Theory:
“Opinion polls are designed to gauge whether the agitprop of the corporate state is having the desired narcotic effect on the general population. The more the average citizen can parrot back what he has been told by his betters, the more democracy, as defined by the elite, can be preserved.”
– Edward Bernays, the father of modern marketing psychology
Practice:
“When You’re Flush But Acting Flat Broke: Social Cues Can Drive a Downturn” Washington Post, April 16, 2009, is an interesting piece by Michael Rosenwald, which quotes Robert Cialdini on how social influence can make a downturn even worse.
Interestingly, we referenced Cialdini’s enormously useful work in “Mobs, Messiahs and Markets” (Bonner & Rajiva, 2007) in Chapter 4, footnote 14. p.88. I happened on the book purely by chance, but now, reading the Post piece, I’d like to read his other work.
Rosenwald’s take in his piece is rather close to mine, with one crucial difference.
I see no reason why people who have money in their pockets should hold off buying when there are so many bargains to be had.
I wouldn’t go so far as to say it’s your patriotic duty to go forth and spend when the economy is hurting. But there’s certainly no reason why doom-saying should prevent people who are far from the edge from continuing with their investments. Panic only makes things worse. And many astute people are no doubt making things much worse because they’re on that end of the trade.
I don’t believe in papering over how serious the economic situation is. But ‘serious’ is not the end of the world, even if such a thing could be.
So I think the Wash Po piece gets the “Mobs” part of the equation right.
But I’m not sure if getting experts to sell optimism is the right advice. That’s where the “Messiahs” part of our book comes in.
Whatever you decide to do should be based on your own study of the matter at hand and should suit your own circumstance, life-style, psychological profile, risk appetite, and responsibilities. Trading gurus, commodity mavens, gold boosters, currency experts, professors, analysts, and talking heads – take all the advice you want and look through as many eyes as you can.
But in the end, choose for yourself.
Ultimately, it’s the only way to build up your own economic and moral well-being.
No one else will do it for you.
The Austrian view is that the stimulus, in whatever form it takes, is not the cure for the bubble bursts but rather the cause. In the context of the present, this would infer that the Treasury/Fed are running after a rolling ball, trying to prop up the juggler to prevent him from falling, but succeeding in increasing the velocity of the ball. When he finally does fall, the ensuing injury will be much greater but it’s hard to say when that will occur…maybe a year or two.
Thus now is not a good time to make long term investments, unless they are commodity-based. On the other hand, the world will survive. In a time when sales for various goods (especially industrial) are down, now is a good time to identify the products of the future; a time to innovate and back innovators. The short term rewards may be reduced, but the risks are reduced in relative terms and the longer term benefit enhanced. At least that’s my take and where my efforts are directed.
JC, exactly.
The economy was unhealthily geared to home ownership. Nature dictates that some of us (those who were reaching beyond our means) go back to renting. That will allows those of us who were renting to own. Strong hands take over from the weak. Demand for residential rentals may hold up rental properties that adjust to the new market – where more people rent, but at lower prices. It depends on the area and its job prospects.
Meanwhile, I think green technology of many kinds, energy saving technologies, water refinement and purification technology, all these areas are going to benefit.
Lila
If rents do not fall but housing prices do, then yes, rental properties is a good investment in the right area. However being a landlord is a pain in the ass unless you have enough units to hire professional management.
No one gets rich being a landlord on a petty scale. But seniors, for instance, might consider getting some return on their house by renting or turning an unused in-law apartment into a rental unit. It might give them a better return than a portfolio of bonds…
If you understand the city or market and are willing to do some foot slogging or ground level research into where there’s a good supply of tenants, it is something most people can understand.
Commercial real estate, even as we speak, is blowing up. It’s what everyone expected. Now comes consumer debt and automobile loans. So no one says it will be pretty. Your time horizon and risk appetite has to be enough to negotiate that.
Until we discover a cure for “cybernation-itis”, it will be “catching a falling knife” to invest in anything long term, ever again.
People can and will live in tents and in their cars. People living in cars and tents will not be big buyers of manufactured goods, certainly not refrigerators and washing machines.
Gold is beginning a big drop: people who thought China would be a big gold buyer are going to be soon running for the exits. And China will someday find that she has vastly overpaid for the industrial commodities she is currently stockpiling.
Just like on the TV show “House”, until we correctly diagnose and treat the actual “disease”, the patient will continue to deteriorate, and no investments (other than 3x Bear ETFs) will be profitable IN THE LONG RUN. (That said, the market is going to be in rally mode for something less than the next year before commencing the next leg down.)
Things that look cheap can always get cheaper. Make – and keep – as much money as you can as soon as possible; it just gets harder from here on down.
Alan,
Thanks for brightening my day! LOL
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