Recent news articles are heralding the official arrival of a Depression in the United States Of America. Strangely enough, yesterday we were supposedly in denial about whether or not we were in a recession. Now today, the proverbial bottom has fallen out. All in 24 hours!
Now, before you get yourself worked up, I hope you might sit back and listen to a slightly different point of view.
Several years ago, I hired a former airline pilot who flew for a major cargo carrier for a number of years. He wanted to start a new career advising people on how to invest and plan for their future with a company I owned at the time.
He lost his pilot's license because of hearing loss. He was a very intelligent guy in all aspects, except one. The one issue issue he had that hobbled his success, was that he subscribed to a couple of investing newsletters that harped on the coming "Crash" of the market.
According to these newsletters, the world was going to be devastated, and it was right around the corner. I learned that Jack had taken his own investments and moved them to safe harbor type investments, and was earning somewhere around 2-3%, while the rest of the world was getting 14-16% returns and had been for over 7 years.
I explained to Jack that newspapers, newsletters, and the like are going to be very negative in tone, especially since bad news sells papers. A quick glance of your local paper will confirm this fact. The authors of the newsletters were making really safe "predictions", since eventually, all markets will correct and contract at some time. So, they needed only to sit back and wait and eventually they could say, " I told you so!'
In Jack's case, he had sat out on a booming market and missed more than 110 percent market gain as he sat on the sidelines and felt "Safe".
Here is my point.
How safe is a position that guarantees you a loss? The market crash Jack was waiting on to arrive actually happened for him, since he missed all the gains. He lost his money by believing the "Prophets of Doom" and buying in to a self fulfilling prophecy that was premature. A little wider viewpoint would have better than the narrow one he held.
It is a simple fact, newspapers sell bad news. A train that doesn't derail won't make the evening news. So, perhaps you shouldn't believe EVERYTHING you read.
A detailed examination of the actual definition of a recession is three consecutive quarters of no economic growth, as measured by GDP. By definition, you couldn't actually know anything about a recession until you are at least nine months in to it. We have not hit that mark yet, and I think the fact that we are in the middle of a political year cannot be overlooked as a reason people hope to make things sound worse than they might actually be.
As far as a "Depression" goes, you cannot be in a Depression, until you have arrived in a recession. The accepted definition of a Depression is a "severe" recession. So, although the headline is startling, and it will sell papers and subscriptions it is not accurate.
In 1929, when the market crashed, it took more than 20 years for the market to recover the losses suffered. In 1987, when the market "crashed" and the Dow dropped more than 528 points, it took only a matter of days before the losses were recovered.
Our world is a smaller place now, than it was back then because of the Internet and technology. So, history cannot actually repeat itself the same way. We also have safeguards in place now, that were created to prevent a repeat of the great depression.
With all of that said, I definitely think the economy is slowing, and there are things that need to be addressed, but jumping in with the doom and gloom set is not healthy, nor is it helpful.
Now, before you get yourself worked up, I hope you might sit back and listen to a slightly different point of view.
Several years ago, I hired a former airline pilot who flew for a major cargo carrier for a number of years. He wanted to start a new career advising people on how to invest and plan for their future with a company I owned at the time.
He lost his pilot's license because of hearing loss. He was a very intelligent guy in all aspects, except one. The one issue issue he had that hobbled his success, was that he subscribed to a couple of investing newsletters that harped on the coming "Crash" of the market.
According to these newsletters, the world was going to be devastated, and it was right around the corner. I learned that Jack had taken his own investments and moved them to safe harbor type investments, and was earning somewhere around 2-3%, while the rest of the world was getting 14-16% returns and had been for over 7 years.
I explained to Jack that newspapers, newsletters, and the like are going to be very negative in tone, especially since bad news sells papers. A quick glance of your local paper will confirm this fact. The authors of the newsletters were making really safe "predictions", since eventually, all markets will correct and contract at some time. So, they needed only to sit back and wait and eventually they could say, " I told you so!'
In Jack's case, he had sat out on a booming market and missed more than 110 percent market gain as he sat on the sidelines and felt "Safe".
Here is my point.
How safe is a position that guarantees you a loss? The market crash Jack was waiting on to arrive actually happened for him, since he missed all the gains. He lost his money by believing the "Prophets of Doom" and buying in to a self fulfilling prophecy that was premature. A little wider viewpoint would have better than the narrow one he held.
It is a simple fact, newspapers sell bad news. A train that doesn't derail won't make the evening news. So, perhaps you shouldn't believe EVERYTHING you read.
A detailed examination of the actual definition of a recession is three consecutive quarters of no economic growth, as measured by GDP. By definition, you couldn't actually know anything about a recession until you are at least nine months in to it. We have not hit that mark yet, and I think the fact that we are in the middle of a political year cannot be overlooked as a reason people hope to make things sound worse than they might actually be.
As far as a "Depression" goes, you cannot be in a Depression, until you have arrived in a recession. The accepted definition of a Depression is a "severe" recession. So, although the headline is startling, and it will sell papers and subscriptions it is not accurate.
In 1929, when the market crashed, it took more than 20 years for the market to recover the losses suffered. In 1987, when the market "crashed" and the Dow dropped more than 528 points, it took only a matter of days before the losses were recovered.
Our world is a smaller place now, than it was back then because of the Internet and technology. So, history cannot actually repeat itself the same way. We also have safeguards in place now, that were created to prevent a repeat of the great depression.
With all of that said, I definitely think the economy is slowing, and there are things that need to be addressed, but jumping in with the doom and gloom set is not healthy, nor is it helpful.
I still recommend to get yourself on a pay as you go basis, stop borrowing and using credit cards, and get your family out of debt as quickly as you can. No matter what the economy does or doesn't do, you will be better off for it, and the reasons have nothing to do with a recession or a depression.
If history has shown us anything, it has definitely shown us that a "smart" investor doesn't sell when everyone else is selling. That is when you need to be buying! Be smart become debt free and position yourself to make the most of the ups and the downs.
If history has shown us anything, it has definitely shown us that a "smart" investor doesn't sell when everyone else is selling. That is when you need to be buying! Be smart become debt free and position yourself to make the most of the ups and the downs.
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