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What Happened Yesterday?

Hiding under the covers won't help

The DJIA dropped by 400 points, oil prices shot up by $11/barrel, and unemployment in the U.S. increased by half a percent. What’s going on and what should we do? Oil shot up because the value of the U.S. dollar declined, and because of some “fightin words” exchanged between Israel and Iran. A senior Israeli official used the word “unavoidable” to describe the imminence of an Israeli attack on Iran over Iran’s nuclear program. If you read my post on the factors that influence oil prices, you know that a Middle Eastern war is probably the biggest doomsday scenario for our wallets, in terms of oil and gas prices, and for our investments, because the stock market will TANK if that happens–except sectors like defense contractors, if the U.S. gets involved. P.S. It may be a good time to invest in a bike and some high-quality walking shoes.

Here’s a lovely quote from the U.S. Department of Labor’s Bureau of Labor Statistics May 2008 Report that shows you how dire the situation is for millions of Americans:

“The number of unemployed persons increased by 861,000 to 8.5 million in May, after seasonal adjustment, and the unemployment rate rose by 0.5 percentage point to 5.5 percent. A year earlier, the number of unemployed persons was 6.9 million, and the jobless rate was 4.5 percent.”

What’s going on: The truth is that our American standard of living is deteriorating. For those of us lucky enough to have a job-adjusted for inflation and the low value of the dollar, our paychecks are worth less than the face value. But everything else is getting more expensive, including the staples of living: food and gas. So we’re earning less money and paying more for basic stuff. This less money + higher expenses combo hits women harder than men, because we are still earning an average of 80 cents for every dollar earned by our masculine counterparts.

All of this erodes our confidence in the American economy, and when people lose confidence, or when they lose their jobs, or when they can’t afford to save money because they’re paying too much for basic needs, they either stop investing in the stock market or they pull their money out of those investments. Then the stock market declines even further and people lose even more confidence. Argh!

So what can you do to help yourself in this situation?

1) Continue to invest, because this plunge is temporary. Think of it as a sale.

2) If you have a job, make sure you are being paid what you’re worth. Do some market research on salary.com or at the Bureau of Labor Statistics website, ask your HR department for salary benchmark information on your position, or if you feel comfortable, find out what your colleagues are making. If you’re not being paid enough, ask for what you’re worth. Being underpaid will make it that much harder for you to sock away investment money while dealing with your everyday expenses. This may seem counterintuitive given the nasty job market, but trust me, if you are valued in your current company, they would rather pay you a little bit more (especially if that’s the fair market rate) than have to pay to find a replacement and train her. I tend to think of it this way: How much does my company spend on pencils each year? Am I worth more than-or at least just as much as –pencils? Definitely.

3) Real estate is cheap now, so if you have good credit and are thinking about buying, it may be the right time for you.

4) Think about that bike.

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Is the economic downturn affecting your life at all?