Stagflation, the economy, interest rates, inflation and You.

Posted under Finance, Investing by Roman

Stagflation, the economy, interest rates, inflation and you.

We can all agree that the United States of America is in a recession. By this point, there have been more then 2 quarters in which there was little to no growth or a decline in the economy. The press is mentioning the word “RECESSION” in every other sentence. Most the of major stock markets have fallen over 11 percent in the last 6 months. Only the president of the US is saying that we are not in a recession, just like there were weapons of mass destruction in Iraq. As a counter measure the Fed started to cut interest rates trying to improve the economy. But this had the opposite effect that was compounded by the weakening dollar, gas prices and the sub-prime mess. Increasing the prices of most everyday goods, this translates into a higher inflation rate. High inflation and low economic growth equals one thing. Stagflation!! That’s right the word that makes your parents remember the issues of the 70’s. Stagflation is a period of time where there is little economic growth and high unemployment rate that is accompanied by a high inflation rate. (Simply put no jobs and high prices)

Now here is the hard part, what to do? How can you survive this bump in the road, even though it’s a really big bump. Don’t over react, the market is going down. But, not all of it there are stock and certain bonds that can cushion the blow. This is why most investors diversify. A few good commodities and the Dogs of the Dow will be a safe bet right now. THINK long term your 401k most have gotten hit by now but you don’t need to worry about it unless you are retiring right now. LONG TERM thinking combined with diversification will get you through. I admit it is tempting to buy gold and oil right now. Just sit on it, relax let the price go up. You can feel free to but do not over react. The old saying “don’t put all your eggs in one basket” is around for a good reason.

The dogs of the Dow if you do not know what they are high dividend yield stocks on the Dow Jones.

They may be found at http://www.dogsofthedow.com/