As a follow-up to my post a few days ago (Leading Economic Indicators We All Need to Watch), I had a conversation with one of my former business professors. I wanted to get his perspective on my concerns and about the economy to see if there were other indicators I should be watching. He mentions a few here and details some of his very real concerns as well. He is someone who constantly watches the global and national economy, as well as the stock market, so I trust his advice, guidance, and thoughtfulness. I hope this is helpful to you as well.
Nice to hear from you!
Like you, I’m feeling a bit uneasy about the stock market right now. Very high P/E multiples. To justify those prices will take an extraordinary breakout of growth in the US (and world) economy. The saving grace is that the financial industry still looks fairly stable—bigger capital bases than in 2007, more conservative lending, etc. If there is a downturn in the next year or so, I don’t think it will have the force of 2008. But still, a downturn is a downturn and something to be prepared for.
Your blog post offers some very good advice. I encourage people to keep 12-18 months’ worth of living expenses in fairly safe and secure investments. And I remind them of the old adage that there are two ways to be rich: one is to have a lot of money; and the other is to have simple needs. Avoid running up debt balances (except for education and a home mortgage). And the most important asset one has is between one’s ears: keep learning so as to stay valuable to your employer—that’s the best defense against a layoff.
Hope these comments help.