I actually had a genuine question about this theory that housing downturn will reduce consumer spending thus bringing down the stock market in general.
Don’t we need to find out which sectors of economy profited most from this consumer spending spurred by housing in the last 5 years? If a sector didn’t benefit from the consumer spending then why a decrease in consumer spending should affect it? Other than REITs, commodities (PM), emerging markets, small caps, etc, are there any other sectors that blossomed due to the increased consumer spending? I personally think emerging markets(China) will get most affected by this reduction in consumer spending.
To me the cycle goes like this: More money printed and borrowed by govt increasing trade/budget deficit->money passed on to people via low rates to buy houses->housing prices boom->money taken out of houses to spend->huge trade deficit indciates that majority of supply for this increased consumer demand came from China -> profits boom in China (emerging markets) -> Chinese investors buy US treasuries from these profits, thus completing the cycle.
Anyway, if US stocks are going to tumble then does anyone have any idea when the slide will start (if not already) and when do we expect to hit bottom and which sectors will be most affected? Taking all your equities out based on the general thinking that reduced consumer spending will take down all stocks maybe the safe game to play for now. But I wanted to know if folks think that we can do better? And where?
I won’t recommend people to panic and run to their retirement accounts and take all of their equity out. With your retirement account, you will never win trading in and out of what is hot and what is dead and should review your investment strategy and objectives twice a year but don’t take money in and out every month or so. The fees exiting in and out of funds will eat away large part of your profits in the long term. Also, not the entire developed world is facing a financial crisis like US so there are still lots of good funds to invest in for long term. Even in US, you can buy companies that make more than 80% of their money from sales outside of US and don’t have huge debts like our automakers.
Invest into cheap blue chip international giants. There are lots of large companies with P/E from 15-20 and moderate growth. You can also invest in large international dividend yielding companies.
