The Consequences of an Economic Upswing

When economies boom, people splurge - an example

When the economy is in upswing, following things happen:

1. Businessmen will earn more profits.
2. As a result businessmen feel more generous and reward their management, staff and workers - who, in turn have more cash in their pockets.
3. Having surplus cash people start spending more - on essentials, luxuries, entertainment, travel, etc.
4. Such spending a large section of people will create more demand for goods and services - will increase the income of many more people.
5. Price of goods, real estate start going-up. None will bother about the slight price-rise as people are relatively comfortable.
6. Companies profits will increase - share prices in the market go up - PE and P2BV ratios will go up.
7. Slowly situations develop for an economic as well as stock market crash.

This is an economic cycle that keeps repeating itself both locally and globally. The length of an economic cycle like this last anything between 7–15 years.

What I said above is very well known - there is nothing great about it.

Knowing this what are we going to do?

This is a more important question!

Do the following:

1. Prepare yourself to ride the boom.
2. Make good money.
3. Don’t Splurge!
4. Be aware that good times do not last for ever.
5. Invest wisely but in small quantities (for shares will be expensive and will be trading at crazy valuations), preserve cash for the eventual crash, and when that happen, unleash the cash to amass all the great companies shares that you wanted to buy but could not because they were expensive.

Conclusion:

The consequences of an economic upswing are more money in the pockets of people, who tend to splurge. Wisdom is in conserving cash and investing wisely for the rainy day and for progress towards financial freedom.

Major Break-up of Assets and Liabilities in the Balance Sheet - Slide

Pie-chart depicts the major break-up of assets and liabilities