Friday, May 15, 2009

Things to Do at the End of a Recession

I am not saying we are at the end of this recession quite yet, but I think we are getting close - maybe three months away? I can feel it when I talk to fellow executives and business partners. I also hear it in the news and read it in the business papers. And did you notice that the sun was shining and that snow is not falling anymore? Oh wait, I think that has something to do with spring... Anyway, the end of a recession is a particularly tricky time when economic signals are mixed, and while you may be able to find some attractive opportunities, you can also land yourself in some serious trouble by making the wrong move. Here is my list of things to do and to avoid at the end of a recession:

Keep Your Job - while the economy may have bottomed, most economists agree that the job market will continue to get worse for many months to come. It's only natural. Business leaders everywhere still feel like they are treading on thin ice and will delay increasing their spending on labor for as long as possible. There is also the chance that firms that have been able to survive thus far by eating into their reserves will finally be forced into major cost cuts or even fold. So, even if the recession is indeed about to end, the "all clear" has not yet sounded for most employees. My advice on how to keep your job is as valid today as it was a few months ago.

On the flip side, if you own your own business or have the ability to influence hiring decisions in your firm, now may be a great time to do some hiring. Last year my firm struggled to recruit even B players. This year A players are throwing themselves at us. We are taking the opportunity to weed-out under-performers and to substantially strengthen our team. Be on the look-out for signs that this is happening in your own organization.

Make Big Purchases - if you think you will want to make a big purchase in the next few years, say a house or a car, now may be the perfect time to make your move. Demand is still depressed, prices are low and interest rates at rock bottom levels (if you have excellent credit) - talk about a winning combination. Once the economy picks up, and given the accommodating fiscal policy and incredible deficits, I wouldn't be surprised to see inflation rear its ugly head or a more dramatic devaluation of the dollar

Since the stock market has rebounded 30% from its lows and our portfolio with it, and since the economic environment as a whole seems somewhat more stable, I have even begun entertaining the idea of buying our own house. It's not a good investment (I can't believe I wrote this post in early 2007), but it is your very own place to live. Problem is - prices in our area are still too high for us to seriously consider. 

Start a Business - they say that the best time to start a new business is the last day of a recession. You can get everything you need (employees, office space, equipment etc.) for bargain prices, while your potential customers are getting ready to start buying again, i.e. they will be looking for new vendors. If you are thinking about starting a business you may never find a better time to do so.

Rebalance Your Portfolio - stare fear straight in the eye and buy some stocks! OK, maybe that was overstating the case, but after the drubbing we have all taken over the past couple of years, it's probably safe to assume that your asset allocation has shifted dramatically in the direction of more conservative investment. Maybe it's because you fled the market when things got bad or, if you are like me, you kept your positions but your stocks got decimated while your bonds did their thing and mostly held up. Anyway, if there was ever a time that shouts "rebalance your portfolio!" this is it. Of course, there's the next point...

Be Honest About Investing - you have to look yourself in the mirror and tell yourself the truth. Are you really cut-out for risky assets? Were you able to sleep at night when the stock markets melted? Did you require a coronary bypass when the markets hit their bottoms in March? Did you raise a white flag and flee stocks when it seemed like the bottom was simply not there? If so, maybe you shouldn't rebalance. Maybe being conservative is the right choice for you. In spite of what others would have you believe, this is a very valid and legitimate choice.

Here are a couple of other personal finance posts that discuss the economy:

Really funny comics about the economy from Spilling Buckets.

Weakonomics interprets the results of the bank stress tests and their connection to... family guy.

Also check out the Carnival of Personal Finance at Earn What You Spend for as many PF posts as you can handle.

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1 comment:

Rob Bennett said...

did you notice that the sun was shining and that snow is not falling anymore? That was a funny line.