The Investment Clock
The Investment ClockWhat is the Investment Clock?
The investment clock is one of the best indicators on the movement and condition of the finance, property and equties markets. It was first published in London’s Evening Standard in 1937 and showed the movement of markets within a decade cycle. Many people, however did not readily accept the probability of events turning out in a cyclical fashion so it took a while for some to warm to this new area of thought.History clearly indicated that this probability was very high so it was suggested that the sooner people understood and embraced the time clock indicators the better.
The usual length of the cycle trough is 7 – 9 years, although it can move up to 8 – 11 years. The investment clock seemed to always indicate that real estate property was the last asset to respond and move. When the cycle enters a credit squeeze mode, property becomes the most difficult of all assets to sell and therefore the most dangerous to own or deal in. High quality real estate with little or no debt was seen as being able to weather any storm but where there was debt involved then trouoble could occur as debt affected cash inflows.
The Bottom of the Clock
At the bottom of the cycle when fear and bankruptcy are abounding and interest rates are down, remember that this is the time to be positive. It is the time when there are bargains galore, ready for the taking.The driving factor behind the business cycle is the capitalist system itself. Recessions are a way of ridding itself of excesses. Things like speculative lending by banks, high risk real estate trading and inflation. Society simply starts going a bit faster than the economy and places a lot of strain on resources. This means we are left with inflation and high interest rates. The bank then imposes a credit squeeze for a period, long enough for those excesses from the system to force inflation down.
Always remember that during a slump the price of most things will fall, but the value of cash does not. In fact, the value of cash goes up because it is measured by its increased ability to buy things more cheaply. This is the best time to hold cash and come out of those holdings when the economy is in the doldrums.
When Business Cycles Occur
Most new investors will wait until the market starts to move up before they buy shares or property. The trouble is, by the time they are aware that the market has moved, the experienced investors have already moved away from the market to the next level.Experienced investors around the world do this because they buy before the market starts to inflate and prices rise. One way they understand the movement in the market is by knowing about the investment clock. The investment clock is based on the well-known phenomena that business cycles occur on average every 7 – 9 years.
Understanding the Investment Clock
As an investor you need to understand fully the movement and the implication of the investment clock. Once you have lived through an investment cycle and seen the recurring nature of the booms and the busts and the rises and the falls, then you will become a better investor because you will understand the importance of timing in your investment decisions.You have to be totally familiar with the workings of the investment clock because it is an important tool that will guide you along your journey to financial success. The value of the investment clock is its ability to show the cycle relationship between investment such as shares, property and fixed interest, as well as the order in which they all occur. It is not a good indicator for predicting the timing of various trends in the market with any accuracy.
The investment clock tells you the most appropriate investment medium after taking into account the prevailing indicators such as interest rates, commodity prices and inflation. It shows that the share cycle, for example, is followed by the real estate and then the fixed interest cycles. The investment clock has proven accurate in reflecting the market forces that drive the various types of investment cycles and the order in which they all occur.
The Investment Clock
For example, look at the clock:* 12 O’clock
12 o’clock is the boom and there is a rapid increase in demand for real estate with property rising. These are the boom times for property. The increased demand for property causes interest rates to rise because of the demand for funds. As interest rates rise, companies find it hard to make profits, and because of the rise in the property as well as fixed interest investments at this time, share prices tend to fall.* 3 O’clock
3 o’clock in the investment clock the sharemarket is doing very little and offers few prospects to investors. Interest rates are now too high to make borrowing for property an attractive option. At this time fixed interest or cash investors will cash up their investments, to take advantage of the high interest rates on offer to lenders. High interest rates slow the economy and start to lead the country into a recession. This brings the cycle down to 6 o’clock.* 6 O’clock
At 6 O’clock recession has reached its depth and this usually occurs every 7 – 9 years. Investors are now too scared to invest, or they can’t afford to borrow the money, so interest rates slowly start to fall. Companies have had to become leaner and increase productivity during these times. The economy slowly starts to improve, and with it company profits start to grow, which stimulates the share prices to recover.* 7 O’clock
At about 7 o’clock people have left the market, having sold their shares as a result of the downturn. They retreated to other investments, such as cash or fixed interest, or even property. Interest rates have moved low and eventually the point is reached where the long-term investors see the value in the market and they start to accumulate shares, which are better performing.Thus, the seeds of the next recovery are sown and eventually shares and commodity prices start to rise.
Why the Economic Cycles
Understanding this cycle and the relationship between the various types of investment is critical if you want to maximise success in your investments no matter what part of the world you live in.The question is, why do economic cycles occur in the first place? The simple answer is that the world economy is a collection of many nations, each at their own individual point within the economic clock. Each nation is made up of millions of people, each making their own financial decisions in reaction to other people’s decisions.
The sheer momentum of all these economies means that they always over-swing the mark and this results in the economic movements of the cycle.
That will take us to 2012
Authored by Garth Turner — Greater Fool – The Troubled Future of Real Estate
So, first we have a deflationary recession, lasting maybe two years. Then, as the recovery takes hold, as those trillions need to be repaid and as the world is awash in liquidity, we get inflation, probably severe. That will immediately start reflating real estate and oil and Vespas, and cause central banks to ratchet up interest rates in order to choke off too-rapidly rising prices.That will take us to 2012. Ask me then what comes next.
Expect these things to happen in following 3 years
Authored by Garth Turner — Greater Fool – The Troubled Future of Real Estate
Expect these things to happen* Falling house values until at least 2010
* A large and growing federal budget deficit in Ottawa, starting in 2009
* Unemployment rising almost continuously for at least two years
* The banking and financial system rocked with bad assets and a few failures
* Stunning stock losses before a market-led recovery starts
* Banks suspend dividend payments to stockholders
* Reduced exports and corporate failures as the US tries to protect jobs
* Fewer services as governments at all level struggle with a funding crisis
12 tips for financial independence
Canadian Business Blog » Blog Archive » 12 tips for financial independence
12 tips for financial independenceJonathan Chevreau’s Findependence Day is an entertaining read. I picked it up for a review of some financial-planning topics but found myself flipping the pages to see what was going to happen next to the central characters. To make sure I didn’t miss some of the pointers, I skipped back through the text and drew up a brief summary of some of the main ones (see below). Perhaps it is serviceable as a companion piece to the book (which, as I mentioned, does not have such a wrap-up).
1) You can become financially independent without the big score in business or investing by spending less than you earn (cut out lottery tickets, booze, restaurant meals/coffee, cigarettes, candy, etc.)
2) To stay on track, pick a date to be financially independent (“Findependence Day”); to get there, have a financial plan and even an advisor (whose value added includes advice on taxes, household finances, estate planning, insurance, registered plans, and so on).
3) Get rid of all credit-card debt and consumer loans.
4) As a foundation for financial independence, buy a house and pay off the mortgage as fast as possible. A 30- or 35-year mortgage is fine if you use the prepayment and accelerated-payment options to extinguish within 10-15 years.
5) Don’t start investing until at least half the mortgage is paid off; for investing, consider a preauthorized chequing account (PCA) that automatically transfers 10% to 20% of your paycheque into an investment account in which you have set up a Lazy Portfolio (mostly a diversified basket of exchange-traded funds such as, if I may suggest, the Couch Potato Portfolio).
6) If your job is secure and comes with a good pension (e.g. government, teacher), emphasize equities; if job income is insecure (e.g. commissioned sales), emphasize bonds and other less risky assets (alternatively, dollar-cost average into equities through a PCA).
7) Don’t invest a large part of your financial portfolio in your employer – diversify your portfolio to avoid having too many eggs in same basket
8) Save and invest job bonuses and pay raises.
9) Run your old car on the road longer; pay cash for a new car by contributing regularly to a Tax Free savings Account (TFSA).
10) Multiple streams of income are good; consider REITs as an alternative to owning rental properties and the hassles of being a landlord.
11) Hold fixed-income investments and high turnover mutual funds in tax-sheltered accounts; hold stocks in taxable accounts (except for U.S. dividend stocks because they are not eligible for dividend tax credits).
12) Portfolio management tips: a general-purpose asset allocation is 60% to stocks and 40% to bonds; favor exchange-traded funds and some mutual funds over individual stocks (except stocks with growing dividends), tilt toward small caps and value investments; diversify into foreign stocks; use currency hedging if foreign holdings over 25% of portfolio; consider real-return bonds for inflation protection; reinvest dividends through company reinvesting plans; and so on.
35岁之前要成功的12条法则
35岁之前要成功的12条法则要：一:一个目标
一艘没有航行目标的船，任何方向的风都是逆风
2、你的人生核心目标是什么？
杰出人士与平庸之辈的根本差别并不是天赋、机遇，而在于有无目标。
3、起跑领先一步，人生领先一大步：成功从选定目标开始
为什么大多数人没有成功？真正能完成自己计划的人只有5%，大多数人不是将自己的目标舍弃，就是沦为缺乏行动的空想
5、如果你想在35岁以前成功，你一定在25至30岁之间确立好你的人生目标
6、每日、每月、每年都要问自己：我是否达到了自己定下的目标
二：两个成功基点
站好位置，调正心态，努力冲刺，35岁以前成功
（一）人生定位
1、 人怕入错行：你的核心竞争力是什么？
2、 成功者找方法，失败者找借口
3、 从三百六十行中选择你的最爱
人人都可以创业，但却不是人人都能创业成功
4、 寻找自己的黄金宝地
（二）永恒的真理：心态决定命运，35岁以前的心态决定你一生的命运
1、 不满现状的人才能成为富翁
2、 敢于梦想，勇于梦想，这个世界永远属于追梦的人
3、 35岁以前不要怕，35岁以后不要悔
4、 出身贫民，并非一辈子是贫民，只要你永远保持那颗进取的心。中国成功人士大多来自小地方
5、 做一个积极的思维者
6、 不要败给悲观的自己
有的人比你富有一千倍，他们也会比你聪明一千倍么？不会，他们只是年轻时心气比你高一千倍。
人生的好多次失败，最后并不是败给别人，而是败给了悲观的自己。
7、 成功者不过是爬起来比倒下去多一次
8、 宁可去碰壁，也不要在家里面壁
克服你的失败、消极的心态
（1） 找个地方喝点酒
（2） 找个迪厅跳跳舞
（3） 找帮朋友侃侃山
（4） 积极行动起来
三：三大技巧
1、管理时间：你的时间在哪里，你的成就就在哪里。
把一小时看成60分钟的人，比看作一小时的人多60倍
2、你不理财，财不理你
3、自我管理，游刃有余
（1） 创业不怕本小，脑子一定要好
（2） 可以开家特色店
（3） 做别人不愿做的生意
四：四项安身立命的理念
35岁以前一定要形成个人风格
1、做人优于做事
做事失败可以重来，做人失败却不能重来
（1） 做人要讲义气
（2） 永不气馁
2、豁达的男人有财运，豁达的女人有帮夫运
35岁以前搞定婚姻生活
3、忠诚的原则：35岁以前你还没有建立起忠诚美誉，这一缺点将要困扰你的一生
4、把小事做细，但不要耍小聪明
中国人想做大事的人太多，而愿把小事做完美的人太少
五：五分运气
比尔·盖茨说：人生是不公平的，习惯去接受它吧
1、人生的确有很多运气的成人：谋事在人，成事在天：中国的古训说明各占一半
2、机会时常意外地降临，但属于那些不应决不放弃的人
3、抓住人生的每一次机会
机会就像一只小鸟，如果你不抓住，它就会飞得无影无踪
4、 者早一步，愚者晚一步
六：六项要求
1、智慧
（1）别人可你以拿走你的一切，但拿不走你的智慧
（2）巧妙运用自己的智慧
（3）智者与愚者的区别
2、勇气
（1）勇气的力量有时会让你成为“超人”
（2）敢于放弃，敢于“舍得”
3、培养自己的“领导才能、领袖气质”
（1）激情感染别人
（2）“三·七法则”实现领袖气质
（3）拍板决断能力
（4）人格魅力
4、创造性：不要做循规蹈矩的人
25-35岁是人生最有创造性的阶段，很多成功人士也都产生在这一阶段
5、明智
（1） 知道自己的长处、短处，定向聚焦
（2） 尽量在自己的熟悉的领域努力
6、持之以恒的行动力：在你选定行业坚持十年，你一定会成为大赢家
Young, Rich, and Retired: An Interview with QCash
Young, Rich, and Retired: An Interview with QCash | Million Dollar Journey
I’d like to introduce a fellow Canadian who has accumulated over $1.5 million dollars in net worth at the young age of 36 and has recently retired. Did he inherit his money? Did he obtain a windfall of some sort? How did he do it?I had the opportunity to interview the young millionaire about these questions and his secrets of success. Without further adieu, I’m proud to present… QCash!
What province do you live in?
Ontario
How old are you?
I turn 37 at the end of this year (xmas eve)
What is your current net worth?
As of yesterday, $1,735,000
Can you break down your net worth by portfolio and real estate?
Real estate:
Principal Residence $254,000 (purchase price in 2000)
Residential Investment $92,000 (purchase price in 1990 $184,000 but I
bought it with a friend, my first investment)
Residential Investment $181,000 (purchase price in 2002)Portfolio: $1,200,000
When did you start saving and investing?
My first job was at McDonalds. I was 14 and started saving 10% of everything I earned.
When I was in my mid-20’s, I owned three houses (2 and 1/2) and had mortgages on all of them. I had just got a good job in Toronto and was living the high life. I started using credit cards more extensively and was living beyond my means. I hit a point where I honestly didn’t have enough money/credit for the next mortgage payment and it scared me straight. I got my spending back under control and realized I never wanted to get to that point again. I still had a large positive net worth, but my liquidity was zero.
What is your savings philosophy?
I try to allocate a certain percentage of income to savings. Usually I first try to max out my RRSP and then my non-registered savings.
When my wife and I decided we would start a family, we tried to live on just my salary. We did this for almost 15 months (didn’t hit the nail on the head the first time out
and my wife was earning a decent living. We saved all her salary, and then banked all her maternity leave.
During your working years, how much did you save / year on average as a percentage of your income?
It would have been about 15-20% on average. Maxed out the RRSP and then used the extra for savings and investing.
Once I started saving, I found it addictive. I resented using any of the funds to pay for anything. I was actually getting quite miserly, but I then started allocating a certain percentage to “mad money” account and then used that to have fun, but didn’t feel I was going to break the bank.
How does your spouse feel about your financial fanatics?
I married someone who shares the same philosophy and approach to saving and spending. She is much more conservative than I and I run all our investment plans through her for her opinion/veto. Having a spouse who is interested in your financial future makes life a lot easier.
What influence did your parents have on your financial knowledge?
My parents split up when I was 7. My dad was always refinancing our home to pay for things. If the house went up in value, he refinanced and spent the money. When my parents split up, my mom, my sister and I moved out.
My mother is not an investment savvy person. She is easily influenced and bails out as soon as a loss is posted. However, it was evident that if I wanted to go to university, buy a bike, car, etc, I had to save my own money to do it. There would be no handouts. (This sounds harsh, my parents were generous, but not with money.)
These circumstances caused me to not ever, ever want to live like that. I decided at a young age that I wanted to be rich.
What was your first investment?
At 16, I bough 100 shares of Laidlaw Class B for $14/share, sold them at $18/share and thought I was the cat’s pajamas of investing. The next time I bought the same shares at $14 only to sell them at $12.00 when I needed money for university.
At 18, my friend and I bought a house together. We had been roommates in University and his sister was a real estate agent. His sister found us a great place that we could rent to 5 other guys and live rent free for the rest of university. His mother co-signed the loan. We still have that house to this day, paid in full.
What was your investment strategy to get you to where you are today?
Most of my investments early on were in RRSP mutual funds (most still are today). I maxed out my RRSP contributions every year and then put the rebate back towards my realestate mortgage.
After university, I bought my own place, and another, only to sell them both when we got married. Those two sales netted me about $90,000 over 10 years.
What are your favorite mutual funds today?
Mavrix Dividend and Income Fund
BMO Dividend Fund
BMO Monthly Income FundHow do you pick them?
I was looking for guaranteed rates of return. Both the Mavrix and BMO Monthly Income fund have a Return of Capital portion which makes the cash flow much better from a tax point of view. Yes, it means my cost base is adjusted each year I hold them and I will get hit with the capital gain when I sell, but my intention is not to sell them for a long time to come.
If you were to give some financial tips to someone just starting out,
what would it be?Don’t get emotional about the markets. Do not put all your eggs in one basket. Real Estate can be a great wealth generator, but make sure you know what you are doing…it has a huge PITA factor.
When did you retire?
I stopped working on December 31st, 2006
Is retirement what you thought it would be?
After only three months, I think I am busier now than I ever was
What is your retirement investment strategy?
I am slowly trying to convert my holdings into dividend paying stocks and income generating funds.
Did you have a financial role model? If so, who?
Not really. I read as much as I can.
What is your favorite financial book of all time?
* The wealthy barber, David Chilton
* Stop Working: Here’s How, Derek Foster
* Smart Women Finish Rich, David Bach (this last was for my wife,but I liked it)Which financial web sites do you read often?
* Yahoo Finance
* Canadian Business Website
* Million Dollar Journey (awww..)Hope you guys enjoyed the interview as much as I did! Lessons learned? Live below your means and invest your money.
If you guys didn’t notice, QCash’s ACTUAL net worth is WELL beyond the $1.7 million that he tells about because he uses the original purchase price of his real estate assets instead of today’s market value.
Thank you QCash for taking the time to be interviewed. Your story is truly inspirational.
Do you have questions for QCash? Feel free to ask them in the comments.
Top 7 Financial Tips for Newlyweds
Top 7 Financial Tips for Newlyweds | Million Dollar Journey
After a popular post about the financial disaster called divorce a little while ago, I thought I would chime in with my thoughts on how to get ahead after tying the knot. The tips below are applicable to not only newlyweds, but any family.
1. Before getting married, open your communications regarding money.Figure out your spouses spending and saving philosophies along with long term financial goals. Make sure that you’re both on the same page or at least have similar views. In addition, all debts should be laid out on the table. As I’ve written about before, one of the leading causes of divorce in North America is money and financial infidelity.
2. Live below your means.This doesn’t just apply to newlyweds, but to just about everyone. The only sure-fire way to get ahead financially and build wealth is to live below your means. Building a healthy savings can be used to build a down payment fund, contribute to RRSPs, or build other assets.
3. Plan and set your goals together as a team.As marriage is serious business, money within the family should be planned as a family. Any debt held by a spouse should be considered as family debt and paid down accordingly. Other goals such as buying a house, retirement and vacations should be planned together as a team.
4. Arrange your affairs in a tax efficient matter.If you’re at the stage of opening a non-registered account, for tax attribution purposes, the high income spouse should pay all the bills while the lower income spouse invests his/her money. Some may have a problem with having separate bank accounts. A solution for this is to have a common bank account for shared expenses, and separate bank accounts for investing and personal spending.
5. Have regular “financial” family meetings.This is one of the steps that ensure proper communication about money. Once a month or so (or whatever is convenient), have a family sit down to discuss financial matters, goals, large upcoming expenses and saving strategies.
6. If you have dependents, get disability/life insurance, a will and an estate plan!Dependents are those who “depend” on the breadwinners income to live. It could be you, your spouse or your young children. Income should be “insured” in the case of long term disability and death. Note that insurance is not a “get rich” benefit, but a lifestyle protection benefit.
For long term disability, I would personally choose a “own occupation” disability insurance rather than a “any” occupation insurance. In the case that you are disabled, this will allow you to collect benefits providing that your injury prevents you from doing your “own” job rather than “any” job. If you’re interested, here is an article detailing disability insurance.
For life insurance, term life should sufficient for most. This will provide fairly economical coverage in the case of the death of the main breadwinner in family. Don’t know how much coverage to get? Check out my calculations for an example of how much term life insurance we needed.
Even though death planning seems far away, you never know what can happen. Check out my article on why you need a will and an estate plan for more details.
7. Read and follow the book “Smart Couples Finish Rich.”David Bach has some great information on how to plan family financial affairs. If you want a great start in your marriage, read and follow what’s recommended in the book. Make sure to read the ‘Values’ chapter carefully as I feel that it’s among the most important.
What tips do you have for newlyweds?
Top 4 Tax Free Savings Account Strategies | Million Dollar Journey
Top 4 Tax Free Savings Account Strategies | Million Dollar Journey
With the upcoming tax free savings/investment account in 2009, my mind has been racing about what exactly to do with the account. Between my wife and I, we will have $10,000 worth of contribution room available to us in the first year which we intend to fully maximize.How do we intend to use the account? I’ve written a few ideas in the original TFSA column which I’m going to expand on below.
1. Income FundI am a big fan of passive income which is evident in my dividend investing endeavors. One idea that I have for a tax free investment account is to invest for income. The reason being is that the income is completely tax free.
With my leveraged account, I don’t invest in anything that produces a return of capital like income trusts or corporate mutual funds. However, since taxation isn’t an issue with the TFSA, I will be looking into consistent high yielding equities to produce a tax free monthly income. Some equities that come to mind are REITs and income trusts like Canadian Oil Sands.
2. Aggressive TradingAnother idea is to use the TFSA for aggressive equity/options trading. This one is not as attractive as investing for income as capital losses cannot be claimed within a TFSA account. On the other side of the coin, gains will not face any taxation either.
One lower risk options strategy is to write call options for equity positions that you already own. With this strategy, you set the price that you are willing to sell your position for, but collect a premium in the process. If the stock price raises above your limit before the expiry date, you will be forced to sell. However, if the stock price stays flat or goes down during this time, the option will expire. The result? You get to keep equity position and your premium collected. If you like, you can keep writing call options and collecting those premiums.
Check out this link for a detailed series on how call options work.
3. Credit Card ArbitrageWhen I wrote about credit card arbitrage before, I came to the conclusion that the strategy wasn’t worth it due to the thin spread between borrowing and accumulated interest after taxes. However, using a TFSA in conjunction with this strategy eliminates the taxation on the earned interest and makes the strategy more feasible.
Basically, take the free money that select 0% credit cards offer, deposit it into a high interest tax free savings account (approximately 3% these days), and collect the tax free returns on the free money. The biggest caveat being to watch the dates when payments are due.
4. Emergency FundThis is perhaps the most popular solution for the TFSA as it will allow people to let their “emergency” money grow/withdrawn tax free. While there’s nothing wrong with using the TFSA this way, there might be a bigger potential with using the TFSA as a retirement account.
What do you plan to do with the upcoming tax free savings account?
Tips for success
Nice to know
what could happen between 2009-2012
Squirrel alert — Greater Fool – The Troubled Future
Some people will tell you on this blog that you are crazy and have lost your mind for warning them of an economic depression of historical proportionsThey will say that you are a doom and gloomsayer.
They will say that you are too pessimistic about the ability of the current global leadership to stop an economic meltdown.
They will say that Prime Minister Stephen Harper, Finance Minister Jim Flarity and the Conservative Government in Ottawa and the Bank of Canada have the economic and financial situation in the country under control and we need not to worry.
In this country anyone with an RRSP has lost a minimum of 20% of the total value of their investments. Pensioners over the age of 71 who have RRIF’s must withdraw (by law) funds from investments that are losing money. Ottawa has not decided what to do about the situation. Companies are asking the Minister of Finance for a longer time period to shore up pensions that have lost a considerable amount of money. Canadians can sure count on the federal government for help in these troubled economic times.
Many Canadian feel that they will not experience the severe economic troubles that their neighbors to the south are facing right now? They feel that the downturn and potential real estate crisis will not be as bad is the US.
However, has anyone ever stop to think that financial experts and journalist offered the same advice in your article today in 1993 and NO ONE, ABSOLUTELY NO ONE believed them!!!
James Dale Davidson and Lord William Rees-Mogg wrote a book called the Great Rekoning which was published by Simon and Schuster in New York. The ISBN number is 0-671-86994-9 and copies are currently avalible from Amazon.com for under $30.
In Chapter 14 of the book(pp438-485), the authors present a chilling even frightening analysis of how the private and public economy could decline in a deflationary depression. Here is a brief synopsis of what could happen between 2009-2012:
1) The declining real estate market will lead to the withdrawl of credit lines to individuals and business (p449).
2) Consumer spending which is 2/3 of the economy will start to drop as people defer purchases of durable goods . In the Great Depression of the 1930’s spending on furniture dropped 50%, auto sales plunged 70% and sales of consumer electronics declined 80% (p449)
3) Tarrif barriers could go up causing importers and exporters to lose money. Spending on capital goods for manufacturing firms will decline dramatically. Information based companies may escape this situation because capital will be spent on basic research as in the biotechnology sector (p451)
4) Spending in the defense and construction industry will decline as US forces with be withdrawn from areas of little or no strategic importance and directed towards the war on terror, russia or securing oil supplies etc. Private construction will decline as spending on public infrastructure projects will increase(p452-3)
5) People will spend money on basic necessities such as food during a depression. If their incomes are under strain they will buy cheaper or lower quality items. In the Great Depression of the 1930’s , prices for agricultural products declined 60%. However, i believe that agricultural prices may rise due to shortages in production and increasing global demand during this time period(p453)
6) There will be less spending on personal fashion and personal care items. Pawn shops will grow in popularity. Repair trades generally do well in economic slumps as people will be unable to replace their older vehicles and will try to keep them on the road as long as possible. Lastly multi level marketing, home entrepreneurs and personal care services will survive during these hard times. Companies such as Tupperware, Avon and Rubbermaid are reporting record profits due to non US sales in Asia, Europe and India p454)
7) Service industries could be hard hit during a depression. Restaurants, medical and legal services (other than bankruptcy) may face low demand as people cut back spending in these areas (p.456)
8) Commercial real estate will be in a slump as retail and other service business close their doors due to declining sales and inability to pay landlords rent and utilities. Some business such as law and business admin services will be run from home to save money in renting expensive office space(p.458)
9) Oil is not depression proof because demand from car owners, trucking firms, railways and airline companies will drop. Even if the US dollars is devalued or is replaced, demand will drop because Americans will not be able to pay for foreign oil imports and will do with less. Road infrastructure could deteriorate due to less spending by government(p459-60)
10) The cost of insurance will go up despite the possible decline in auto use, the increase in uninsured drivers continuing to drive and risk to business in areas of the city which is highly dependent on automobile activity(p461)
11) There will be a drop in profits for media firms especially in publishing and newspaper industries. Advertizing revenue from furniture stores, auto dealers and grocery chains could drop significantly during an economic downturn. New startup companies will have trouble surviving because it will have a difficult time raising cash to move to a larger facility or hire staff to meet business demands(p.466)
12) Household could be under strain if more than one member has lost a job. This may result in the reduction of spending to buy the bare necessities. Governments may be forced to chose to bailout some industries and let the weaker ones die. At present GM is asking an estimated $100 billion from western government to restructure the company to prevent its bankruptcy. Other industries such as airlines and manufacturers are asking for a bailout package.
13) Stimulation packages to stabilize the economy may not work. Governments will embark on infrastructure spending on roads as opposed to potable water and sewage disposal in cities. They may chose to invest in “industrial base” jobs for low skill workers that may show small returns. Income redistribution programs such as high taxes on the rich, moves money to poorly educated parts of the city. It may diminish incentives to save and forces people to be more dependent on government services.
There could be a situation in which higher regulatory measures could be imposed on businesses resulting in a local economy less competitive and slowing the recovery. Lastly these stimulation initiatives could result in adding to the size of the national debt (now $10.2 trillion)and increase the debt service cost not to mention the pressure on the value of the dollar(p.471)
14) Government services could be privatized during the depression. The breakdown of law and order will lead to an increase in private security firms to augment police departments to protect people and property. Public infrastructure services would collapse due to the loss of revenue to maintain and upgrade the system. Water and wastewater services could be privatized to save money. There could be a dramatic growth in privatized educational services as governments layoff teachers and support staffs to balance the books. This enables these firms to establish collages that charge high fees to train students for the new economy. Universities like MIT have already put their entire undergraduate&graduate courses on line for no charge for anyone to use to solve problems. The University of Phoenix is one of the largest tele-universities in North America and have graduated tens of thousands of people ready to go to work in the new economy. Universities in Canada better adapt to the new realities or get sweped away by other institutions(p.472-3)
