Investor trauma will delay market recovery
Deirdre McMurdy
Most of us have someone in our extended family - a grandparent, great-uncle or aunt - who remembers the worst days of The Great Depression. These are the resolutely frugal people who eat every leftover, save wrapping paper, and take very little risk when it comes to spending, debt or investing.
As we grapple with the dimension of the current economic collapse, arguing whether it's a recession or a depression, the example of these folks has become an important forecaster of what sort of long-term damage the financial system may be incurring. That's because research shows that financial decisions are heavily and permanently influenced by past experience. In other words, there's a good chance that the children of those who've lost their homes or jobs, had their savings wiped out - or any related financial trauma - are likely to be extremely cautious about everything in future.
It's not entirely surprising, but it does mean that anyone who thinks we're ever going to return to the free-wheeling days, has at least a generation or two to wait for it to happen. Our collective threshold for risk - which is what makes equity markets and other financial markets go around - has been dealt a major blow. That has profound implications for the way that businesses raise capital, fund growth, make acquisitions - all the things that tend to create jobs and prosperity.
For the foreseeable future, fear trumps all. Including greed.
Posted by: oldtimer | Feb 24, 2022 5:14:56 PM
I would like to believe the efforts of Governments around the world to stimulate their collective economies with large injections of cash will work. However, my gut tells me we have only seen the beginning of massive turmoil in the world markets, with much more to come. I hope I'm wrong.
Deirdre McMurdy makes an excellent point when she says the children of those who have already lost their homes and livlihood, are likely to be very cautious about everything in the future. On the one hand, it bodes ill for the investment markets, but, if people are encouraged to save more instead of getting everything now, on credit, it will be good for the greater economy in the long run.
Posted by: Wally Larson | Feb 24, 2022 6:23:49 PM
Yup
Posted by: Travis Gangl | Feb 24, 2022 7:11:25 PM
I would tend to disagree that it will take "generations" before complete confidence is once again restored in the Global Consumer. Too many consumers; small and large business managers; municipal and federal governments alike, have been living much too long on borrowed time; using tomorrows earnings to finance todays desires. This large correction has been long overdue and very necessary in order to maintain a fair and realalistic supply and demand system. I would hope some good lessons will have been learned and heeded; but overall, this is a correction and normal times will soon resume.
Posted by: Greg Brain | Feb 24, 2022 7:34:05 PM
I agree with Deidre McMurdy, in that it is going to be a slow painful recovery. Industry will not be the same once we emerge out of recession. People will have lost and have lost their trust in financial institutions.
I remember back in the 60's when industry in North America was booming. The workforce in some of these industries numbered in the 10s of thousands. You quit your job in the morning and have another job by the afternoon. I remember several people who bought a brand new vehicle every year. School boards were building schools just to keep up with the demands. In those days a small family was 4 kids. The baby boom was starting to come into the market. The baby boom is now leaving the market in force. The demand has be dwindling over the years. Most family today only have 2 kids. The 70's started seeing technology coming into the workforce. Jobs could be done with much less people. I remember going from the slide rule to the calculators. School boards had now steadied. In the 80's we started to see companies moving to other countries. I bought the last RCA color television built in Canada(the television is still working). It moved down to Mexico. Industry started to shrink in North America. It was probably the late 80's when you saw the car industry starting to move production over to other countries. It was not just the car industry but clothing, toys and even furniture. In the 90's every thing just excellerated. The baby boom was just starting to leave the workforce. Every industry was downsizing or heading to other countries. Technology just took. You also saw robotics coming more and more into industry. Then came the 2000's. The baby boomers were now leaving the workforce by the dozens. The jobs that were there are gone. If they haven't left for other countries, technology have made their jobs redundant. What is going to make this recovery so difficult is that when we do come out of recession the jobs that were their are not going to be there. If the company didn't move to another country taking jobs with, technology got rid of them. You will never see a company with a workforce numbering in the thousands in these 2 countries again. The companies that do survive this recession will be very modern with a very small workforce. Our base industry will be very different.
The trust in the financial industry has been badly shaken. That collapse is partly to blame for this recession. I think they refer to it as greed. Can someone explain to me how someone can get a loan with no income, no job and no assets(ninja)? When I started out, I had to have an income, a job and assets. Couldn't these financial institutions see that this situation was going to come back and bite them on the behind. As of now for any of us to get a loan, we have to have an income, a job and assets. Since a lot of people are laid off money is going to be scarce. No spending means slow recovery.
I am an optimistic at heart. We will come out of recession(just in time for me to retire). The industries of the future will the green industry, electronics, space industry(not right away) and the professions will still be around. Even taxes will still be around. Can anyone explain to me how we are going to pay off that debt without raising taxes. A little humorous sarcasm, "GST 20% , PST 15%. And don't get me going on CEO's, unions and the real estate market.
Posted by: newby | Feb 24, 2022 10:15:37 PM
Can anyone clarify the meaning of margin call?
Posted by: Steve | Feb 25, 2022 4:52:20 AM
Wait, let me see if I've got this straight. People who's financial trust has been shattered are less likely to trust again?
Lucky for us we've got the SEC preventing people like Madoff and Stanford stealing our money or Businesses like Lehmans and AIG gambling it away, or businesses like Enron/Worldcom just taking it. Yes I will rush out and 'invest' my savings again quickly into a pension that will become worthless when I now know that there will be NO liklihood of any retirement for my generation.
On the other hand President Obama & Prime Minister Gordon Brown have a plan to spend our way out of debt, I'm sure that will restore trust quickly getting me 'investing' again.
'course there's always Vegas.....
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Posted by: mike | Mar 5, 2022 8:18:19 AM
Investor trama in Canada (you bet their is) but unfortuanately its only begun. Banks are still showing profits but that was for last quarter, it will be an interesting item next anouncement for this spring quarter showing. Profits are already dropping, govn is clamping down on all the fees and credit card rates, many and many more buisinesses will be going broke and then the big shoe will fall off and thats housing. You can buy a home in Hawaii for the same price as one here in central Canada and that should tell you something.. We are next to collapse and our banks will be fall out. Dividens will drop or stop and share prices will collapse. Its not a matter of If but When.. So if you think your stressed out that you finally sold out of the market, wait till your savings in MMF goes bankrupt due to poor banking management skills. Housing will accelerate the downfall here and it will take the banks with it..