Would a Recession Really be a Bad Thing? (And the Agriculture Guys Got it Right)

Came across this interesting commentary on Hong Kong's The Standard. This guy doesn't think that a recession is such a bad idea. In fact, in his opinion, it's part of life:

"Fluctuations in the economy are normal and natural. Even in the primitive, Biblical economy, "seven years of plenty were followed by seven years of famine."

Despite this, at least since the 1930s, fluctuations have been thought of as "a bad thing."

Accordingly, governments have sought to prevent them. The essential reason why fluctuations have been thought to be bad is that recessions are wasteful. As the economy dips below its maximum output, there is a loss of production compared to what could have been.

Labor and machines lie idle, and incomes and spending fall.

If you are a fully paid-up member of the anti-growth brigade, such reductions could be viewed as a good thing: less greed and consumption, less pressure on the environment, and more scope for increased importance to be attached to non-material values."

This is probably the first article I've read that takes a level-headed look at our current situation. No doubt there are people who would be ruined by a recession, and they do have my sympathies, but recessions are part of a very real economic cycle. Nothing stays the same forever and that's why we have to look at sustainability.

I have very vague memories of science classes in school but I remember learning about crop rotation. Now, I am hopeless with plants. But the reason why this has stayed with me for so long is because the concept behind crop rotation is a universal one. It's the simple fact that nothing lasts forever. This is why companies with the most staying power are those that have managed to find ways to diversify their products and services, e.g., GE and Siemens. Not only do these companies add to their portfolio, they also constantly reassess their business directions and are not afraid of jettisoning small parcels of their companies to streamline their business model. Case in point, last year GE sold off its plastics division to SABIC and Siemens sold off Siemens VDO to Continental.

In more pressing times, some companies have also successfully reinvented themselves to pursue directions completely different from earlier paths. One of these companies is Motorola. Granted they currently suck pretty bad, Motorola used to be a Fortune 50 company (it's dropped to Fortune 100 now). This telecoms giant actually started out by making car batteries. What a segue, huh? BMW used to make airplane engines (in this case they were forced to stop making them, but hey, you can't fault where this has led them) and the name 3M Company comes from the company's original name, "Minnesota Mining and Manufacturing Company". DuPont, the chemical giant, first made gun powder.

Investing gurus always talk of diversifying. These companies prove that this sound advice. Now, if only I had enough eggs to fill many different baskets. :)

From the Buffet Table: 10 Ways to Get Rich

Came across this interesting article from PARADE Magazine. It lists 10 snippets of advice from the world's richest man, Warren Buffet. The article uses examples from Mr. Buffet's life to emphasize points, providing insightful glimpses into the life of one of the world's greatest investors.

The 10 points listed are:

1. Reinvest your profits
2. Be willing to be different
3. Never suck your thumb
4. Spell out the deal before your start
5. Watch small expenses
6. Limit what you borrow
7. Be persistent
8. Know when to quit
9. Assess the risks
10. Know what success really means

Plenty of food for thought. For me, I think #4 would be something to really keep in mind. I have a tendency to get really excited and jump head first into things before really thinking about what I'm really doing or hoping to accomplish. It probably comes from my very bad habit of figuring things out as I go along, as opposed to figuring it all out and planning properly before I start.

A couple of the points also contradict each other, e.g., being persistent vs. knowing when to quit. It's hard to tell when to quit sometimes, since it's human nature to hope that things will get better. On the flip side, when things are going badly, fighting the urge to throw in the towel is pretty hard too. The most pertinent piece of advice, in my humble opinion, would be to assess the risks. This is applicable to just about every serious decision from picking a college major to accepting/making a marriage proposal.

Creating Desire

There's this scene from the movie "The Silence of the Lambs" that's been stuck in my head for the longest time. In it, Jodie Foster's character is talking to Anthony Hopkin's Lecter, in an eerie intellectual discussion about how the human mind works.

Hannibal Lecter: First principles, Clarice. Simplicity. Read Marcus Aurelius. Of each particular thing ask: what is it in itself? What is its nature? What does he do, this man you seek?

Clarice Starling: He kills women...

Hannibal Lecter: No. That is incidental. What is the first and principal thing he does? What needs does he serve by killing?

Clarice Starling: Anger, um, social acceptance, and, huh, sexual frustrations, sir...

Hannibal Lecter: No! He covets. That is his nature. And how do we begin to covet, Clarice? Do we seek out things to covet? Make an effort to answer now.

Clarice Starling: No. We just...

Hannibal Lecter: No. We begin by coveting what we see every day. Don't you feel eyes moving over your body, Clarice? And don't your eyes seek out the things you want?

A close friend of mine just took on a 4-year loan to buy a car that he will hardly use since he travels for work a lot. The monthly installments will be eating up a big chunk of his monthly paycheck (approximately 30% of his pre-tax pay) He says it's also for his dad, but they also have another car at home that's only about 2 years old. Just last weekend, he went to a couple of car dealerships to test drive more cars. This time cars that costs twice as much as the one he just took out a loan for. He tells me it's just for fun, and I'm sure it's fun, but I worry about when he'll tell me that he's buying a new car again.

I have a theory about this. I think this is how the mechanism of want works. We go window shopping on a nice Saturday afternoon, telling ourselves that we'll just look, and end up coming home laden with shopping bags. What we see with our eyes, we desire in our hearts. That's why marketing is such an important part of doing business in our modern world. Companies fork out millions every year to convince people to buy things they don't need. Banks help by providing easy credit. Markets become overinflated and then burst.

Trying not to go out to the local shopping complex on weekends is difficult. Let's face it. There's not that much to do in Singapore. We look for air-conditioned places where we'll have easy access to public transportation and probably 80% of these places are somewhat related to shopping and/or spending money. At the same time, everywhere we go, we're bombarded with images that encourage us to spend more money. Working to cut down on expenses is like fighting a loosing battle. The harder I try the more conscious I am of all the avenues for forking out cash. Unless I become a hermit I think I'm going to need a really really big dose of will power to keep going.

Finally, Some Good News!

Haruhiko Kuroda, the head of Asian Development Bank, said on Wednesday that Asian inflation will be dropping in the months ahead. Seems like this is related to the drop in oil prices to below the USD100/barrel mark. Maybe cab companies will finally lift that SGD0.30 surcharge off its rates too.

Is Japan Leading the Way into Recession?

Japan has been the benchmark for the health of Asian economies for a considerable amount of time. The BBC reports that Japan's economy shrunk by 2% in Q2 of this year:

The world's second largest economy contracted at an annualised rate of 3% in the April to June quarter, as both domestic demand and exports weakened.

It was the first decline in more than a year, and the biggest since the third quarter of 2001.

Most economist consider 2 consecutive shrinking quarters to be the definition of a country being in recession. We'll find out next month if it shrinks anymore. If yes, Singapore and the rest of Asia can't be very far behind. While the past couple of years of growth have been incredible, I did think the economy was a bit over-inflated. So a market correction was due. It just looks like there's going to be more than just a correction. The job market is slowing, but prices are still going up. My company's cutting a few hundred people off its staff list and if things get any worse I might even see myself among those being given boot.

It's not only Asia that's tottering on the edge of recession, European economies are starting to flag too. I guess our only consolation at this time is that slower growth is still growth.

Watching Your Nest Egg Grow

Photo by: dasroofless

These past couple of months have been incredibly busy for me. So much so I've had to put aside blogging for a while. Things have slowed down a little bit so I'm trying to get back into the groove of doing stuff that matters to me.

Was reviewing my accounts and updating my records earlier tonight. Since I've started watching my bank balances more carefully sometime towards the end of last year I've seen my nest egg grow by about SGD10 000. Not bad for a novice. I'm feeling really proud of myself but at the same time, I'm wondering how tight a grip I need to keep on these funds.

With the Hari Raya holiday coming up, I was planning to take a holiday. To take a few days off from work and disappear somewhere for about a week. My earlier estimates added up to about SGD5000 for the week off that I was planning and, all things considered, isn't really all that bad a price. However, when it came to actually making the go/no-go decision, I couldn't do it. Taking SGD5000 off my current balances was too much for me. Could I afford it? Yes. So why is it so difficult to just fork out the cash?

Sometimes I ask myself what I'm really saving all this money for. A few ideas come to mind:
1. To go back to school full-time
2. To quit my job and go vagabonding for a year
3. To start my own business
4. Retirement (by this I mean quitting a full time job to focus on stuff that I love)

None of the above ideas are concrete. They're just possibilities to be considered. So since I'm not seriously aiming for anything (at least not yet, anyway), what's stopping me from going for a much-deserved holiday? I really don't know. It's just the thought of seeing my bank balances shrinking by so much at one go that's got me running scared. Is this what happens when you start to get serious about your finances?

Maybe I'll just spend the Raya holidays at home on a low-budget "stay-cation" and console myself with thoughts of going home for Christmas. :)