Tuesday, August 19, 2008

Economic recession - Different perspective

When recession will over is the biggest question doing round. Everyone has their own thoughts and ideas on it. From financial kids in wall street to the soothsayer on the corner of the street, has its own idea about it. This is a collection of some thoughts floating in the world. Let's see how they fare up against time.
Astrologers
It's usually difficult to read the astrological predictions because they are written by using long winding words. It looks like, it does not matter what will happen, they can interpret it as per their predictions.
Economist and Wall Street folks
Economist and true Market folks usually tend to not to comment about the dates and times. They become more humble with time as they knew that market has proven them umpteen times wrong. Never fight with the market. They have views, which are linked to the occurrence or non occurrence of certain events.
Government perspective
Governments are like ostrich. They will react when the flood water reaches to bedroom. Another interesting paradox is that the market does not likes Government intervening when the economy is in bull phase. The same market wants Government to act, when the economy goes in recession. The Government is usually optimistic in all situations, as it is a good impression on the voters that they are in control. Also in their speeches, one finds a lot of back patting of each other for the good work they are doing. When government issues a statement, it's better to look into the rationale on the basis of which they are pushing the conclusion. The rationale's has merits and the conclusion might be totally out of the way.
What I do
So where you and me, the common man on the street stands. I think it's better to not to heed to anyone's advice. The bottom line is no one knows what will actually happen. Everyone is doing some sort of predictions. And remember, prediction is a business for the categories of people above. They earn their living by it. So it's better that you worry about yourself. If Warren Buffet loosed couple of billion dollars, it will be a change of figure in his bank account. But if many of the people on wall street loose even couple of thousand, it will bring a material difference to what you eat in your breakfast and lunch and may be no dinner.
However if you are really interested in following recession than I think, one should look into following data points:
  • Level of employment: Look for indicators of employment. A worsening employment market will tend to make recession longer because it is directly controls the demand environment.
  • Level of industrial activity: Look for industrial production index and activities in housing market.
Also the above two indicators have correlation between them. The government can stimulate the economy by pushing up any of these indicators. Personally, I think it's better to push up the industrial activity as this brings more durable growth. Pushing employment by putting more people on government jobs leads to long term inefficiencies. Also in and economy, people may not spend as much as needed to push up the industrial activity.

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