Ok, i realize this part of Gupshup is strictly reserved for all-the-economic-news-from-or-relating-to-India nichols can copy-n-paste, but still let’s try something different.
How do you plan for a recession?
Yes.. the whatif scenario is that whatif there was a recession or even a depression looming. How do u plan for it? What do u do? Buy stocks? Bonds? ‘inflation protected’ financial products? Or u just stock up on non-perishable food and keep your gunpowder dry?
Re: Let's play the What If Game..
Practically nothing. Seriously.
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God Forbid, If such a prospect ever arises, a li'l bit of poison will be the best option.
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Just try to play safe. Have your portfolio diversified. Do not put everything in stocks (which itself should be diversified), nor all in real estate, nor all in savings.
What I d it this -
1. Make a stock portfolio. Do not think of shortterm gains, think of 2-3 years ahead all the time. Put in different companies. Mutual Funds are safer bet. then you do not have to do diversification.
2. Real estate is not easy - if you already do not have real estate investment then right now is not good time in US/England/India/China. Could be it is good in Japan, but thats not my cup of tea. If you hvae a whole lot in real estate get rid of some.
3. Put a good amount, that can take you for 8-10 months in Bank Savings account.
4. If you still have invest some in Bonds.
5. If you are resident of US/England and Citizen of India/Pakistan/China or some other fast developing country, it is a good idea to invest there. 25% there will be good. Some of that investment could be in Savings account.
And the most important thing is that do not worry. It does not help.
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well i'm talking an abrupt 'crash' of sorts.. what good are cash in savings accounts or bonds and stocks whose typical yields is what 10%? when the deprciation due to inflation would be of a much higher order.
Not trying to be argumentative for the sake of it, but i really want to understand how economics works when it comes to recessions/depressions.
Like the highest likelihood is devaluation of the dollar.. that helps in reducing USA debt, but the Japanese/Chinese/Korean idiots who're holding billions of it can simply dump them back on us.. which means inflation.. What i don't understand then is that if there'll be too much money around and prices of everything will go up, how come they say Real Estate will crash? wouldn't house prices go up too due to inflation?
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U need to have liquid cash during and after emergencies.Inflation will rise and and every commodity will rise with it.Stocks would be cheaper at the end of the emergency therefore u need liquid cash to invest in the stocks.
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but that's the whole point.. 5 bucks won't even buy you bread when this kind of inflation hits.. think Depression.. you'd rather use the paper money's printed on to wipe your ass.. seriously!
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That's wat i said when a country is hit by depression only the fittest survive.Who's the fittest?People with money in their pocket.All industrial sectors are affected during a recession/depression and it would be stupid to invest ur money at that time the best example in the Great depression in 1929 when stock prices were reduced to half their prices.
The stock market and the real estate prices would sink quicker than the titanic during depression.Would u put ur money in a sinking ship or would stuff ur money in ur pocket and escape on a life boat?
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And if the recession is so much that it starts to affect the rich in the same way as it would affect the poor then you need to have land, good health and a gun for your survival :).
But then should we prepare for that?
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that's one of the things i wanted to clear.. if inflation meens more money in circulation than commodities, how come real estate markets will crash or stock prices lower?
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Coz during depression u are more interested in buying basic commodities rather than buying stocks and real estate.Shortage of supply means increase in prices in those commodities therefore more money is spent on commodities than stock.Similar thing was seen recently.Increase in US inflation and interest rate slowed down the world economy and led to an decrease in the stock prices.
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sorry double post
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Inflation goes down during a recession not up, that process is called deflation. A recession is basically when the production goes down due to lack of demand. This lack of demand is due to people not consuming and saving as they probably are unemployed. This lack of demand causes a glut of products in the market which causes prices to fall, thus deflation. That is why the Federal bank chairman Greenspan lowered the interest rates some years back so that borrowing and loans would become attractive. Thus with people borrowing more, spending would increase. This spending would thus boost industrial production which would mean more employment and thus more spending and which would finally blow away the recession.
A depression is continuous recession over many years. Thus FDR started all kinds of public projects to increase employment and try to blow away the depression. But it was the war production of WWII that eventually help blow away the american recession.
So if you are employed during the recession then you have no problem. The prices of everything from consumer products to property goes down and this is the right time to invest as in some years these prices will soar back to the real market value once the recession is over. If you are unemployed the problem multiplies as with so many people unemployed and no new jobs coming as the industrial production is down you will have to wait out the recession and meanwhile dig into your savings.
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Like narayan said is right
Diversify your portfolio. The factor of Systematic and Unsystematic risk, should be considered. But with US and where every country is attached to them, then even Unsystematic risk will fail.
Nothing do be a long term investor.
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Buy GOLD in that case
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That's true commodity prices prices rise like anything.Gold prices touched its highs in the past few months because of the weakening dollar.
Aka,
Inflation would decrease only when demand is less than supply but during emergencies(wars) or sanction on trade prices of goods tend to increase(Palestine or Iraq) leading to a huge decrease in supply put a marginal decrease in demand .Its only post emergency that deflation as u stated takes place.Supply increase while demand increases marginally since people have wasted a lot during the emergency.:)
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Yes of course, in times of war, there tends to be inflation, not deflation, because of less supply due to restrictions in normal trade, some industries shifting production for the troops and so on.
Deflation occurs when the consumers loose faith in the economy and try to save for the future thus decreasing spending. This causes a glut of products thus resulting in companies laying off employees which further decreases spending, thus the deflationary cycle. The current recession of '01-02 in the US started when people lost a lot of their money in the e-stocks followed by all the layoffs due to various accounting scandals which resulted in loss of faith in the economy.
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with the impending GM layoffs we may not be too far from a trailer of it!
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The condition is a step ahead of recession. We are facing high inflation.
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khaloo is right :k: with inflation you simply cannot get the best