Economic Business Cycle - Winter

I hope you remembered to spring forward your clocks. This is the last of 4 newsletters correlating the economic business cycle to winter. The previous newsletters discussed when the economy is: stabilizing known as spring, growing knows as summer, and stalling known as fall. This newletter covers when the economy is shrinking known as winter. At the end are some winter facts for your enjoyment.

When the economy is shrinking it is called a recession or depression. Some experts claimed a few years ago that the Federal Reserve was so powerful that this part of the economic business cycle could be avoided such that a recession or depression would never happen again. We have seen that these expers are wrong. A typical business cycle lasts between 5 - 8 years.

So what causes the economy to shrink? The Federal Reserve to achieve a 3% growth rate and consumers. Above a 3% rate, inflation is the concern and they put the brakes on the economy through monetary policy. You read about the Federal Reserve attempting to achieve a soft landing. A high inflation rate is very detrimental to us, remember the late 1970's and early 1980's, having a 20% interest rate is an ugly thing.

Us consumers make spending decisions based on how we view the economy and the future. When economic uncertainty exists, consumers stop spending as much and save more, a normal reaction. While the Fed can control monetary policy, they certainly can not control how people think. So the change in how us consumers think causes the economy to slow even further. The Fed moves rate relatively slowly in an attempt to keep consumers spending at a normal rate. While the Federal Reserve is powerful, it is not nearly as powerful as 200 - 300 million consumers.

How do we invest in this economic winter? Since the economy is shrinking and interest rates are falling, a few options exist. We want to avoid the stock market since stock price grow as the economy grows and shrink as the economy shrinks so the stock market is going to go down. We want to own money market funds for a low risk investor and take advantage of the higher interest rates and long term bonds for higher risk investors. Long term bonds that do not pay a coupon can yield a risk taking investor a good return.

What is the bottom line of these 4 newsletters on weather? You need to understand economic business cycles, where the economy is within the cycle, and how to invest for the future. An investment strategy based upon what happened in the past yields very poor results.

Our economy is in a season of stability known as spring. This winter part of this economic business cycle will come and is a few years away. Relax, when it does come you know how to profit from it.

WINTER FACTS

The probability of a white Christmas in Vancouver, British Columbia, Canada is approximately the same as for Washington, DC: 13 percent.

Johannes Kepler published perhaps the first scientific reference to snow crystals in a short treatise entitled On the Six-Cornered Snowflake in 1611.

According to meteorologist Vincent Shaefer, an estimated half million ice crystals are required to cover a one square foot (929 square centimetres) area with snow to a depth of ten inches (25 cm).

Herds of caribou in Canada's north can generate their own weather. Ice fog will form around the herd on especially cold days from the moisture exhaled by the animals.

A large avalanche in North America might release 300,000 cubic yards (230,000 cubic metres) of snow. That's the equivalent of 20 American football fields filled 10 feet (3.05 m) deep with snow.

Snowflakes falling at the rate of 3.6 to 6.4 km/hr (2-4 mph) can take about one hour to fall to the ground.