Keep Calm and Carry
On.
The slogan comes from
a United Kingdom Ministry of Information propaganda poster designed to boost
morale if the United Kingdom was invaded during World War II. Despite its current
popularity, the poster was never distributed.
The slogan offers some
sound advice for anyone who was unnerved by last week’s stock market volatility.
Investor optimism caught fire when Federal Open Market Committee meeting
minutes indicated economic growth might not proceed quickly:
“Most viewed the
risks to the outlook for economic activity and the labor market as broadly
balanced. However, a number of participants noted that economic growth over the
medium term might be slower than they expected if foreign economic growth came
in weaker than anticipated, structural productivity continued to increase only
slowly, or the recovery in residential construction continued to lag.”
Slower economic
growth could translate into delayed monetary policy tightening (lower interest
rates for a longer period of time), and that notion sparked the biggest rally
of the year on Wednesday with U.S. stock markets making significant gains.
What goes up must
come down. For every action, there is an equal and opposite reaction. Okay, the
laws of physics generally don’t apply to stock markets. That said, a lot of
folks saw Wednesday’s market highs as an opportunity to take gains off the
table, according to Barron’s. Consequently,
we saw steep stock market declines on Thursday with major U.S. markets losing 2
percent or more.
Yields on longer-term
Treasuries also fell last week. Reuters
reported weak economic data in Germany, which raised concerns about growth in
the Eurozone, and revised forecasts from the International Monetary Fund
indicating global growth may be lower than expected, caused investors to seek
the safety of U.S. Treasuries.
collaborative consumption is causing
creative destruction! Back in 1942, economist Joseph Schumpeter said creative
destruction is the way of the free market. It’s messy but as an entry in The Concise Encyclopedia of Economics explained:
“Lost jobs, ruined companies, and vanishing industries
are inherent parts of the growth system. The saving grace comes from
recognizing the good that comes from the turmoil. Over time, societies that
allow creative destruction to operate grow more productive and richer; their
citizens see the benefits of new and better products, shorter work weeks,
better jobs, and higher living standards. Herein lies the paradox of progress.
A society cannot reap the rewards of creative destruction without accepting
that some individuals might be worse off, not just in the short term, but
perhaps forever.”
At
first, the collaborative or sharing economy was thought to be a response to the
Great Recession. Some people needed to reduce costs and others needed to make
money, so they found ways to use resources more efficiently by making the most
of available time and assets. This is affecting companies in a variety of
industries:
· Transportation: Ride-sharing apps connect people who want
rides with people who are willing to use their personal cars to provide rides.
(If you’ve wondered about autos sporting big pink mustaches, they belong to a
particular app’s drivers.) These apps are taking money out of the pockets of
cab companies.
· Hotels: You can reduce travel costs by renting
someone’s spare bedroom, castle, or villa through an online community
marketplace. The downside, according to one study in Texas, is traditional
hotels have lost revenue as these communities have gained popularity.
· Finance: When banks and traditional lenders made
borrowing a challenge, peer-to-peer lending and crowdfunding platforms provided
individuals and entrepreneurs with a new way to source capital. A report from
the Cleveland Fed found, “Since the second quarter of 2007, the total amount of
money lent through bank-originated consumer-finance loans has been declining on
average 2 percent per quarter... Meanwhile peer-to-peer lending has been
growing rapidly at an average pace of 84 percent a quarter.”
Whether
you want to provide or consume goods or services – cooking meals or eating
them, running errands or having them run, hosting a pet or leaving one behind
while you vacation – there is probably someone out there who is willing to
share their resources.
“Always remember that you are absolutely unique. Just like everyone
else.”
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