Pre-Thanksgiving Reminder I

Later this week we will celebrate the unofficial start of the holiday season. This fact may come as a surprise to you, considering that it barely has felt like autumn here in the Northeast, but indeed, the post-Thanksgiving affliction known as “Holiday Brain Freeze” is imminent. Before your attention is diverted to compiling your holiday shopping list, I am going to provide some reminders about the economy, financial markets and your own personal investing.

Let’s begin with some big picture stuff. You have probably been reading about the problems in the US economy, including housing woes, a falling US dollar and of course, a stock market that is well-off the highs of the year. In fact, I have rarely fielded so many questions about the potential for a recession after the economy has grown nearly 4% in the previous quarter. Still, it is widely expected that the current quarter will show a significant slow down and it is understandable that people are concerned. To quote my father: “things are rarely as good or as bad as you think.”

Because I am a trader, I always consider the biggest risk first: a recession. The definition of a recession is two consecutive quarters of negative growth. As noted above, the US economy grew by 3.9% in the third quarter of this year, so in order to be in a recession, things have to slow down – a lot. This is not to say that it can’t happen, but we do have a ways to go. And what if we do enter a recession? I am here to report that the US economy will be more than able to survive a recession and so too will you. Recessions are a natural part of the economic cycle and we should all stop worrying about whether or not one will occur: we will see more recessions and that’s OK.

What about the dollar decline? I have started to consider that now that the hysteria over the dollar has reached the mainstream media, our beloved greenback is more likely than not to stabilize from here. That being said, the fall of the dollar has many positive and restorative effects on the US economy by helping US exports and concurrently encouraging consumers to spend less on imports and save more. Remember those twin deficits? Well the falling dollar is correcting them, which is a good thing.

Finally, as my friend N. likes to say, there sure are lots of people “getting wrapped around the axel” about the stock market right now. Sure the stock market is off the highs, but it is not DOWN this year. And what if it does fall? Well, that means that new money going into your retirement account is purchasing shares at a lower level. If you are still in the accumulation phase of your life, market pull-backs actually benefit you in the long run. If you are about to retire or are already retired, then you should not be invested aggressively enough that a sell-off will blow up your long-term plan.

Tomorrow I will tackle a few more reminders before you drop-off into Turkey-induced la-la land.