Europe cannot get its act together. Debt deals to figure out what the plan will be to bail out Greece have not been agreed upon yet. Angela Merkel of Germany and the backwards French government cannot find the correct budget or the correct plan of action. The Royal Bank of Canada (RBC) reported last evening that they project a mini recession in Europe (of which the Europeans have not yet acknowledged), a slowing of the Chinese economy, and a continual stall in the U.S. economy that will result in a short slump for Canadians. I tend to listen when RBC puts together reports such as this. And you should too!
Now, just this morning Douglas J. Elliot of the Brookings Institute has spoken. Europe he believes will suffer at the hands of several countries defaulting, causing a rift across the Atlantic with over $1 trillion in U.S. Investment in Europe. Guess who has loan commitments to the Eurozone to the tune of $2.7 trillion dollars… Our U.S. banks! These banks are at the mercy of the poor decisions of the governments in the PIIGS (Portugal, Italy, Ireland, Greece, and Spain). Only two are being honest about their debt issues now as Italy struggles to hide the severity of the issue. Although Portugal and Ireland are off the chopping block for the moment, they cannot hide for too much longer.
As everyday people what are we supposed to do? The first plan of action is not panicking. The recession will be bad, but not as bad for North Americans. The most important thing to do while you still have time now is to build up the emergency relief fund if you have not already. If you have the opportunity, bolster it by an addition 2-3 months wages. Although it is not likely that massive layoffs will occur as with the other more direct recessions, hiring will not escalate any time soon. Companies will continue to sit on their large cash reserves and be frightened to invest.
As for students, tuition will continue to escalate. There is no debating this and no getting around this. We already knew this, but it will be more than expected. Universities and colleges will receive less funding from the state and philanthropic sources as a result of the all around fearful investment.. If you are a student already, consider some form of emergency fund for yourself and look to getting a part time student job if you do not already. Continue to seek out financial aid, bursaries, scholarships, and do NOT settle for loans unless they are government loans.
Keep an eye out as a consumer. The holiday season is just around the corner. Buyers are already looking for deals, but with a potential recession coming and a lack of consumer confidence be on the further lookout on prices. You may see a rise in consumer prices as a result of the willingness to buy as was previously expected. Similarly though they may be so desperate to sell that you may find some incredible deals!
Finally from an investors position these are the scariest of market situations for most people. Most people panic when everything hits rock bottom, such as this August, days before the U.S. Government raised the debt ceiling.
Buying under these circumstances will net the greatest results because just about everything is and will be at discount, even stocks that have little to nothing to do with Europe. Look for those with the largest percentage decreases in their price within the industrial, transportation, technology and consumer staples sectors. These are usually the hardest hit, but also the most stable and rewarding, especially with a dividend. Do not invest yet, until you are comfortable with the emergency fund.
Beyond that there is not much we can and should do. It is far better to worry less and just make yourself prepared.