Illustration courtesy of Y-not
This email is supposedly from a financial consultant in Dubai. It has been making the rounds:
Recession is coming. Make your own judgment. Don't panic! Do what is wise.
The recession looks very eminent [sic]. It is really time to take proactive steps to avoid a painful time in the next two years, which is how long the recession is expected to last.
Suggestions:
1. Don't take any loans; don’t buy homes, properties with loans, or even cash. Keep as much cash as possible.
2. Pay off as much of personal loans, private loans, as debt collection will be hastened.
3. Sell any stocks you can even at lower prices.
4. Take money off from Trust Funds.
5. Don't believe in huge sales forecast from customers, be extremely prudent, lowest inventories, reduce liabilities.
6. Don't invest in new capital.
7. If you are selling homes/ properties/ cars, do it now, when you can get good prices, they are going to fall.
8. Don't invest in new business proposals.
9. Cancel holiday plans using credit cards.
10. Don't change jobs, as companies will retrench based on 'last in first out'.
Stay cool, wait, and if you took all of the above actions and more, you probably will be better off then many. This is not a rumor.
Bear Stearns is the first of many banking and financial institutions that will start falling in the not too [sic] future. If Bear Stearns can fall, so can JP Morgan, Citibank, HSBC, and the whole world. US economy falls, the rest will crumble.
India and all those self economies [sic] will be the most protected, but not gullible. Europe may be a little stronger, but not China, another giant place! Malaysia will see significant impact.
Be alert and pass this to your friends!!!
Notice how cleverly misinformation has been woven with good ol’ natured advice like “pay off as much debt,” and “be extremely prudent.” After I read the email, I sat back in amazement at how it initially seemed to be merely warning readers to get ready for tough times, but in the end the tone turned turbid by implying that the fall of Wall Street will result to the end of the world and Armageddon.
Fact is, Bear Sterns HAS fallen, but JP Morgan, Citibank, HSBC and the whole world is still standing. Yes, the US is already teetering in a recession—and that means at least two quarters of negative growth.
Let me explain that a little bit. Economists are very economical when it comes to words. When they say the economy grew 1%, the figure seems downright depressing. But that still means the economy grew. Products and services churned out are larger in number compared with previous periods. A negative growth on the other hand means the economy has shrunk, and therein lies the problem of a recession.
The common forecast right now among analysts is that it will probably take the US at least two years to start crawling back up, but whether or not Asia will get dragged in the mud all the way is, amazingly enough, still an open discussion. Five years ago, the word “decoupling” from the US has not been invented, and now, there’s a hint of color that says Asia will get hurt, but not as bad as if this crisis happened 10 years ago.
There’s another interesting aspect to this crisis, as pointed out to me by new Chartered Financial Analyst of the Philippines president
Vandermir Say. It appears that the more wealth you have, the more pain resulting from the crisis.
The more exposure you have to exotic derivatives, investment banks, stock and bond investments, the more pain you will be suffering—at least in the short-term. Perhaps ye gods are leveling the playing field a little bit between the haves and the have nots. Whatever is happening, my good friend and artist friend from high school said it best: We don’t have these things in the hinterlands where we live. I don’t own stocks; I don’t have big money in the bank. What recess I know means snacks!
That’s the spirit! Prepare for the worst but hope for the best. Letting the dirty R word result in fear brings recession even closer.
Meanwhile, the INQUIRER.net has created a special site on the current global financial crisis for readers who want to read everything related to it. There’s a timeline to help you put everything in perspective. Click here for
THE FINANCIAL CRUNCH.
my stocks are down 60% and still counting. my only consolation is my wealthy friend's paper loss is already 78M! yes, more wealth, more pain! :-)
i guess my retirement plans will be postponed for a few more years... crossing my fingers...thanks US of A :-( !! But the better news is that... 70% of my investments, although also affected, is in real estate. At least i don't have the fear the land will disappear ... lol.
I super disagree with this #3, particularly if you do not urgently need the cash and are holding on to stocks in fundamentally sound companies. A paper loss is just that, a paper loss, until you cash out.
Don't follow the herd blindly.
im feeling just fine. down home prices but im crossing my fingers to buy stocks at its lowest hoping i could recover somehow after sometime.
just another chain mail there...please forward to all your contacts...LOL!
We've invested in Real Estate.. Retirement is still on target..
Lost some but we did not have lot of CASH; STOCKS so lesser exposure..
Hi Salve, just sharing my thoughts..
I think the biggest risk an investor faces today is not the market itself; but our “emotions” and how affects our decisions.
While there is no argument that we are in a crisis, and that it may deepened into a protracted recession, certain fundamentals should remain constant and unchanged.
First is maybe our financial goals, if i have invested in the stock market (down 20% to 60% depending on entry point) as a provision for my long-term goals, the current volatility and the resulting low prices should not be a real concern as i don’t need to sell yet, i would only need to sell (and look at the price) when the time for my long-term goals arrived.
One of the “painful” lessons i have to re-learned is the need for the effective diversification of an equity portfolio, the normal criteria of a company being well-managed, good financials and good prospects might not be enough anymore, as recent events shows that no matter how good a company looks based on these criteria, it may still turned out to be a bum choice. (Recall AIG as a must-have component of any institutional equity fund in the US five to ten years ago), the lesson is that an effectively diversified portfolio trumps a well-managed single company in terms of risk mitigation. (Don’t put all your eggs in one basket)
Second is the concept of valuation: Is the current price equals its current value? The suggestion to sell (point number 3) presupposes that the price hence the value of a stock will drop further? Lord JM Keynes has something to say about this and let me quote it as i remembered it: “people delude themselves thinking that liquidity (the ability to sell at will) will allow them to get out of an investment anytime, during times of extreme stresses (like now), hoards of sellers trying to get out at the same time will cause the price to drop precipitably forcing one to recognized substantial current losses if one went along with it."
Painful as it is, i am just sitting back and watching as more events unfold, learning , picking up lessons which hopefully will make me a better investor in the future.
thanks and regards,
Our emotions can really take the better of us. Although we know our financial goals and are willing to stay in
that path, seeing our hard-earned money losing its market value everyday can be too stressful sometimes. And the
stress it brings can also affect our daily routine which makes it very unhealthy.
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Completely true, an economists language doesn't get into a reader's head that easily, I think if they want readers who are not well versed in economic terms to understand what they want to convey they should simplify the way they demonstrate because what is the use if after reading two lines the reader jumps over to something he understands. Those who have investments in banks, insurance, the stock market etc, will be definitely interested in something which is related to their investments but even if some writer well versed in commerce or economics write a whole lot of information regarding the situation of recession, depression, demand...etc its not going to help the reader or the not so well versed reader in anyway.
Washington DC Luxury Homes
ll. 8. Don't invest in new business proposals. 9. Cancel holiday plans using credit cards. 10. Don't change jobs, as companies will retrench based on 'last in first out'. bag factory.
A negative growth on the other hand means the economy has shrunk, and therein lies the problem of a recession. The common forecast right now among analysts is that it will probably take the US at least two years to start crawling back up, but whether or not Asia will get dragged in the mud all the way is, amazingly enough, still an open discussion.
Best regards, Alex, CEO of youtube downloader
A negative growth on the other hand means the economy has shrunk, and therein lies the problem of a recession.
Best regards, Katya, CEO of dvd data burner, lefthand iscsi san
While many economists share Roubini's concerns about imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.
Fed watcher Tim Duy called Roubini the "the current archetypical Eeyore," responding to a comment Dallas Fed President Richard Fisher made last week in referring to economic pessimists as "Eeyores," after Winnie the Pooh's Ginault Watches
.
"By itself this slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession," Roubini said.
Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.