can't sell, it's down too much." Then it finally ends at "I don't want to talk about it anymore, I've lost too much."
Usually the first round of layoffs is just that, the first round. Remember, the stock market took from 1932 to 1954 to recover. With trillions spent by this government, and 50 trillion owned in the future due to spending of social security, there are soo many complex financial instruments that still have to be unwound. Then there will not be the leverage to buy it back to past levels.
My best guess is 5 years before you can buy a house and think of it as an investment. I think the Dow will go to 6,000, and maybe 4,000. I wouldn't chase gold, oil, stocks, or bonds. And certainly not emerging markets. Cash is a position for 2009, at least until the markets prove they can sustain at higher levels.
I hope this is a transition period where we care less about materialistic things, and more about just enjoying the little things and leaving an imprint on this world other than buying a new rolex.
F1RST
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