We can argue until the cows come back and debate until we foam at the mouth why do we keep experiencing this 10-year economic cycle. If we are capable of sending spacecraft deep into Mars ever since 1960s, can’t we plug this hole called “Recession”? There should be some sort of formulas to solve this mystery so that all of us can live happily and make money endlessly *sounds like heaven huh?*. It’s painful to watch innocent people got retrenched and struggles to put foods on the table, not to mention escalating social problems such as crimes, prostitution, marriages breakdown and so on.
Let’s not get too carried away with the problems associated with economy crisis. Instead of cursing the sky and blaming the stock market we should embrace the fact that life is about cycles. From the moment we were born until we’re buried under the earth everything is about cycles. And there’re two sides to it – up and down. As a baby we were taught by our parents what we can do and what we should not do. In school we were taught what is good and what is bad. In war good generals know when to attack and when to retreat. In the world of stock investing we should know when to buy and when to sell although amazingly this is the hardest thing to do to most investors, no matter how many years he or she was exposed to the ups and downs of the stock market.
While it’s true that nobody (despite thousands of years of civilization) has thus far master the art of benefiting (or profiting) from such ups and downs, in reality we do need such cycles for simple reason – to continuously remind ourselves the existence of such rule (cycles). But why do we need such cruel economic uncertainties? Because trading and investing stocks is all about human and it was human’s emotion; namely greed and fear that determine our buying or selling price. Another reason why we need economic downturn is to do housekeeping. If not for the current economic recession we won’t know that human was so creative that a whopping $50 billion could be sucked (and lost) into a “giant Ponzi scheme”, thanks to Bernard Madoff.
Of course without this tipping point that turned the bullish into bearish cycle we won’t know that the U.S. economy is still so fragile, thanks to excessive lending by greedy financial institutions who chose to throw the risk-management book out of the window and gave away easy money to house buyers. It’s a dangerous game to have chief executives fighting to impress board of directors with fancy numbers. I bet you’ll never learn and hear the financial term “Subprime Lending” if this mortgage crisis didn’t burst. We’ll also not know how vulnerable the global economic is when the U.S. sneezes. That’s right – the BRIC (Brazil, Russia, India and China) can barely stand on their own feet.
The current economic crisis also exposed “India’s Enron” when India’s fourth biggest software services exporter, outsourcing firm Satyam Computer Services’s (NYSE: SAY, stock; BOM: 500376) founder and chairman Ramalinga Raju admitted a US$1 billion fraud inflated for years. And do I have to mention that without economic crisis we may not see the current plunging global crude oil prices from the high of $147 to $33 a barrel recently? That’s good news although in certain parts of the world, the food prices remain high but that has to do with other factors related to weak government in nation management. Needless to say employers suddenly saw their employees become super-efficient with productivity skyrocket to the roof. Funny there is still senile expired politician who is asking people to resign from their jobs just because he was paranoid about his “boycott US-made products” (he expect low-income earners to eat grass like cows?).
If you compared the tourism industry in Hong Kong pre and post 1997-1998 Economic Crisis you can definitely see the difference – the Hongkies are now less arrogant. Recession miraculously has change human’s attitude to become a better and humble person although there are exceptions. Like it or not we still have bunches of arrogant people who were spared from economic downturn and politicians who are still in power making great money but the law of cycles will come soon. Last but not least we still need recession because it provide another round of opportunity for certain group of people to buy stocks at low price but whether they can sell at high price depends on the respective individual.
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