Are we headed for a recession?

[Radio_Bugtussle]

Keep in mind the fact that many of the reporters writing stories about this understand economics almost as well as cats and deer understand the concept of traffic.

best analogy ever.

This might be true, but it's not like reporters aren't talking to economists and other people who do understand economics before they write these stories.

A significant percentage of reporters aren't sharp enough for that to matter.

"I just have to look good, I don't have to be clear."
Don Henley, circa 1982.

[planet planet]

In light of the unavoidable recession, how are people handling their investments differently?

[ghostrunner]

In light of the unavoidable recession, how are people handling their investments differently?

I think it's usually considered a good time to buy, if you can manage it. The general public freaks out and stocks drop to more affordable prices, only to go up again once things stabilize.

[docellis]

I think consumer confidence (meaning you had to ask this question and it is in the news etc) is a bigger part than I ever really understood.

When we aren't buying things...homes...big ticket items...and we are "waiting" to find out if we are in a recession, we as a "herd of cattle" I guess - just aggravate the situation.

But on the other side, extending yourself right now is kind of scarey.

What did Citi just post as losses? 10 billion or somethign crazy like that? And then shortly before or after (can't remember) they got floated money from and asian or middle eastern group. And the new president is also from that area?

The idea that we might be forced to pay what the rest of the world pays for fuel/oil and our property is getting more and more connected with more oil rich nations... I don't know what it means.

If I were optimistic about our country and our "ingenuity" I'd think the solution is being on the verge of an energy alternative with a government program that gave incentives to convert our homes and cars. Owning that new technology. Creating jobs, giving incentives for average families to convert.

[ghostrunner]

I think consumer confidence (meaning you had to ask this question and it is in the news etc) is a bigger part than I ever really understood.

I swear there was once an Onion headline that read "Consumer Confidence Bordering on Cocky," but I've never been able to find it again.

[Hungary Jack]

I think we probably will avoid the circumstances that technically define a recession, but it will probably feel like one.

An oversimplified view of the economy indicates 5 sectors of roughly similar size (with key indicators):
1) consumer spending (personal income and employment)
2) government spending
3) housing (new starts and existing home sales)
4) corporate spending and investment (employment, investment in capital projects)
5) exports

We know that 3) is in the tank, and may not have reached bottom. All indications are that 1) is tanking. But 2) remains relatively strong, and it appears that an economic stimulus is very likely (along with Iraq spending). 4) is a concern, but too early to tell. 5) should hold up with a weak dollar and growth in Asia and some recovery in Europe.

So things are a bit dicey, with 2 of 5 factors pointed down, but there is uncertaint about the other 3. But because consumer spending is likely to decline, chances are that main street will feel like we are in a recession.

[clement]

Is the big question the danger of our economic problems spilling into Europe and especially Asia? If we stop buying their exports, that could affect their economies, which then affects your #5, no?

[Hungary Jack]

Is the big question the danger of our economic problems spilling into Europe and especially Asia? If we stop buying their exports, that could affect their economies, which then affects your #5, no?

Most of what I have read suggests that the US is no longer the consumer economic engine of the world. Emerging consumer classes in India and China and at least some liberalization of European economies have made them bigger factors in global growth and less susceptible to declining trade flows to the US.

But Europeans are very concerned about the weak dollar and its effect their ability to export profitably to the US. At the same time, there is pressure in China to take all those accumulated dollars and spend them at home on public works rather than T-bills. If inflation in the US keeps the Fed from loosening, and stocks and other US asset prices continue to tank, then foreigners won't have much interest in dollar-denominated assets and our cost of capital will go up, and it won't really matter whether US exports are growing a little or a lot.

[Hungary Jack]

In light of the unavoidable recession, how are people handling their investments differently?

Unless you are dependent on investment income for your living, your investment strategy won't change much during a recession, especially in you have a long-term horizon (I'm 40 years old, investing for retirement when I get into my 60's or whatever).

It is the difference between capital budgeting and operating budgeting. When the economy slows, you tighten your operating budget in response to decreased income/revenues. But your long-term capital investment plans don't necessarily change, unless you need to pare back capital spending in order to augment operating income.

In general, the stock market overreacts in the short-term to the good news and the bad news, so Wall Street is more excitable than Main Street when it comes to responding to economic changes. We are definitely in a bear market right now, but a year from now could be a raging bull, especially if the rest of the world economies remain strong.

[sighyoung]

In light of the unavoidable recession, how are people handling their investments differently?

Since I only invest through my retirement account, I may simply shift a bit out of value and small cap funds, and a bit more toward growth and large cap funds.

In terms of personal finance, I'm looking at losing my administrative position (which brings in extra income) because of massive budget cuts in the state and my university, so I'll have to economize. I had drooled about putting away more in my retirement account, but it looks like I'll be squeezed for the next two to three years.