Hurray for bad times

Is recession likely? Let’s hope so.

  9

by

From the July/August 2008 issue of the magazine.

  9

Many forecasters are saying that the U.S., and perhaps
Canada too, are facing a recession. But while a
recession is never good news for society at large, it doesn’t
have to be a disaster for your personal bottom line. In fact,
with a little foresight, many of us can find ways to turn a
recession to our advantage. You can:

DO RENOS   Remember that
three-month wait you
had to
endure to get your leaky faucet fixed? Remember the staggering
bill you had to pay? That all becomes a distant memory if recession
hits. When times turn tough, skilled trades people are eager
to do household chores — on your schedule. Better yet,
homeowners
will once again have some bargaining power and that should
result in lower prices. “A roofing contractor, for instance,
can
knock a thousand dollars off a $6,000 job because he can absorb
the loss into labor costs,” says Mel Fruitman, vice-president
of
the Consumers’ Association of Canada in Ottawa.
“That’s why
home renovations and repairs is one area where you’ll see
actual
price decreases for consumers instead of just price freezes.”

BUY SMALL CAPS   Conventional
wisdom says you
should
seek the safety of large capitalization stocks during recessions.
That’s what Michael Zhuang, president of MZ Capital
Management,
an investment adviser in Washington, D.C., thought, too, until
he studied nine recessions going back to 1950. He discovered small
caps actually did much better than their big brothers during bad
times. “Three years after the start of all nine recessions,
the average
return was 28.20% for the [large cap] S&P 500 vs. 76.21% for
the
Fama/French Small Cap Value benchmark portfolio,” says
Zhuang.
“While the future may not be like the past, we think small is
beautiful.” One way to load up on small cap value stocks is
the
Rydex S&P SmallCap 600 Pure Value exchange-traded fund
(AMEX: RZV). Its management expense ratio is only 0.35%.

SNAP UP A HOME   “A
recession is
always a good buying
opportunity
for house hunters,” says Don Drummond, chief
economist with TD Bank. It’s also a good time for getting
lower
rates, says Douglas Gray, author of Canadian Home Buying Made
Easy. “You’ll get a better rate if you renew your
mortgage, and a
recession is also good for lines of credit tied to prime.”

TAKE A TRIP   A slowing economy
hits hard at
the travel
industry
.
Caribbean cruises are already selling at rock-bottom prices.
Consider a five-night cruise aboard Royal Caribbean
International’s
Enchantment of the Seas. It leaves from Fort Lauderdale, Fla.,
on June 9, has stops in Key West, Cozumel and Belize, and costs
only $629 (port charges included).

Those who prefer going overseas can also find great bargains.
At press time, return flights from Toronto to London on Air
Transat were as low as $149 plus $320 tax and fuel charges.
“It’s
actually cheaper to go to London these days from Toronto than
it is to go to Vancouver,” says Peter Martens, Flight
Centre’s
marketing manager for Eastern Canada. And check out the deals
Air Canada is offering to Bangkok and Tokyo. At press time, both
destinations are going for under $1,200 from Calgary, Vancouver
and Toronto.

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