Financial advisor Alan Akina is president of 101 Financial, a company that caters to middle income families. He said a lot his clients were left spinning by the recent and dramatic drop in the stock market.
“A lot of them are just finding out,” said Akina. “They don’t know what the debt crisis is or the national craziness with the S&P rating, but they just want to know. (They’re) a little scared, a little freaked out.”
Akina is telling his clients now is not the time to make rush decisions. He says there are still some positive economic indicators despite what’s happening on Wall Street. Hawaii’s unemployment rate of 6 percent is eighth best in the nation, and the state’s tourism industry grew at a rate of 4.7 percent in the first six months of the year.
“We’re not the best (and) we’re not the worst,” said Akina. “We’re plugging along. We’re not seeing swings in real estate values going up and down.”
However Akina there are some financial moves families may want to consider during market volatility, says Akina, especially with the U.S. economy growing at a less than stellar pace of 1.3 percent in the second quarter of the year.
“Get on a budget (and) stick to it,” he says. “Spend less than you make – that’s key. And then, pay down your debt.”
Akina says getting credit card debt under control is perhaps the most important financial move a person can make, since revolving debt is subject to changes in short term interest rates.
“If you bring it down you’re not going to experience the potential upswing in interest rates rising. If you have a fixed rate loan you’re gonna be okay, like a car loan or a mortgage, but those with revolving debt possibly could see an uptick in interest rates.”
ANOTHER RECESSION?
Much of the focus Monday revolved around S&P’s downgrading of long-term U.S. Debt from AAA to AA+. However financial experts say the stock market’s drop had more to do with economic uncertainty than anything else.
“I think there’s some legitimate fears of a recession,” said David Hunter, an assistant professor at the University of Hawaii’s Shidler College of Business. “I think we’re seeing some weak economic data and I think that generally those fears of another recession are being confirmed as more weakness appears.”
According to the National Bureau of Economic Research, the U.S. recession sparked by the real estate bubble began in December of 2007 and ended in June of 2009.
Unlike some financial analysts who see the current economic glass as half empty, Hunter believes the U.S. Federal Reserve Bank still has some tools available to help spur growth.
He says the central bank could cut the federal funds rate, or the amount banks charge one another on overnight loans, which now stands at 25 basis points. The Fed could also choose to shed short term Treasuries and use that liquidity to purchase longer term bonds. Then there’s the possibility of a third round of quantitative easing, the Fed’s policy of purchasing government issued bonds from newly digitized money.
Hunter says QE3 would be the least palatable of the Fed’s choices because it could stoke inflationary pressures.
“If they really do control inflation than the amount of money they can pump into the economy is a lot more limited,” said Hunter. “I think that’s why most people believe that the Fed is somewhat limited in what they can do.”
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See the original article at: KHON2 Local News
