Bank or Betting Shop

Posted: December 13th, 2008 | Tags: banks, economy, finance |

I think it is a fitting reflection of the current economic climate that in the ‘banking sector’ of Coventry, one building society has shut up shop and the premises has promptly been taken over by a bookmakers.

We are undoubtedly entering a prolonged period of economic uncertainty where banks who once reaped huge rewards from high risk investments are now buckling under huge losses as a result of the slowdown. Furthermore, the public has lost confidence in the industry due to the collapse of something we all assumed was solid as a rock.

Understandably people are less willing to take risk, are reigning in spending in preparation for a difficult economic period and are far more cautious when they do invest. Ironically, it is exactly this pattern which will prolong this period of economic depression.

If spending increased to the rate it was 12 - 24 months ago, the economy would start to become more buoyant. Liquidity for companies would improve and the number of jobs would rise due to demand for commodities.

Interestingly, people also seem to be abandoning ship in relation to share investments. People tend to buy shares when there is confidence in a market i.e. when they are on their way up or at a high, and sell when confidence is reducing and therefore when prices are falling or at a low. This is obviously contrary to common sense which would really tell you to buy low, sell high. Fortunately for us, shares are low at the moment. Maybe not as low as they will be, however the number of shares you can get for your initial investment is probably around the highest we are likely to see in our lifetime.

Even in the market continues to fall, it will certainly grow in the future and greater rewards and lower risk are found in longer term investments.

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