Stay away from credit cards !

As my old dad usually says everybody do things for their own interests. Its rare for companies to to things for the benefits of society. The same applies to credit card companies. They says that a credit card can improves your life, but if you look closely it may have a large share in the recession that is ravaging the world.

If you are lucky enough to have escaped the credit card craze, you can thank god even if you are an atheist, for you are a the lucky few.

Before the advent of the credit card, people lived within their means and rarely take credit. They worked honestly and with their wages they would buy things that they need with cash. However time has changed. Everyone who has some intelligence is trying to lure the poor worker to take a credit. Overdraft, loan, credit card, revolving credit, hire purchase, equity line, car loan, student loans, etc. It seems that everything that was purchased with cash must now be purchased on some form of credit.

There is no doubt that now that this credit craze is over life would never be the same. Those politicians that are betting a return to normal are probably kidding themselves. In order to get out of this situation the bubble of credit has to be deflated completely. This would then leave people with a reasonable amount of credit. However things would not be as good as before. No more fun. No more partying. Hard work like in the old days. Smaller houses. Smaller cars. Less latest gadgets and appliances.

Its going to be difficult but soon you will get used to it. Our parents did it.

A long and deep recession ?

As was said on the Wall Street Journal lately, this recession is not like the previous ones. Hence one should be careful when hearing politicians say that the recession would be over in 2009.

The reason is that the western world has no money. The government, household and companies had been relying lately on the generosity of China, Japan, South Korea and the Oil producing nation for credit. To understand why this is bad lets recapitulate on the different forces acting in a recession that push it towards a recovery.

1. Government spending

As the economy worsens, the aggregate spending in the economy falls. This is due mainly to reduced spending by household and by reduced investments by companies. In theory, as Keynes would recommend, the government would have to increase spending and decrease taxes so that household would have more disposable income.

In a "normal " recession the government would borrow the money and things would be OK. But in this case many countries have large public debt and increasing it would cause debt repayment to reach unsustainable level. Countries that used to lend to developed countries( named above) are more and more unwilling to lend so even if government want to borrow, they might not get the money.


2. Household savings

In a "normal" recession people have a lot of savings. So if they are out of work they are able to tap into the rainy day fund. This would cause them to continue spending. As a result the downturn would be softened a little bit. However in this recession the people have mostly dept. As unemployment increases, these people will have no money. They would then be a burden on the government as unemployment benefits increases. They would also most likely spend as little as possible worsening the recession.

These two factors would most likely cause an upswing to be less likely in the next six month. I would think that everyone would have to clean their houses before a recovery can kick in. Throwing money at it would most likely not help.

Certificate of deposits

Certificate of deposits are the safest investment possible. They are secure and insured in most countries. However they offer a low return.


Post in this category coming soon.

Various articles

This section contain posts that cannot be classified under other section. It contains post on various subjects that are of interest to the average investor.

How to spend wisely. The old fashion way.
Hello thrift. It is so long since we saw you.
Saving money is bad for the economy. But is good for you.
A long and deep recession?
The great depression 2 is coming.
Hard work is needed to get ou of the recession. Not wishful thinking.
What is a pyramid Scheme?
The duplicate content penalty exist
What is market capitalisation?

How to be rich buying stocks!!

Why would you need to buy stocks you would ask? If you have been reading on the internet, you would realize that the future is uncertain and, whether a deflation or an inflation,the future is bleak and you can easily lose all your money.

Holding money is quite dangerous at the moment and you could lose everything in the recession. So you should decide what asset to buy. I have chosen stocks and real estates as they are easier to buy for the lay person.

So with your firm decision to save yourself from financial collapse lets move to step 2.

You should start by putting order in your finance. Be low on debt, ideally only a car or mortgage. Reduce debt as far as possible. Built thee to six months worth of expense in a separate savings account.

Its time to chose your broker. It is the most important step. I have found that most major banks have a brokerage service. Do not choose a brokerage firm that you don't know. I have chosen the brokerage service of my bank. I have known them for a long time and they can be trusted.
This step is the most important. Most brokerage service offer several type of services. They can be mere basic services(cheap) or with advice and support(expensive). I chose the basic one for i have chosen to do my research myself. If you are unsure chose the one that offer advice.

You now have broker. You would decide what stock to buy and he would buy it for you. Choose your stocks carefully. I have chosen companies that have been battered by the credit crunch and hence have low P/E ratio. Their services and goods are required for everyday life. They are leading companies in their field. Diversify in different field. I have chosen to buy stocks in banks, retailers, food companies, hotels, energy companies and commodities.

Here you are. You can now start to buy and have a chance to have a better future after the recession. Good luck.

Real estates

Real estates are not for the amateur. Offer good return only if done by professionals.

Post in this category coming soon.

Options, futures and other instruments

I personally do not go into those instruments but what the hell.

Post in this category coming soon.