What Can We Learn From Recessions Past?

Look, the economy has been weird for a while now. I can’t pretend to know exactly what’s going on or, more important, what will happen in the future, but I do know it’s unsettling to leave the grocery store wondering how the hell you just spent $40 on mediocre salad ingredients and some chicken. These are mysterious and confusing times, and I don’t have all the answers.

Based on history, things will probably get worse before they stabilize. The Fed is trying to fight inflation by raising interest rates — part of its job — which has had the unfortunate side effect of triggering recessions in the past. Of course, there are other ominous forces at play, too, like supply-chain problems and COVID and the war in Ukraine. No one can predict a recession for sure, but the odds are pretty high.

That’s scary to think about, especially considering that the last big recession (i.e., the Great one) cost millions of people their jobs and their homes. But the lessons from previous recessions can make the next one a little easier to handle, whenever it hits. (And not just “save more money,” although that undeniably helps those who can afford to do it.) I spoke to several financial experts about putting this moment in context, what to remind yourself of when things look hairy, and the mistakes to avoid.

Resist the urge to take drastic action.

When things feel precarious or a recession actually happens, it’s natural to want to do something — liquidate your 401(k), hoard beans, buy random stocks you read about online. Things are urgently bad, and you can’t just sit there! But actually, you probably should: “People tend to want to make big moves when they’re anxious, but it’s almost always better not to,” says Megan McCoy, a financial counselor and professor of financial planning at Kansas State University.

“No one makes great choices when they’re panicking, and economic scarcity is known for triggering irrational actions that don’t serve you best in the long run.” One example of this is the rush to buy homes, which started during the earliest days of the pandemic (technically, the last recession). “I spend a lot of time telling my clients, ‘No, don’t buy a house. Don’t buy an apartment. Stay put if you can — real estate is crazy right now,’” says Georgia Lee Hussey, a certified financial advisor and founder of Modernist Financial.

“They’re trying to anchor themselves to deal with their anxiety, which is completely understandable, but that doesn’t mean you should act on it.” A better way to channel that stress is to take stock of your spending. “The only thing you can really control right now is your cash flow from day to day,” she adds. “If you’re feeling pressured to act, get one of those tracking apps and gamify it for yourself. Knowing where all your money is going and seeing where you can save are good uses of that impulse.”

You may have to improvise.

I’ve written before about how to prepare for a recession, and it certainly helps to have an emergency fund to fall back on. But the truth is that most people don’t. If that’s you, now isn’t the time to beat yourself up about it.

“If job loss does occur, be ready to make adjustments and remember that they are temporary,” says Dr. Preston Cherry, a certified financial planner and head of the financial-planning program at the University of Wisconsin. “You can take an alternative job you may not be thrilled about or sell some belongings. You’re just filling the gap and managing the moment.”

I don’t want to minimize how difficult those things can be. During the Great Recession, I lost my job and, after doing some depressing temp work, eventually found a new position that wasn’t a great fit (I stayed for over a year because health insurance!). I don’t want to do that again, but there’s some comfort in knowing I could if I had to.

Beware the get-rich-quick schemes.

When people are nervous and desperate, they turn to the internet — where bizarre scams proliferate. “Especially at the beginning of the pandemic, when emotions were running high, I saw a lot of things online that were too good to be true,” says Dr. Cherry. “Some are more legitimate than others, but the important thing is that there’s no magic wand for making money.”

Some obvious examples: random cryptocurrencies and meme stocks, which, well, you know how that went. A similar thing happened in 2008, especially with scammers posing as government officers requesting financial information as a precondition for receiving tax refunds — and then opening credit cards in their names.

Even if you come across an “investment opportunity” that sounds aboveboard (and may be, technically), it’s usually not good to experiment with your money during a volatile time. You’re better off putting any funds you’ll need in the near future somewhere boring and safe where you can access them, Dr. Cherry adds.

Don’t be afraid to seize the moment.

No one wants to profit off widespread misfortune and economic suffering. But if you’re one of the lucky ones who can afford it, investing your long-term savings (read: not your emergency fund) in the market during a downturn can be extremely smart. “Putting money into mutual funds when the market is down — that’s the dream,” says McCoy. “It’s not sexy to buy stocks now, but during every recession, some people have made a ton of money by thinking big picture.”

Remember that the economy will recover.

When the economy takes a dive, it can seem as if our entire financial system is crumbling and we’ll be burning our worthless dollar bills to cook our food. And hey, maybe that will happen someday — but in the near future, it’s much more likely that things will bounce back.

That’s because recessions are, unfortunately, a normal part of how our economy functions. They have occurred about once or twice a decade for the past 70 years. And there’s no reason to think the next downturn will be an exceptionally painful one — like, say, 2008’s, which was the worst in almost a century.

“It’s easy to anchor our minds to the Great Recession and worry that things will get that bad again, but the economy is very different now, and there are a lot of promising signals,” says Dr. Cherry. “Not all recessions are created equal.”

This may not be a ton of comfort if you’re stressed about losing your job and taking care of yourself and your loved ones. But it is important to keep an eye on the bigger picture, which is that these downturns do pass.

Source: Lessons From Past Recessions

Critics:

Policymakers should take the lesson from the past two years that vigorous fiscal and monetary policy can boost income for most households and disproportionately for lower-income households and can speed economic recoveries. However, doing too much can have serious downsides that might be difficult to mitigate.

Macroeconomic support for an economy deep in recession with many underused resources can increase output and employment with little effect on inflation. But as the economy gets closer to its capacity, additional macroeconomic support will feed increasingly into inflation instead of improvements in output and employment. Going forward, the magnitude and timing of the response should be improved through more automatic stabilizers, and the targeting of the response should be as well. The good news is such responses can be implemented efficiently if policies are developed in advance of a crisis.

It is important to draw lessons not just from what happened, but also from what did not happen during the COVID-19 recession: for example, there was no financial crisis in the United States or worldwide. The initial, robust response by monetary policy-makers was critical to keeping the financial sector on an even keel. Better preparation in the form of more robust and stress-tested balance sheets for banks prior to the recession also helped.

The preexisting social safety net is inadequate in the face of recessions: it is not generous enough and has too many gaps, which is why it needed to be supplemented by policy action both in the Great Recession and to a much greater degree in the COVID-19 recession. Additional automatic stabilizers are likely part of the answer but are unlikely to be sufficient to avoid the need for well-timed and wise discretionary fiscal responses in the future.

It is still not clear what policies would work better in the United States to lessen the impact of a GDP decline on employment and preserve worker attachment to their employers. Job retention schemes were heavily utilized in European countries compared to state-based work sharing programs in the U.S.—these programs should be explored in greater detail for future downturns.

Related contents:

Economy Is at Risk of Recession by a Force Hiding in Plain Sight The New York Times

12:25
12:21
U.S. Retail Sales up 1% in June, easing fears of a recession Newsy

21:30 Fri, 15 JulUS Economy Business (US) Economy
20:34 Fri, 15 JulNasdaq US Economy Business (US)

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How The Real Estate Industry Can Simplify The Investment Process

For generations, real estate has proven to be a successful way to build wealth in America. People buy a home, often build equity over time, then sell their home.

CNBC reported in December that close to 95,000 homes were flipped in the third quarter of 2021, an increase for the second quarter in a row. In the past, buying single-family homes, fixing them up and selling them at a profit has largely been the purview of those with access to capital and privy to hard-to-obtain information, such as accurate data on home valuations and the true costs of conducting repairs. These acted as barriers to entry.

My company uses the power of data and technology to bring lending for real estate investors into the digital age, and I’ve observed technology has ushered dramatic changes into the market in recent years. If the real estate industry is to continue to grow and welcome groups of investors who have traditionally been walled out, I believe key stakeholders must continue to rid the home-buying process of high fees, needless complexity and inefficiencies, as well as expand access to capital.

Artificial intelligence is already creating change among lenders.

Buying a home obviously requires money, and that typically means acquiring a loan. To do that, an investor usually needs a good credit score. FICO is one of many ​​ways lenders assess someone’s creditworthiness. Most measure factors such as someone’s level of debt, credit history, the type of credit used and new credit accounts. For years, critics have questioned whether FICO is an accurate way to predict someone’s ability to pay back a loan.

In recent years, more and more lenders have turned to alternative means to measure creditworthiness, my company included. The rise of artificial intelligence has begun to create massive change. The ability to find alternative ways to determine credit risk could open more doors to groups who have not always received a fair credit evaluation.

That said, much has been written about the problem of introducing bias into these AI algorithms. While I believe AI is still a good option, it is still important to consider some challenges associated with using AI in the lending process.

For example, AI-based engines exhibit many of the same biases as humans because they were trained on biased credit decisions and historical inequities in housing and lending markets data. In order to address these inequities, AI-based engines should be designed to encourage greater equity, rather than try to align with previous credit decisions. Lenders can achieve this by removing bias from data before a model is built, which includes eliminating model variables that directly or indirectly create fair lending disparities.

Moreover, it’s important to add more constraints to the model so that it can encourage equity. For example, these constraints can reduce the difference in outcomes for people in different zip codes who have the same risk profile. If AI-based engines are left unchecked, they can reinforce the inequities that lenders want them to eliminate.

There’s still more to be done.

Buying a home is a stressful process; identifying the right market, finding a home that fits the investor’s criteria, getting financing and closing on time can be challenging. An investor needs to study the market by researching statistics in the area, including housing prices, housing inventory, listing prices and days on the market. In addition, one must get prices for renovation materials and identify the ​​right contractors. As such, investors need adequate tools to analyze different markets and deals.

Years ago, determining a home’s value required a real estate agent. Along with large institutional investors, agents were primarily the only ones with access to this information on a large scale. Now, technology has leveled the playing field, and a real estate investor can log on to Zillow, Redfin or similar sites and learn about price, value and trends regarding nearly any property in the country. This has simplified the buying process, but more needs to be done. Here are a few areas the real estate industry could work to address:

• Developing a better experience for virtual walkthroughs: Today, there are solutions that allow for virtual inspections to avoid the hassle of scheduling an in-person visit, which can be challenging, particularly if the property is out of state. But there is an opportunity to further streamline the process by leveraging technology. Virtual reality headsets showed early promise but haven’t taken off as expected, and there’s a significant need to improve the way to get an on-the-scene feeling for a property without spending the time and money to visit in person.

• Providing more digital tools and products: Tackling the different steps and paperwork involved with buying requires a degree of know-how. For real estate investors, speed is crucial, as an investor might be in the process of acquiring multiple properties at the same time while competing with other investors. It can be cumbersome and tedious to manage the paperwork for multiple properties at the same time. For this reason, companies in the real estate space can also aim to create technology that further streamlines the process, provides transparency every step of the way and helps scale.

The area is ripe for disruption. The goal for the players in the real estate industry should be to make the process of buying and selling a home much more akin to buying and selling a car. If we do that, we can truly transform the real estate industry.

Source: How The Real Estate Industry Can Simplify The Investment Process

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A Finance Professor’s Advice on Investing In Bitcoin: Just Say No

1

With inflation reaching 30-plus year highs, investors are looking to alternative investments to protect their capital from its erosion in case inflation is not “transitory,” but “permanent.” One popular alternative in recent years that has gained some currency is digital coins, such as bitcoin.

Bitcoin emerged in the wake of the 2008 financial crisis that led to an explosion of the liabilities of central banks. At the same time, debt issuance by private and public entities rose sharply. That brought into focus the realization that global economies had been living beyond their means. Inflation and devaluation of fiat currencies was feared.

The decrease in the trust of the banking system caused an increase in the demand for cryptocurrencies, like bitcoin because bitcoin provides the means to avoid governments and central banks.

Is this then what makes bitcoin valuable?

Bitcoin embodies two innovations: blockchain technology, a public ledger that contains all transaction records since inception, and decentralized governance. It is governed by “miners” who are incentivized to maintain a stable supply of bitcoin.

The theoretical roots of bitcoin can be found in the teachings of the Austrian School of Economics and the writings of Friedrich von Hayek, who believed that private banks should have the right to issue their own currencies.

Like gold, central banks cannot print bitcoin. And, not unlike the rarity of gold, the supply of bitcoin is fixed to 21 million bitcoins and is determined by an algorithm. New bitcoins are created after performing computationally intensive tasks that are necessary for the bitcoin system to function. However, only a limited supply of bitcoins is “mined” every year.

In light of the increased demand for bitcoins, due to the hype, media reports of rising prices, fear of missing out and uninformed speculators and the feedback loop that ensues, a severe imbalance between demand and supply has been created. That has driven bitcoin prices skyward.

However, having said that, eventually, bitcoin investors will have to ask themselves the following questions:

First, what is the value of a bitcoin? Is bitcoin money? Is bitcoin an assets class? And finally, what does bitcoin give you a right to? When I teach valuation in my classes at Ivey, I define value as economic or fundamental value, which relates to the ability of an asset to produce a stream of after-tax cash flows. What are bitcoin cash flows? None!

What is the value of bitcoin? Or better, what makes it valuable? Is it because many people think it is valuable? Is it valuable because it is cool, and we expect other people, especially those in the online community, to believe it is valuable? Does the dynamics of investor demand matter as much as fundamentals? In a recent paper by Xavier Gabaix and Ralph Koijen, the authors argue “prices move because people do things independently of fundamentals.”

In their paper titled “In search of the origins of financial fluctuations,” they explain that the amount of money entering the markets can have a large impact on share prices regardless of fundamentals. They do, however, conclude that in the long run prices return to fundamentals. But how long is long run?

Is bitcoin money? Well, it is not as it fails the three key functions of money: store of value, unit of account and medium of exchange. Bitcoin is extremely volatile, very illiquid, and unable to handle a large volume of transactions.

Bitcoin is not an asset like real estate or a stock as it generates no cash flows or expects to generate any cash flows and it is not a bond for the same reason? It also has no inherent value like gold. Gold is perceived to be valuable because it has certain unique characteristics, and attributes, like best conductor, more malleable, can be used to make tools and jewelry and can be worn and so on – we cannot do this with bitcoins.

Bitcoin has no correlation with other markets, like the stock market. For example, the correlation coefficient between bitcoin returns and the returns of S&P 500, NASDAQ, Russell 2000 and the S&P/TSX are 2%, -3%, -5% and 4%, respectively, none of which are significantly different from zero. And so, bitcoin cannot be used as a hedging instrument. Despite the bull market of 2018 and 2019 bitcoin’s value collapsed.72ecba17-6d0b-4a22-8a7e-e531c7c347c9-2-1Moreover, heavy regulation by governments weakens bitcoin’s value proposition. Many central banks have announced that they intend to launch their own cryptocurrencies. And hostile government policies against bitcoin (e.g., China) increase the vulnerability of bitcoin and reduce its attractiveness.

Every generation must learn things the hard way. It is now the turn of millennials, who love everything digital. It’s time to learn the risk of fads, be they digital or analog.

George Athanassakos

George Athanassakos is a professor of finance and holds the Ben Graham Chair in Value Investing at the Ivey Business School, University of Western Ontario.

Source: https://www.theglobeandmail.com/

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Amazon Gives Millions Of Users A Reason To Quit Google Photos

Amazon has released a significant update to the Amazon Photos app that will tempt some Google Photos users to switch.

Currently available only for iOS users, the new app represents a “comprehensive redesign”, as revealed in a recent Amazon Photos Blog post. The new app includes more personalized content and automatically-curated slideshows reminiscent of Google Photos. It also makes it easier to find content, allowing the user to quickly filter results by categories such as people, places and dates.

Also new is an updated home screen designed to put your entire gallery “within thumb’s reach.” Search filters are now presented conveniently at the bottom of the screen, making it much easier to find the content you’re looking for. 

I’m sure some users will take a while to get used to the changes, which are quite significant, but overall I find the whole experience much improved.

Powerful search and automatically surfacing memorable moments are two of the most important features of Google’s rival Google Photos service, and now that Google has stopped offering lifetime free storage, it’s the perfect time for Amazon Photos to swoop in with a credible alternative.

While not free, Amazon Prime customers currently get unlimited storage for photos bundled with their subscription, allowing them to fill Amazon Photos with as many images as they like at no extra cost. If Amazon can offer an experience comparable to Google Photos, there’s a good chance many will be tempted to switch over to Amazon Photos instead.

Sadly, Android users won’t be getting this update until 2022, but the new features are already available to all via the Web.

Follow @paul_monckton on Instagram

I’ve been working as a technology journalist since the early nineties. My passion is photography and the ever-changing hardware and software that we use

Source: Amazon Gives Millions Of Users A Reason To Quit Google Photos

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Unlimited image storage for absolutely nothing: Google’s photo backup deal was quite the steal. It’s little wonder that the promise of limitless free capacity quickly caught the attention of serial snappers. Provided you were happy to accept a cap on quality – which, at 16MP, was hardly extreme – the search giant would safely stash copies of all your precious snaps online. 

Alas, all good things must come to an end – including generous complimentary cloud storage allowances. Unless you’re the proud owner of a Pixel handset, unlimited space for ‘high quality’ images will end on 1 June 2021. Any ‘high quality’ shots uploaded to Google Photos after that date will count towards your free 15GB account limit. 

Already uploaded your entire library? Don’t panic: any snaps backed up before 1 June 2021 will not count towards the total. But you’ll still face a problem if you’re close to the limit. Hit 15GB with future uploads of any quality and you’ll have to make a choice: create space by deleting superfluous shots or pay to upgrade your account capacity

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How To Read The News Like a Scientist

Overwhelmed by your news feed? Use tools from science to evaluate what’s true and what’s fake, suggests researcher Emma Frans.

In our daily reading, we encounter all kinds of claims. Depending on the news story and the week, Chinese imports, coffee, large-cap stocks, snacking, and eggs should be embraced — or they should be avoided altogether. What’s a person to do when bombarded with confusing, contradictory information?

Try thinking like a scientist, says Emma Frans, who’s an epidemiology and psychiatry researcher at Oxford University in the UK and Karolinska Institutet in Sweden.

“In present times, our risk of being fooled is especially high,” she says. There are two main factors at play: “Disinformation spreads like wildfire in social media,” she adds, “and when it comes to news reporting, sometimes it is more important for journalists to be fast than accurate.”

Which is why it’s useful to know how to evaluate news the way a scientist does. Scientists labor under a burden of proof. They must conduct experiments and collect data under controlled conditions to arrive at their conclusions — and be ready to defend their findings with facts, not emotions.

“We all have gut feelings and biases that sometimes cloud our judgment,” says Frans. But scientific thinking offers us tools for “evaluating information in a rational way.”

Try these 6 tips to read the news like a scientist:

1. Cultivate Your Skepticism

Science moves forward by challenging accepted wisdom. You can do the same. When you learn a new piece of information through social media, think to yourself: “This may be true, but it also may be false,” Frans says. “This kind of healthy skepticism does not mean you’re dismissing everything as false — it simply means remembering the things you hear could be false, but they could also be true … or they could be something in between.”

2. Find out Who Is Making the Claim

“In science, researchers have to declare potential conflicts of interest before publishing their findings,” says Frans. When you encounter a new claim, look for conflicts of interest. Ask: Do they stand to profit from what they say? Are they affiliated with an organization that could be swaying them? Two other questions to consider: What makes the writer or speaker qualified to comment on the topic? What statements have they made in the past?

3. Watch out for the Halo Effect

The halo effect, says Frans, “is a cognitive bias that makes our feeling towards someone affect how we judge their claims. If we dislike someone, we are a lot more likely to disagree with them; if we like them, we are biased to agree.” It’s such a common human trait that the scientific community has devised a workaround: New scientific papers under review are read “blind,” with the authors’ names removed.

That way, the experts who are deciding whether it’s worthy of publication don’t know which of their fellow scientists wrote it so they’ll be able to react free from pre-judgement or bias. You can try this with your own news feed, too. Maybe you’ve read about a jobs policy proposed by the candidate you favor, and you think it sounds good. Frans suggests, “Simply question how you would consider the claim if it came from someone else.”

4. Look at the Evidence

When evaluating a claim, Frans asks, “Can the sources be traced? Are they reliable? Is the conclusion based on a rational evaluation of the information?” And you should try to consider all of the research on a topic. She says, “For instance, if there is one study claiming that drinking wine is just as good for your health as going to the gym, this finding is not relevant if ninety-nine studies show the opposite.” Before you act on or share a particularly surprising or enraging story, do a quick Google search — you might learn something even more interesting.

5. Beware of the Tendency to Cherry-Pick Information

Another human bias — confirmation bias — means we’re more likely to notice stories or facts that fit what we already believe (or want to believe). As Frans says, “When you search for information, you should not disregard the information that goes against whatever opinion you might have in advance.” Some scientists combat this by seeking out collaborators who, as management thinker Margaret Heffernan puts it, “aren’t echo chambers.”

These are people who will actively try to prove you wrong and can help you check your ideas and assumptions. In your own life, look for friends and acquaintances on social media with alternative viewpoints. You don’t have to agree with them, or tolerate misinformation from them — but it’s healthy and balanced to have some variety in your information diet.

6. Recognize the Difference Between Correlation and Causation

Frans researches ADHD and autism, and, she notes, in recent decades, “the number of individuals diagnosed with these disorders have increased rapidly.” Many possible causes have been raised, including vaccinations, video games and junk food. However, she says, “there is no evidence supporting these claims, and it’s important to remember that just because two things increase simultaneously, this does not mean that they are causally linked to each other. Correlation does not equal causality.”

Keep this in mind when thinking about our world. For example, if there is a rise in violent crime in your area and it’s being blamed on gang activity, or if a politician is credited with creating a low unemployment rate, take a wider view and look into the other contributing factors. Frans says, “It’s important to remember that there might be alternative explanations to a phenomenon.”

By: TED Ideas Daniella Balarezo & Daryl Chen

Daniella Balarezo is a Media Fellow at TEDx. She is also a writer and comedian based in NYC. Daryl Chen is the Ideas Editor at TED.

Source: How to Read the News Like a Scientist

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