I was reading the book Naked Economics and came across this interesting comment on recessions, "Our natural (and rational) reaction to precarious economic times is to become more cautious with our spending, which makes our collective situation worse. The loss of confidence caused by a shock to the economy may turn out to be worse than the shock itself. My thrift-a decision to curtail my advertising budget or buy a car next year instead of this year-may cost you your job, which will in turn hurt my business! Indeed, if we all believe that the economy is likely to get worse, then it will get worse. And if we all believe it will get better, then it will get better. Our behavior-to spend or not to spend-is conditioned on our expectations, and those expectations can quickly become self-fulfilling. Franklin Delano Roosevelt's admonition that we have "nothing to fear but fear itself" was both excellent leadership and good economics. Similarly, Rudy Giuliani's exhortation that New Yorkers should go out and do their holiday shopping in the weeks after the World Trade Center attack was not as wacky as it sounded. Spending can generate confidence that generates spending that causes a recovery" Charles Wheelan, Naked Economics.
One thing I realized this week while at the internship is that the advisors aren't telling their clients that it is all over or that it is time to pull all of their money out and stuff it under their mattress. No, because they would be out of a job for one thing and another the economy would be worse off making them worse off. Now I would not believe that it is wise to invest in something that won't be profitable and neither does any advisor. But there are investments for all types of people during all types of economic situations. The best thing to do is to find which one suits the situation best. That doesn't mean you have to have an FA tell you which one. I am not saying that we should go out and spend, spend, spend or even invest right now but there are usually better alternatives than a secret box under your floor boards.
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I also learned through reading Wall Street Journal for my Economics class that there is an increase in gas & oil commodities investments, which is actually pushing gas prices up -- as investment demand goes up and supply decreases (thanks to OPEC), prices are escalating. Best way to hedge against gas prices is to decrease demand -- minimize trips, don't waste gas, keep the car that gets good gas mileage, telework (yeah, mom!!)!!
...buy a Prius! So just because we stop spending because we think there is a recession, doesn't mena there is a recession, right? So this reminded me of something I've been wondering. In the news they always quote the consumer confidence index. They quote the consumers and think that it is a good indication of a recession which makes people not invest. Why does anyone care what the consumers think since what they think is what they hear on the news? Why not quote the recession news index?
Hi
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