Does the news get better? Not right now.
If you thought the economic news couldn't get any worse, get ready. Apparently there is another hidden problem that is just starting to come to light. Apparently US mortgage insurers are facing difficulty due to the sub-prime disaster there. Predictions are that they'll all go under and Jim Cramer of Mad Money is predicting that will happen in two to three weeks. He said that last week.
How insulated will Canada be from all this? Well, people will still be driving, so Alberta should be fine. The real problem is going to be the psychology. Will people avoid going into a panic over the bad news? Doubt it. The panic will be worse among people who know they're not in good shape. Why is it that they never figure this out before everything hits the fan?
The basic rules of finance apply whether you're in good times or bad:
1. Pay down high interest debt. Don't incur more!
2. Save! More is better, but at least 10% of your income.
3. Invest. RRSPs, etc
4. Live within your means.
5. At least 3 - 6 months of living expenses saved (beyond the 10% in #2)
Now, this is always easy to say, harder to do. Our governments don't make it any easier to save when you're living paycheque to paycheque. Wouldn't hurt to avoid the credit cards though. They make it worse, especially if you have little self-control.
It also makes sense to give some serious thought to how secure your job might be in an economic downturn. Maybe it would make sense to find one that would be, although your time at your current employer may insulate you. Maybe. It is tough to predict.
So, if you're at least in good financial shape and you feel your job is relatively secure, why worry? Wouldn't hurt to tighten the belt a little, but you can keep on going. Besides, the misery of others might just bring some good investment opportunities if you have the cash to take advantage of them.
On the other hand, you have to wonder how much exposure Canadian banks might have in this latest wrinkle. God knows they took a few hits lately over their exposure to the sub-prime mess. I'm not sure I'd be buying any bank stock until I was comfortable they weren't dangerously exposed. I'm not that knowledgeable in that area though. That's not to say that you couldn't pick up their stock cheap later on if they were exposed.
How insulated will Canada be from all this? Well, people will still be driving, so Alberta should be fine. The real problem is going to be the psychology. Will people avoid going into a panic over the bad news? Doubt it. The panic will be worse among people who know they're not in good shape. Why is it that they never figure this out before everything hits the fan?
The basic rules of finance apply whether you're in good times or bad:
1. Pay down high interest debt. Don't incur more!
2. Save! More is better, but at least 10% of your income.
3. Invest. RRSPs, etc
4. Live within your means.
5. At least 3 - 6 months of living expenses saved (beyond the 10% in #2)
Now, this is always easy to say, harder to do. Our governments don't make it any easier to save when you're living paycheque to paycheque. Wouldn't hurt to avoid the credit cards though. They make it worse, especially if you have little self-control.
It also makes sense to give some serious thought to how secure your job might be in an economic downturn. Maybe it would make sense to find one that would be, although your time at your current employer may insulate you. Maybe. It is tough to predict.
So, if you're at least in good financial shape and you feel your job is relatively secure, why worry? Wouldn't hurt to tighten the belt a little, but you can keep on going. Besides, the misery of others might just bring some good investment opportunities if you have the cash to take advantage of them.
On the other hand, you have to wonder how much exposure Canadian banks might have in this latest wrinkle. God knows they took a few hits lately over their exposure to the sub-prime mess. I'm not sure I'd be buying any bank stock until I was comfortable they weren't dangerously exposed. I'm not that knowledgeable in that area though. That's not to say that you couldn't pick up their stock cheap later on if they were exposed.
posted by Alain Saffel at
10:08 PM
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