What a gem of a post. I think we all must face the recession, and position ourselves accordingly.
Did anyone read my post Sell Now? I wrote so many posts about the cutback in consumer spending, that I’ve lost track. To summarize in one sentence: 70% of GDP is consumer spending, which has been sustained by taking equity out of ever rising home prices since wages have been stagnant, and when housing prices flatten our economy will come to a standstill, and the export oriented Asian economies will suffer as well.
Commodities and global stock markets are dependent on American consumer spending, and both categories will decline.
lindismith, you might like Ahead of the Curve by Joseph Elliott (#1 ranked retail analyst for 18 years, formerly at Goldman Sachs). His website aheadofthecurve-thebook.com updates the book’s charts every few months. He found a few decades ago the business cycle works like this:
wages –> consumer spending measured by PCE–> manufacturing/production –> capital spending –> employment –> wages
Each stage is delayed 0-9 months off the prior stage. Thus, while consumer spending is now slowing, capital spending will remain strong and employment will remain low causing the market analysts to believe the economy is strong whereas it is already weakening.
The stock market prices feed off this loop. PCE, personal consumption expenditure and the other items are measured by year-over-year changes, not the quarter-over-quarter that is reported by the government agencies and in the news. The yoy takes out the noise better.
Market analysts make the mistake of seeing employment numbers and gauging economic health from that, whereas employment is the MOST lagging indicator. If you want to track the future of the manufacturing sector, look at PCE, and wages. By the way, he found that interest rates are correlated with PCE, not predictive. The best predictor is the first indicator: wages. His model does not take into account MEW, so I would include “rising house prices and ability to borrow against it” along with wages. His book provides a road map to where we are going. So does Sell Now by John Talbott.
Elliott’s charts indicate we are heading into a recession.
My friend is a salesman at a high end kitchen appliance store, and he told me it’s been very slow lately. Another friend got laid off his job as a window shutter company manager, and is now cutting hair full time.
It is incumbent that, armed with this knowledge, we position ourselves to remain financially secure, and to help others do the same. That is the part I haven’t figured out yet.
lindismith, how can you position yourself for the recession? Can you sell things which people need regardless of the economy? For example, people will keep buying toothpaste and gas, while cutting back on dining out and home remodeling. Sell your busines while it is at its height, cashing out? Diversify your products? Perhaps your line will be in high demand regardless of the economy? By the way, the 2000-2001 recession was only in capital spending; the consumer kept shopping, so the recession was brief and mild. This next recession will be much worse, because it will be consumer led. Also read The Dollar Crisis if you like that kind of financial stuff. I read it twice, just to make sure I understood it all.
Here’s a link from the bubble blogger section. Right on with the stuff I just wrote about Elliott. I am editing this post to include this from The Big Picture.
