The up swings and the down swings

Now I know everyone is caught up in the excitement that is patch 2.4 but seeing as how my more accomplished bloggers have traversed every possible detail there is to be seen I let myself get distracted away from WoW for a day and talk about something else entirely. For those who want a happy and WoW related read, pass this by and come by again when I have something of interest to say.

Today I was reading an article on CNN's website.

http://money.cnn.com/galleries/2008/news/0803/gallery.real_stories/index.html
This article chronicled the stories of multiple folks who have been facing the effects of the current downturn in our economy. Now it is of no surprise to us folks that the economy is in a state of recession. Many fear to say it, other deny its very existence but market trends indicate that such is the case. I am not a student of economics but I surely don't want to be searching for a job right now. The reason I am writing this article is to discuss the spending habits of Americans and their reasoning behind it.

I am not American by birth or citizenship or nationality. But after having been here this long I have noticed a trend amongst Americans (I don't mean to generalize here but this is what I have often observed) to spend far beyond their means. For example, a person gets a good job, they go and buy a good car. That may or may not be perceived as spending beyond their means but for a person who staunchly refuses to believe in job security (believe me there is none) this classifies as spending beyond their means. For me spending within means would mean that I have enough money in my bank to pay for that car twice over, i.e. If the car costs 15k, I have 30k in my bank a/c. Before having such significant savings for it, I wouldn't even contemplate buying that car. Even back when I was making as much as 70k /yr I didn't buy a car, instead I used the bus service, which was a royal pain, but in the end when I did buy my car I had the satisfaction of knowing that the car was something I could easily afford.

Now applying the same thought to buying a house almost negated a purchase, considering that houses often sell for 400K or more. I don't have 1 million sitting in my bank account, yes I sure wish I did but that is not the case. Buying a house is a far more complex decision in my opinion and not one that can be easily broken down for the layman. There are those who swear by renting, but many financial pundits agree that buying is the smarter choice on the long run. However recently there were often articles stating that this is the best time to be renting seeing the constantly dropping prices of homes. Such conflicting stories leave much to be desired and often result in very very confused buyers. So how does one decide when is the right time to buy?

Buy Low Sell High

Probably one of the most oft used comment in trading and economics. But is it really easy to find out how and when prices are going to fluctuate? No. There are several economic indicators but most if not all are hard to find and capitalize on. Another oft used saying is "Buy when theres blood on the streets" first used by Baron Rothschild, which in simple terms encourages to make purchases in times of recession. How does that make sense? many would ask and many could be right. The only reason to think otherwise is optimism. Depression, inflation etc are all market fluctuations that take place to stabilize the market. Say for example someone sells a car for 300k (far more than its worth) and along comes another car maker offering a car just like it for 30k, suddenly a person who earns 60k can afford one and his purchasing power increases, the company that made cars for 300k now lays off people because of losses, it becomes an employers market, salaries drop as a result and the market tried to readjust resulting in a depression and finally stabilizing. This basically means that assuming a straight line for where the economy should be we see crests and troughs, and buying when we are at a trough makes the most obvious choice. So since in times of recession prices are bound to be at their lowest and hence at the ripest for purchase. Take for example the current situation of Bear Stern, last year it was selling at 170+$ a share, now its valued at 2$ a share, and guess who's buying it....take a moment....read the news...yes its JP Morgan, yes they have some federal backing but they are buying it at 5 times the value. Consider this, people who bought the stocks at its lowest a week ago at 2$ a share are now posting a 400% profit....in a time of recession.

There are several things to consider while making purchases, job security, market knowledge and financial backing. Purchasing a house is also an investment of sorts, buy a house at its lowest and in a ripe neighborhood and within a couple of years post your own profits. But it at the wrong time and lose money the next day. Either way its makes for the wisest of financial planning for purchases, impulsiveness when it comes to big buys can often result in teary eyed credit situation and eviction.

The economy affects us as much as we affect it. It is a widely stated belief that the current depression is in no small part because of the housing boom, where people bought houses for which they couldn't pay and our financial institutions ended up with millions of defaulted loans, numerous laid off as a result of loses and furious investors.People have to place some blame on themselves and not just blame business and the government. People spend too much money, borrow too much and don't save for slow times or when an emergency comes up.

I know many, if not all, of the readers will curse me and call me out on my lack of knowledge but today I felt like discussing the economy and how it affects us and more importantly how we affect it. It helps to know that making wise buying decisions can mean the difference between keeping you job tomorrow or ending up with another bankruptcy story on cnn.com.

Think about it.