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Ask YC: How bad is the economy?

• furiouslol 18y ago
  In McCain's words, "the economy is sound". In my words, the economy is heading for a long-drawn recession due to a much needed deleveraging, albeit a drastic one. The world was too flush with credit in the past decade. The financial system is currently fubar with the credit market virtually frozen at this moment. Banks don't trust each other. The Chinese government has instructed their banks to stop lending to US financial institutions. The Feds are currently keeping the financial system on life support. Expect the side effects of the credit contraction to trickle down to the real economy very soon. More company failures, more layoffs, higher unemployment rate etc. Buffett wasn't exaggerating when he said this is an economic pearl harbor. Which is why the Paulson bailout plan will prove to be very crucial.
  • palish 18y ago
    Crucially bad. Let's not keep adding to our national debt and instead save the $700b. We'll be hurting for awhile, but at least it will be over afterwards. We'll be able to move on with our lives at that point. A bailout will just postpone the inevitable and cause long-term pain.
  • jpcx01 18y ago
    Don't be an idiot. He said "while the fundamentals are sound..." as part of a warning on a possible downturn. What do you want him to say? "The fundamentals are crap! Don't invest in USA!". There are several states in the country, right now, that are booming. If you don't think so, visit Austin and see how "depressed" it is.
    • jon_dahl 18y ago
      I agree, but lay off the name-calling.
• bootload 18y ago
  "... I'm very scared of what is going on. I have decent savings (about a year's worth) and a good job with Cisco (company got acquired recently) but I'm afraid of what is going to happen. ..." Haven't lived through a recession before? The most important things to remember: Reduce debt at all costs, make your objective to be debt free. Cash is king. With cash you can bargain. Live frugally while you have debt. If you have a job, train for the next one. If you have a job stick with it. If you are finding progression at work slow and thinking of another job, think before you leap. Probably the most important thing to remember is like booms, recessions end. "... What can I do to protect myself? ..." Don't spend what you can't pay in cash. As for protection, you can try but sometimes individuals are swept about like leaves on a stormy winters day. Adapt.
  • sant0sk1 18y ago
    During WW2 people in Germany would take wheel barrows of cash to the grocery store to buy bread and milk. The value of German currency dropped so low that people would steal your wheel barrow and dump out the cash. While I agree with your sentiment that you should only buy what you can pay for today, I wouldn't put too much trust in your (US) cash being worth tomorrow what it is today. Investing in foreign currencies can build a nice hedge in times like these.
    • bokonist 18y ago
      Almost every foreign currency has at least an informal peg to the dollar. The European and Chinese Central Banks are working hard to make sure that the dollar does not fall too much. The only truly foreign currency is gold. But the potential for a dollar crash is already factored into the price, so buying gold too is very risky. The safest place to put money would seem to be a combination of FDIC insured CD's, dividend paying stocks ( as opposed to non-dividend, purely speculative stocks), and gold.
      • thwarted 18y ago
        I don't follow how CDs, FDIC insured or not, wouldn't be affected by inflation in exactly the same way cash would be. Say you buy a $10 CD that pays 10% after 12 months. Within that year, the dollar is devalued by 50%, but your CD still only pays out $11, even though you'd need $22 to have the same purchasing power.
• steveplace 18y ago
  Protect yourself from what, exactly? Your savings is protected by the FDIC up to 100k per acct. I honestly don't believe that the tech/info sector is going to lose that many jobs. If Cisco does consolidate, it (hopefully) will be non-core resources, such as HR, and internal operations. If you have a 401k, you're screwed either way since you have very few options on where to invest. If you have an IRA, you can hedge risk by selling calls against your assets... but that's as far as I will go in terms of specific advice.
  • hugh 18y ago
    Anyone know exactly how the FDIC thing works? Supposing my bank goes under (which I sure as hell hope it won't, cuz it's Bank of America), I'm guessing it'll take some time for them to get their act together and I might not be able to access money in the short term. Is this correct? Or can they swing into action immediately to keep the money coming out of the ATMs? In that case it might make sense to have stashes of cash in multiple banks, just in case (and hell, a thousand bucks under your pillow).
    • tptacek 18y ago
      No, it does not make sense to stash a thousand bucks under your pillow.
      • kingkongrevenge 18y ago
        I haven't done this, but I actually think it's a good idea to have $1K in fives hidden somewhere. If the power goes out for a week in a region that would be a great thing to have.
        • tptacek 18y ago
          Also: canned goods, petrol, ammunition.
        • nostrademons 18y ago
          Yeah, my sister stocked up on $20s before Hurricane Ike, and it saved her butt. Houston is only now getting power back, so everything was cash-only for a week or so. Also - pasta salad is apparently a lifesaver. It serves like 10, can be eaten cold, and doesn't go bad all that easily.
• ideas101 18y ago
  Trust me : US Economy is in WORST position than anyone can think; sooner or later it is going in to deep recession (if not depression) ; this is just the beginning; don't be surprise if US$ value decreases to the record level in the history .... Solution: Increase income, decrease debt Increase Assets, decrease liability If you're from other country then spread your cash in different currencies or buy universal currency (Gold / Silver). Try to gain multiple skills so that when it hits your job you can take-up something else with the help of your new skills. BE A GLOBAL CITIZEN; YOU SHOULD BE READY TO MOVE WHEREVER IS THE JOB OPPORTUNITY.
• trickjarrett 18y ago
  Times will get rough but anyone who isn't a moron will come out alright. Recessions are necessary periods of self repair for economies. This one is a backlash from too many people getting too much stupid debt and financial institutions not being responsible.
  • thomasmallen 18y ago
    Are you one of those people who thinks the poor are stupid? Sometimes it's out of your hands.
• truebosko 18y ago
  This is kind of on topic but I was listening to a podcast earlier this week and one piece of advice given was: If you are part of a small company, or if you have a growing small startup/business, this is the time to grow. The big guys are going to be hurting by the downturn in the economy. Get your product out there, stabilize it, and use these years to get a level of safety for it. As for your assets. Like others said, reduce your debts, keep saving as you are now and you will be fine. If most of your assets are in ACTUAL CASH (i.e: money stored in a savings account) then you will be fine.
  • calvin 18y ago
    Having hordes of actual cash won't protect you from inflation if it starts to become a problem. There's a reason gold is trading incredibly high right now.
    • truebosko 18y ago
      Oh I understand this, but for most people doing any kind of trading is just out of their league. I'm sure most people will be happy to know the $50k they have in their ING Account will be safe from most things while the economy levels back up again over the years.
      • palish 18y ago
        I truly hope so. I have $15k to wade through this thing, so I doubt I can last very many years. Luckily I don't have to travel much, so the rising cost of fuel doesn't affect my burn rate terribly. Health insurance is a different story though.
      • kingkongrevenge 18y ago
        It's not exactly "trading" to keep something like 15% of your savings in physical gold, GLD ETF, or everbank CDs (gold backed interest earning certificates).
    • jon_dahl 18y ago
      How to protect against inflation: 1. Don't stick (too much) cash under a mattress. Avoid long-term bonds (which get killed by inflation). 2. Gold is a great inflation hedge, but is a terrible long-term investment. Other commodities are similar. 3. TIPS (e.g. VISPX) make excellent inflation hedges AND long-term investments. 4. Short-term investments, like money market funds, short-term bonds, and short-term CDs, also generally do well. If people expect 4% inflation, these investments need to pay more than 4% in order to get people's money. 5. Stocks and real estate protect against inflation over long time periods (5-10 years), but not over short periods.
• tocomment 18y ago
  He probably means protection against hyper inflation. Any advice for that?
  • nostrademons 18y ago
    Guns & gold. You want enough gold to bribe your way out of the country, and enough guns to ensure that the relevant people take the bribe. Hyperinflation almost always leads to political unrest, rioting, the fall of the current political regime, and usually war. There's no defense against that: somebody will break into your house, kill you, and take everything you own anyway. So if you honestly believe hyperinflation is going to occur, get the hell out of dodge and quit worrying about your finances. This, BTW, is why I don't think hyperinflation will occur. Since it always leads to the toppling of the entrenched power elite, and the entrenched power elite tends to do anything in their power to stay in power, they'll make sure it doesn't happen. Looking at history, every instance of hyperinflation I could find resulted from one of two conditions: 1. There was a large standing army who hadn't been paid in a while and was getting antsy. Or, alternatively, a large rebel group that forcibly appropriated resources from the citizenry and was getting antsy. (Rome 476, Spain 1588, U.S. 1789, Confederate U.S 1865, Hungary 1946, ROC 1949, USSR 1992, Ukraine 1993) 2. There is a large foreign debt, denominated in foreign currency, that the nation can't pay back. (Weimar Germany 1921, Argentina 1989, Argentina 2001.) In both of these cases, the government is going to fall anyway. If you don't pay the army, they have guns, they come in, and they oust you. If you don't pay your foreign creditors, they have guns, they come in, and they oust you. Printing money is a way to buy time; it never works in the long run, but between dying now and dying later, most elites would rather die later. The U.S. is not in either of these situations, though the rise of private security forces (Blackstone) is worrying, as is their addiction to debt. If the U.S. doesn't get its spending habits under control, it's just a matter of time before it starts borrowing in RMB or Yen, and then an ordinary garden-variety inflation isn't enough to erase its debt.
• noodle 18y ago
  you'll be fine. put money into your retirement account, save money in a good high-yield FDIC account and wait this thing out. don't do anything stupid, but don't do anything you think is smart, either, because its probably also stupid in an uncertain market. this is just a part of the business cycle. we're just seeing an extra big down because some jerks love money more than ethics. it will go back up, and by investing in your retirement still, you'll be buying some good deals on stocks while they're down.
• known 18y ago
  Very bad. Stay away from Stock Markets.
  • mrtron 18y ago
    Any time you hear that it is time to invest! As painful as the current situation is for some, it certainly is a better buying opportunity than a few months ago.
    • tptacek 18y ago
      And the great thing about that is, it might be an even better buying opportunity a few months from now! =)
    • kingkongrevenge 18y ago
      > Any time you hear that it is time to invest! Your perceptions of the prevailing market psychology are distorted. Surveys show that retail investors have remained bullish. The general sentiment is extremely far from "never invest in stocks," which is what usually marks the bottom of a big recession. Believe it or not, most homeowners continue to think they will see appreciation next year. This recession has barely started and investors have barely even realized we are in a recession.
    • bokonist 18y ago
      Except, usually when the bottom comes, the dividend yield is very high. During the bottom in 1932 the dividend yield was 13%. During the bottom in the early 1980's it was around 6%. The historical average dividend yield is ~4%. But right now it's still under 2%. That's pretty scary.
    • 13ren 18y ago
      And watch Warren Buffett. Is he buying? Is he tap dancing?
      • hhm 18y ago
        What is he doing now?
• dobrekone 18y ago
  ... why reduce debt? Nothing is better for devaluing your debt as inflation. It makes it worthless. The question is whether there will be a significant inflation at all. I doubt it, since lot of assets were burned recently in the market drop so there is actually missing liquidity. US could easily face the problem of deflation rather then inflation in the near future. A well balanced portfolio of your investments is the best what you can do in long term. It is hard (if impossible) to time the markets. A well balanced portfolio generally means: 60% equity, 30% bonds, 10% alternatives (including gold).
  • kingkongrevenge 18y ago
    This only works out if there is WAGE inflation. It is very possible for inflation to run rampant while nominal wage growth trails far behind. This is probably the most likely scenario. Have fun paying off your devalued debts with an income of $0, because you're unemployed. In the intermediate term, asset deflation will probably be the dominant force, even if consumer staples continue to inflate somewhat. The very high general inflation is in store for later.
• corentin 18y ago
  Don't panic. Despite what the media say (their job is to tell doom stories, after all), it's not the end of the world as you know it. If you don't know anything particular about finance, just follow your guts, keep your savings account and listen to the experts telling you to invest in whatever with a grain of salt. Don't try to act differently. We're not always rational economic actors in the first place, and panic only makes things much worse. Simply follow the prices, as you would usually (e.g. if you see a bargain at the supermarket, go for it if it's something you would usually do).
• josephl 18y ago
  I have a related question. Do you guys think it is a good time to invest in real estate. I live in Southern CA, so property is pretty expensive as it is. Right now, I'm looking at places for approx. $300k that were approx. $500k two years ago. Given that fact that interest rates are not bad either (5.5-7%), it does not seem like a bad time (given that I will have no problems making the payments). This would be my first home purchase, so I'm pretty new at this stuff.
  • jon_dahl 18y ago
    Are you looking to own your own home, or make money investing in real estate? If you're talking the former, and you can afford it (20% down-payment, non-ARM, comfortable monthly payment), then I'd probably do it personally. If you're doing it as an investment, I'd hold off unless you have a lot of money invested already and are looking to diversify. "They" are saying that home prices may slide for another year or two at least. Of course, "they" are often wrong...
    • josephl 18y ago
      I'm looking to own my own home. I've got 10% down, non-ARM and semi-conformable monthly payment (relies on two incomes).
• jon_dahl 18y ago
  My thoughts: http://blog.9assets.com/post/51250904/the-sleep-test-lessons-from-a-bear-market#disqus_thread http://blog.9assets.com/post/51250904/the-sleep-test-lessons... I recommend that you don't panic and ride it out. But if you can't, then permanently decrease your risk exposure (not just for this downturn).
• 13ren 18y ago
  A problem is an opportunity. Mr. Market suffers from some rather incurable emotional problems; you see, he is very temperamental. When Mr. Market is overcome by boundless optimism or bottomless pessimism, he will quote you a price that seems to you a little short of silly. Warning: you can only tell if the price of a particular stock is silly if you have some idea of what its price should be (with a margin of safety).
• biohacker42 18y ago
  A lot of people say that things could get as bad as the great depression. That is true in the absolute sense, but wrong in the relative. What I mean is that we are today much richer then people were just before the great depression. If the economy dives deeper and stays down longer we would still be much better of then people were during the great depression. That's not my opinion, that's fact, because it is what happened in Japan. Japan had a cheap money, stock and real estate fueled boom and then a true depression which was deeper and longer then the great depression. But because they were much, much, much better of to start with, their bottom was still far above the great depression's bottom. The same principle would apply to America. As other people have mentioned cash is king in a recession/depression. Keep in mind cash can lose its value if the fed is trying to stimulate spending by inflating the currency. Gold is a good hedge but gold is taxed at very high rates (22%, not sure) but government bonds are tax free. It's probably a good idea to hold both. And if the fed is attempting to save us by printing money, debt IS a good thing to have. Inflation is the debtor's friend.
  • thomasmallen 18y ago
    Is that a poem?
• coglethorpe 18y ago
  I'm currently looking for a new job. I've noticed that the demand for my skills is as high as in 1999, but the market rate for those skills has dropped nearly 20%.
  • menloparkbum 18y ago
    That's because you are old (I've experienced the same thing.) Salaries for recent grads are higher than ever.
    • nostrademons 18y ago
      Do folks 3 years out of college count as "old" or "recent grads"?
      • menloparkbum 18y ago
        It depends on what you're doing. Raw details: I've been at it for 10 years, half in california, half in boston. Just interviewed at a bunch of startups and one big firm. Offers were all around $95K + post series A equity. I made the same salary 18 months out of college. College senior interns at the last "real job" I had got hired away for $86K starting at Amazon, and I didn't think they were necessarily the cream of the crop. I decided to keep contracting until the end of the year at $95/hr and continue working on my improbable startup, even with the heinous economy. In my experience engineering salaries plateau around $100K. Maybe more if you are doing something hard (VMWare) or heinous ("web scaling expert") or are looking to be an exec (VP Eng / CTO). Age/Experience doesn't really translate into significantly more money unless you're looking to move up the management chain. Best to make hay while you are young. Although, I haven't had a model career - I usually make lateral moves to work on something new and interesting, and have some employment gaps where I decided to travel the world instead of slogging it out. 'Your mileage may vary'
        • coglethorpe 18y ago
          > Age/Experience doesn't really translate into significantly more money unless you're looking to move up the management chain. I'm actually looking at salaried positions that will pay close to what I'm at now and have me one or two notches up the food chain. Wages have stagnated for now at least.
• gtani 18y ago
  The advice here is good and well-intentioned, for the most part, but you need to get recommendations form colleagues and friends for an accountant and fee-based financial planner in your area that you trust, explain your tax, real estate, financial holdings, and family situation, and work through different scenarios.
• thomasmallen 18y ago
  Let me put it this way: I woke up at 6 this morning to the words "biggest bank failure in US history," and immediately thought to myself, "Well, I woke up to the depression." After listening for a little while, I realized it was the same WaMu news from last night, so not a big deal. But things are going downhill and it's due a a fundamentally flawed economy woefully dependent on credit. I expect tough times ahead, but I'm not too concerned. I have real, technical skills that should keep me working through whatever may come. One thing that I'm doing is brushing up on my DBA abilities, because I figure that no matter how bad things get, maintaining databases will not be an option: They're part of the infrastructure now. Call me RMS, but now is the time to make sure that your skills with open source software are top-notch. If things go down the toilet, you can bet that businesses will be hesitant to use expensive Microsoft products when free alternatives are around. Now, Microsoft would hopefully adjust to the decrease in demand, but I'll take the almost guaranteed increase in demand any day over that gamble.
• ernan 18y ago
  America is the greatest democracy since Greece. There is a lot of nay sayers rigth now, as there always is in hard times: These guys used to have placards on their backs and fronts saying it is the end of the world, now the internet has given them a wider voice. We should rejoce in this fact and to be honest I love it and read all of these blogs every day. This is freedom of the press and democracy at its finest. I work at a finance company that went burst (Bear Stearns) so what some people lost some jobs, some rich people lost alot of money. Come on I was also in the DOT com burst. Look be smart, the start looking for the next bubble and getting on board as you should be. Just listen to what these gobshites are saying: it is the end of america, it is the end of the super power. I have heard this crap quite a few times over the last while, gimmie a break. Listen stop being part of the problem: 1. Start looking for a profit in this. 2. Start looking at how America can change to be better from this. 3. The crinimals that currently run the country should be held accountable if they actually manage to rob the taxpayer of this 700B. 4. The fed should be nationalized. America is the greatest country in the world, I truly, truly believe this all we need is a bit of leadershio to guide us out of this crises. The unfortunate thing right now is that both parties have tried to politicise this crises. FUCK them all no matter what happens tomorrow we will still be american and we will be stronger better and harder. Stop listening to the fags and start working on solutions to the problem. That is what america is about, somewhere we lost a bit of this, it is time for some new ideas some hard work and some real leadership. Believe me the problems we are facing are big but if we work togehter as a nation we will dispatch this problem in a quater, turn this nation around regain our pride and show the world why America is the only super power. Ernan