The media is reporting that the stock market is being driven by fear and panic. I think that's right. The fear is certainly what I am feeling even though I haven't yet reached the panic stage. Maybe I won't because it's already too late to panic.
The comparisons with 1929 are eerie. I have been through several recessions, some of which we didn't see coming, and through a major stock market crash that did not greatly impact the rest of the economy. Major bank failures or near failures, the precipitous drop in commodity prices, the abrupt slowdown in consumer spending, even the prolonged freefall of the stock market and all other financial instrument markets, leads me to a feeling of dread for what may be coming. The great crash of 1929, while being the signature event of the depression, was only the beginning of a long decline which didn't end until the advent of the second world war.
The hot stock of the twenties, RCA, illustrates the decline. It had split 5 for 1 in 1929 and then went on to hit a high of 114-3/4 per share but by 1934 was down at about 3. It didn't recover to its 1929 price for about 25 years. I guess the buy and hold philosophy is effective in most cases but you have to live long enough to be able to make it work.
My main worry is that prices will continue to drop. Some people will consider the drop in prices a good thing when the economy is bad, but that's a case of the tail wagging the dog. Sure you can buy some things when they are cheaper but the real reason for the price drop is that money is becoming more precious and is worth more since there is less of it around. You may need less money to buy, say, a gallon of gas, but you have less of it than you previously had. People can only afford less and therefore the price has to drop in order to get the product sold.
For the time being, I would conserve every penny of cash that I have.and delay any sizable purchase for at least 6 months if not a year. If I am right, anything that looks like a bargain today will pale in comparison to what it will sell for in the near future.
I will address my take on what the government is doing regarding the economic situation and what I think they should be doing, in my next blog.
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4 comments:
GO SOUPEATER, You tell 'em
soupeater, I don't get your name.
you like soup? or you devour your children??
Stopping to purchase is what brings the economy down. If I have money and, because prices are going down by the month, I wait until next month and next month and next month to buy something, less manufacturing is going on and that's when the layoffs happen in earnest.
Ideally and through natural logic products costing less would bring about more consumer spending. Hoarding like soupeater suggests is what cause the economy to grind to a halt. This is why President Bush countered predictions of recession in Dec 2006 by encouraging consumers to spend more.
savingtheworlda dollaratatime
I can't argue with your comment, but let me ask you, if you could get a house for 20 or $30,000 less by waiting 6 months and you could wait the 6 months, would you still buy the house now in order to help the economy? That's very generous of you if you would.
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