Sunday, October 12, 2008

Not A Depression But Lack Of Confidence

A number of economist and financial writers continue to debate whether the current events are leading the U.S. past a recession and into a depression. In short, I believe it is a recession with the lack of confidence in our financial system leading to thoughts of a depression. Following are some highlights from article across the web that support the recession (and not depression) scenario.
Table Courtesy Charles Schwab & Co.
  • Bill Conerly, Ph.D. at the Businomics Blog contains a brief discussion on the TED spread in his article, TED Spread: How High Is Financial Risk Today?, noting "the Great Moderation, the milder business cycle climate" and if you survived any of those past recessions. You'll likely survive this one, too.
  • Jeff Miller, Ph.D. notes in his post, How NOT to Think about Your Investments, at A Dash of Insight, some links to the behavioral aspects to investing. Some investor decisions tend to be "knee-jerk" reactions.
  • And what does Warren Buffett say about the current environment. This from a few weeks ago:
"You know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary (stock market) buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well."
So don't make investment decisions by looking in the rear view mirror. As noted in Warren Buffett's quote above, a week or a month from now we may see additional downside volatility. Five and ten years from now: likely higher prices.

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