AskDong

Like many other personal finance bloggers, I am curious if others are feeling the pinch of economic downturn. Almost everyone I know has had an “all hands” meeting at work.  Many of these meetings has been to calm the nerves of uneasy employees.  Still, many others have been to announce that layoffs are coming or that have come.   In my limited career of 10 years, I have witnessed my fair share of layoffs.   I saw the tech bubble crash around me.   I also experienced the ripples of the Enron collapse cascade through the energy industry.   This downturn, however, has had an auspicious start.  Few industries seem safe.  Not banking, not manufacturing, not technology, maybe health care.

So what any of us to do in these uncertain times?  There is always one investment that is always worthwhile, and that is the investment in yourself.

• Learn New Skills - these could be related to your job making you more valuable, but it could also completely unrelated.   A hobby can sometimes turn into a new career.
• Get reaquainted with a forgotten colleagues.    You might not be looking for a new job, but networking is best started when you’re not looking.
• Start working on plan B.   Doesn’t matter where you are or how you’re doing, everyone should have a plan B.
• Be optimistic.  I firmly believe that economic downturns offer unique opportunities for those who are willing to persevere.   Down markets offer great opportunity for investment.   This is when the chafe gets separated from the wheat.

Michael Lewis of Moneyball and Liar’s Poker fame has an excellent article in Portfolio magazine detailing the fall of subprime.   For him, he has come full circle.  Mr. Lewis’s writing career tookoff on the back of his autobigraphical experience detailed in Liar’s Poker.  He was a bond salesman, specifically a mortgage backed bond salsman at Saloaman brothers in the heady days of the 80s.

In the 80s, he wrote of the excess, greed, and blind risk taking that marked days when “greed was good.”  I like Gordon Gekko do believe generally speaking that “greed is good.”  However, I feel greed is best when balanced with integrity and compassion.   Warren Buffet is greedy.  He’s built an enormous financial empire upon his own ambition and greed.  Warren Buffet, is also however, a man who believes in integrity and compassion for his fellow men.  Greed need not live an isolated existence.

Michael Lewis returns to Wall Street and realizes in his time away that nothing has changed.   The problem is not greed alone, and never has been.  The fundmental problem has always been that bankers on Wall Street bet with other people’s money.   Gordon Gekko was right.   Company executives do not serve the interest of their shareholders, and too often shareholder are not interested in long term profitability because too often their positions are only transient.

Greg Mankiw posted a letter to Obama that will be appearing in the New York Times on his blog.  Mankiw’s Republican credentials are solid, but he’s generally very reasonable on his blog, and the points he makes are centrist.   I pretty much agree with almost every point that he makes, but I want to take some time to look at Social Security.   Mankiw implies there will have to be changes to Social Security.  Benefits and the age of egibility will have to be cut. I couldn’t agree more.

I think I, like many other people my age, don’t expect to be getting as much in the way of social security.  We recognize that the Government has made promises that it cannot keep.   In this light, I believe Obama has an opportunity to effect real change.   Cut my future benefits!  I don’t think I should be eligible for benefits at the same age that my parents were eligible.

The biggest problem with social security is that it’s a system dependent on demographics.   As much as people would like to believe otherwise, it’s a money transfer scheme from the young to the old.   It’s basically old age insurance.   What we pay in taxes are no different from the insurance premiums we pay to insure our cars.   When insurance companies run into financing problems, the can raise premiums to cover increasing payouts.  The government can also do this by raising taxes as Reagan did in the 80s, or by cutting benefits.  One if not both actions will have to be taken.

Of course there’s one other option which is even less popular, opening the gates of immigration.  Given that social security is a tranfer from the young to the old.  Increasing the population of young people, and immigrants tend to be young, creates a larger base from which to fund retired people.   I’m generally speaking an advocate of immigration, but I don’t think immigration is a long term solution.   Social Security is only sustainable if we are willing to make changes as demographics change.

I encourage everyone who hasn’t already voted to do so. Regardless where your politics lie, be they in my corner or another, voting should not be taken for granted. I put in my vote in for president today despite the fact that given that with little doubt, Obama should take the state of Masschusetts quite handily. An active democracy makes a good democracy.

The line above is from where I vote.  Regardless of who wins, I still live in Red Sox Nation.

I was wrong when I wrote the worst was behind us.  As bad as September was, October ended up actually being worse, and could’ve been easily far worse.  October roared in as Lion (or rather a Bear), and for the last few days baahed like a sheep.

The worst of the credit crunch has passed, but I believe over the course of the next few months and year we will see one of the greatest economic slowdowns of the last quarter century.   I think the quick action taken by Governments around the world will prevent us from falling into a global economic depression.  However, a global recession is still very much in store.

As for my own performance, I’ve managed to only a little more than half of what the market overall (as proxied by the S&P 500) has lost.  I count my blessings.  Of course, now I’m trying to figure how to appropriately get more money into the market…