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Surviving winter of economic discontent
By Wan Lixin |
January 24, 2009, Saturday
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Print Edition
Print Edition
AS major economies one by one slid into recession, a book on how to survive the harsh winter fills a timely need.
"Surviving the Storm: Investment Strategies That Help You Maximize Profit and Control Risk During the Coming Economic Winter" by James O. Lunney with Larry Chambers contains important tips on how to rough it in the hard winter.
And the value of book increases because it was published only a few months before the financial crisis struck. Now few doubt that major economies in the West are in the worst post-World War II recession both in terms of duration and depth.
The authors identified a common investment fallacy: Many people base their investment decisions on what happened in the past, rather than what is likely to happen in the future.
The three most important influences on economic activity, the book says, are the rate of birth, expenditures, and economic seasons.
"The way retired Baby Boomers will spend their money is going to determine the next season of the economy - the economic spring, summer, winter or fall in which the 'climate' mirrors the characteristics of the corresponding season in nature," the authors observe.
Of course these observations need to be adapted to local conditions.
In China, demographics usually incline some economists to entertain rosy views about the consumption potential, but it must be born in mind that many factors will come into play.
Any projections about future spending have to be contextualized in the Chinese reality.
Unlike the stated impacts of baby boomers on American economy, the retirees in China are often not so important as consumers.
After China experienced sudden drops in external demand late last year, the government responded by introducing a number of countercyclical economic stimulus measures aiming to stimulate domestic consumption.
But whether to spend or not is more dictated by the future, rather than the past.
At a time when many are worried about their jobs and are lowering their forecasts about future income, spending money is probably the last thing on their mind.
More likely, people would cut back on spending ranging from eating out to such big-ticket items as cars and housing.
This is a wise strategy in coping with future uncertainties.
"... (A)an economic winter includes rough times with plummeting profit margins, which would in turn cause reduced equity prices," the book observes.
The book warns investors against financial advisers and media, believing that financial advisers often don't even understand their most widely used tools themselves, while the media is one of the least reliable sources of information about investing, money management or anything else.
And these problems are likely to get much worse in a market heading south.
It's unfortunate that ordinary investors have to rely so much on financial advisers and media.
In the US, as Baby Boomers' consumption power peaks at around 2009 and 2010, the book predicts the winter will close in after that - this proves to be a slightly optimistic projection.
How to protect your wealth in winter is a great challenge.
"No single line of defense will cover everything that you own, so you'll need to look at a variety of strategies and structures," the authors caution.
Consider the following forms of insurance as a protection: health insurance, disability insurance, retirement and life insurance.
The authors also advise that in winter, sell stock, especially financials, get out of debt and get out of real estate.
The book provides timely and forward-looking wealth management strategies, and many who read it might regret they did not read it sooner.
"Surviving the Storm: Investment Strategies That Help You Maximize Profit and Control Risk During the Coming Economic Winter" by James O. Lunney with Larry Chambers contains important tips on how to rough it in the hard winter.
And the value of book increases because it was published only a few months before the financial crisis struck. Now few doubt that major economies in the West are in the worst post-World War II recession both in terms of duration and depth.
The authors identified a common investment fallacy: Many people base their investment decisions on what happened in the past, rather than what is likely to happen in the future.
The three most important influences on economic activity, the book says, are the rate of birth, expenditures, and economic seasons.
"The way retired Baby Boomers will spend their money is going to determine the next season of the economy - the economic spring, summer, winter or fall in which the 'climate' mirrors the characteristics of the corresponding season in nature," the authors observe.
Of course these observations need to be adapted to local conditions.
In China, demographics usually incline some economists to entertain rosy views about the consumption potential, but it must be born in mind that many factors will come into play.
Any projections about future spending have to be contextualized in the Chinese reality.
Unlike the stated impacts of baby boomers on American economy, the retirees in China are often not so important as consumers.
After China experienced sudden drops in external demand late last year, the government responded by introducing a number of countercyclical economic stimulus measures aiming to stimulate domestic consumption.
But whether to spend or not is more dictated by the future, rather than the past.
At a time when many are worried about their jobs and are lowering their forecasts about future income, spending money is probably the last thing on their mind.
More likely, people would cut back on spending ranging from eating out to such big-ticket items as cars and housing.
This is a wise strategy in coping with future uncertainties.
"... (A)an economic winter includes rough times with plummeting profit margins, which would in turn cause reduced equity prices," the book observes.
The book warns investors against financial advisers and media, believing that financial advisers often don't even understand their most widely used tools themselves, while the media is one of the least reliable sources of information about investing, money management or anything else.
And these problems are likely to get much worse in a market heading south.
It's unfortunate that ordinary investors have to rely so much on financial advisers and media.
In the US, as Baby Boomers' consumption power peaks at around 2009 and 2010, the book predicts the winter will close in after that - this proves to be a slightly optimistic projection.
How to protect your wealth in winter is a great challenge.
"No single line of defense will cover everything that you own, so you'll need to look at a variety of strategies and structures," the authors caution.
Consider the following forms of insurance as a protection: health insurance, disability insurance, retirement and life insurance.
The authors also advise that in winter, sell stock, especially financials, get out of debt and get out of real estate.
The book provides timely and forward-looking wealth management strategies, and many who read it might regret they did not read it sooner.
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