Predicting recessions is fun for the whole family. Even George Soros is doing it. The billionaire believes the Federal Reserve will tighten monetary policy too much, resulting in a “hard landing” for the economy in 2007.
Less famous people are predicting the same. James F. Smith, who served as an economist for the Fed in the 1970s, is also predicting 2007 will see the recession.
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I just wrote about this very topic on my blog. In a nutshell, I’m not getting too worked up about the possibility, since I think my financial strategy is equally or possibly even more valid in a recessionary environment.
1) Get out of debt
2) Build emergency fund
3) Invest wisely
All three steps need to happen with or without a recession.
My Response to economic pessimism
That’s a basic, sound general philosophy for any economic condition.
I am not all that worried about it. But, I think this pessimism is harmful. When we are in a global marketplace, people tend to want to lump different markets together instead of analyzing them seperately. The U.S. is not really one big market, but several diverse markets. It is just like the real estate “bubble.” There is no nationwide real estate bubble, period. There are certainly a couple of markets that are bubbles, but that does not speak for the entire country. We are a large country, in many senses, and you can look at various markets the senses. We have different geographical markets that are centered around various metropolitan areas… and the proximity to other metro areas creates larger macro markets. Then, you can look at markets based on industries. You can also look at markets from enthic and religious standpoints. The best stuff I have seen is when people make these kind of statements with blinders on, and then look at what they are missing.
If you’re well-diversified, then you shouldn’t be worried about it. Those who are not well-diversified—for example, those who had all their money in tech stocks in 2000 and 2001—are the ones who should think about chaning their strategy, in my opinion.
While what you say Dus10 is logically correct, recessions involve sentiment as well as real money. And the way people feel about the economy is just as important as the actual economy. In some cases bad news (not predictive bad news but actual bad news) affects the whole environment, not just one sector of the economy.
Is it just me, or is everything getting really expensive lately? I mean, everything just seems to cost more, whether it’s gasoline or groceries or whatever….I just feel like I’m paying more for everything than I ever used to before….
Yeah, I get the same feeling.