Recession / Depression

[Suppa Hobbit Mage]

I'm curious what the more financially educated on this board think of our economic troubles. I was talking with my Dad last night and he is very concerned we are heading into another depression. He lived through one, and to be honest his recollection of it is very sombering.

I've not worried much about it, but he got me thinking -- what would a depression entail for the United States? What would it mean to those bulk of us who are middle class Americans with a mortgage, car loan, probably some credit card debt.

I have a good job, a nice house and two car loans, but no other debt besides that (correction, I just got a loan from Lowes for new floors). I live a really good life IMO, and I was doing some evaluation -- I waste a lot. I gave about 5 grand to charities last year, and spent 4.5k traveling. I could cut out the travel, my truck and car, get an economic civic or something, and save myself over 1k a month in those bills alone.

I realize this is rambling, but I don't know enough about the causes of a recession, much less a depression so I'm wondering what to expect, if it does indeed occur.

[Daniel]

I wouldn't worry about an outright recession where our entire economy tanks. At least not yet, the Fed has been really proactive about stepping up to the plate and biting the bullet when someone big happens (Like Bear Stearns tanking).

If the Treasury gets the overhaul they want then I don't see much of a problem. However, those could be famous last words.

If you really are worried, I'd take some of the excess out of your budget and build a cushion to sustain you. We don't really need half the crap that people tell us we do and being able to cut down on his expenses will be good for various reasons.

I spend maybe half of my paycheck and the rest goes towards my retirement funds and some loose investments. The rest is put into a money market that is FDIC insured in case something happens to my job (not likely, as I work in the GOV), or I have to do something like bail out a family member.

[Trouble]

I'm not financially educated but I'll share my opinion anyway:

Where I live, people appear to be ok or in denial. People are still spending on non-essentials at what appears to me to be the same rate as any other period in the past 10 years. Nobody I know has visibly changed their driving, eating, or social habits. I live in a relatively prosperous, recession-resistant area though. I've heard people complain about milk being more expensive than gas but they're still buying it.

Personally, I have limited my big purchases (computers, cars, vacations) but I'm still blowing all kinds of money on stupid shit like pizza and beer.

[Stanley Burrell]

The most important thing to do now, that we're collectively losing money, is spend money on ridiculously expensive articles of clothing and accessories so that no one notices we're getting poorer.

I live in the projects with a Benz'.

[Suppa Hobbit Mage]

I do put a pretty significant portion of my paycheck into 401k, ESPP and keep a fair amount liquid in savings. I just feel like I'm exposed though -- if the stock market tanks, my 401k will tank, ditto on ESPP.

What are solid investments outside of stocks?

[Stanley Burrell]

What are solid investments outside of stocks?

Gold, bitch.

All my Warclaidhm bullion has increased in price from ~150-300 to 1k-1.5k.

Meaning I have about 10k to my name is coins I'm too OCD to sell, and 0k to my name in the bank. Holla.

[Daniel]

I do put a pretty significant portion of my paycheck into 401k, ESPP and keep a fair amount liquid in savings. I just feel like I'm exposed though -- if the stock market tanks, my 401k will tank, ditto on ESPP.

What are solid investments outside of stocks?


Well,

In the depression they put money into shoe boxes under their bed. However, the point of that was people were concerned about banks becoming insolvent.

That's not the same problem as it is today with FDIC and other such things. The reality is that if the Stock Market tanks there is nothing you can really do.

You can make sure you are diversified, not just say with Large Cap, Small Cap but with different industries (Resources, Futures and even international markets).

That'll protect you from losing big if one company or industry fails. However, if the whole thing goes, it goes.

Your best bet in the long run is to live within your means and keep yourself competitive in the job market.

[NocturnalRob]

I do put a pretty significant portion of my paycheck into 401k, ESPP and keep a fair amount liquid in savings. I just feel like I'm exposed though -- if the stock market tanks, my 401k will tank, ditto on ESPP.

What are solid investments outside of stocks?

stop investing in US-based securities. emerging markets and Europe, south america, NAME, etc.

[Xaerve]

NAME = MENA?

I've never seen it called NAME before.

[Ignot]

Concentrating your portfolio in any one sector does not make for a good long term growth strategy and by the time you realize that something might be a good investment it is most likely to late for you. the stock market is a leading economic indicator and you need to anticipate and try to resist being reactive to old news.

that being said, most people will not know how to anticipate and invest accordingly so I have to agree with Daniel. DIVERSIFY your portfolio. The more the better.

While I think we won't technically go into a recession it is surely going to feel like one. One of the things to remember is that this is a normal economic cycle and moving into a recession may not be enjoyable but it is very necessary. The problem is that we went sooooo long without a recession that most people forgot what it is like.

The international markets are going to be slowing to. The entire global economy is slowing so keep that in mind when you look at your international equity exposure in your portfolio. You should be reducing your exposure in emerging markets and focus more on developed markets.

[Gan]

I'm curious what the more financially educated on this board think of our economic troubles. I was talking with my Dad last night and he is very concerned we are heading into another depression. He lived through one, and to be honest his recollection of it is very sombering.

I've not worried much about it, but he got me thinking -- what would a depression entail for the United States? What would it mean to those bulk of us who are middle class Americans with a mortgage, car loan, probably some credit card debt.

I have a good job, a nice house and two car loans, but no other debt besides that (correction, I just got a loan from Lowes for new floors). I live a really good life IMO, and I was doing some evaluation -- I waste a lot. I gave about 5 grand to charities last year, and spent 4.5k traveling. I could cut out the travel, my truck and car, get an economic civic or something, and save myself over 1k a month in those bills alone.

I realize this is rambling, but I don't know enough about the causes of a recession, much less a depression so I'm wondering what to expect, if it does indeed occur.

We have failed to meet the 'textbook' definition of a recession, even though some analysts and senior economists say we're in one. This probably means a revision of how a recession is indicated if you ask me. More importantly, if the general public thinks/feels/perceives we're in a recession then it will impact the market like one regardless what the experts say.

Depression? No, you wont see a bank failure like we didn in the 1930s. If anything, our banking leaders have that piece of history well documented and have many many more tools to prevent the likeness from happening again.

With regards to what you should do? Daniel hit on most of what I would recommend.


I wouldn't worry about an outright recession where our entire economy tanks. At least not yet, the Fed has been really proactive about stepping up to the plate and biting the bullet when someone big happens (Like Bear Stearns tanking).

If the Treasury gets the overhaul they want then I don't see much of a problem. However, those could be famous last words.

If you really are worried, I'd take some of the excess out of your budget and build a cushion to sustain you. We don't really need half the crap that people tell us we do and being able to cut down on his expenses will be good for various reasons.


Well,

Your best bet in the long run is to live within your means and keep yourself competitive in the job market.

[Daniel]

The international markets are going to be slowing to. The entire global economy is slowing so keep that in mind when you look at your international equity exposure in your portfolio. You should be reducing your exposure in emerging markets and focus more on developed markets.

Why? I'd suggest the opposite.

[Valthissa]

I do put a pretty significant portion of my paycheck into 401k, ESPP and keep a fair amount liquid in savings. I just feel like I'm exposed though -- if the stock market tanks, my 401k will tank, ditto on ESPP.

What are solid investments outside of stocks?

The real answer to your question depends on where taxes end up in the future. Those of us that have a lot savings may end up looking foolish if tax rates rise substantially as we retire.

Also, if you're interested in the dynamics of economic depressions look up the 'long depression' sometime. I can see where we could end up with an economy that looked like the late 19th century a lot easier than moving into something like the great depression of the 30's.

Solid investments outside of stocks include things you know a lot about. For example, you can make money on machine guns, rare books, art, musical instruments, etc. with the caveat that you have to invest the time to become expert enough to trade profitably. There was a time (long ago) in my life where I made more on pinball machines than at work.

C/Valth