There's Nothing to Fear But Fearmongers Themselves 13 comments
-
Font Size:
-
Print
- TweetThis
Have we been talked into a recession? There's little question that's where the economy is now and it seems to be spiraling deeper by the day as we anxiously cut back on almost everything and, in the process, help make our worst economic fears come true.
Did it have to be this way?
Just a few months ago we had mainly a severe problem with mortgages that should never have been written. The people who shouldn't have had the mortgages were losing their homes (or speculative investments); the people who shouldn't have bought the mortgages, including the companies that shouldn't have written the mortgages and the companies that shouldn't have securitized the mortgages, were in a lot of trouble.
But, other than housing prices which were arguably too high anyway, the real economy seemed to be doing pretty well. This being an election year there was a healthy dose of "stimulus" from Washington. Many more dollars than were in the stimulus program were saved by drivers who went on partial strike and helped drive the prices of gasoline and oil back to less than they were a year ago. Most of these were dollars that otherwise would have left the US economy so that was pretty much all gain.
So why are we having a recession? At least partially because we were talked into it. But who would want to do that? Who would want to spread so much fear that the mighty US consumer put his or her credit card under the mattress?
- Bankers who wanted a bailout (and got it)
- An administration that needed to justify bailing out the bankers
- A Treasury Secretary with a bankerish POV
- A Fed chief whose academic specialty was the Great Depression
- The Democratic Party which wanted to show how bad things had gotten on the Republican watch
- The McCain campaign which wanted to show it wasn't four more years of W
- Those who would like to regulate everything in sight (forgetting that regulated Fannie Mae (FNM) and Freddie Mac (FRE) were among the worst offenders)
- Those in Congress who didn't want the blame for pushing Freddie Mac and Fannie Mae to make worse and worse mortgages
- Everybody else who wants a bailout and has seen that the threat of bankruptcy is the best way to get one
- A press which is largely economically illiterate but can tell scary and sad stories well
Turns out there was almost a perfect storm of fearmongering and we got scared. Now there is a recession. They happen when money stops moving (more on that here).
The consumer price index has fallen by a record amount month over month led by fuel and housing but other stuff is getting cheaper as well. The post-Christmas sales have started before Thanksgiving this year. Consumption has gone out of style – bad timing that.
If you're in debt, it IS a good time to cut back. Cash is king and we are at least partly in a deflationary time. But, if you have some money, it's not a bad time to go shopping both because you'll get good prices and because the economy needs you not to hoard. Want to be socially responsible, buy your family a fuel efficient car, furnace, or solar something or other. Good time to hire some people to do some work around the house you've been putting off. Good time to give to your favorite charity which is probably hurting.
Scary as it is, it's a good time to invest as well. We're somewhere between the end of the last bubble and the beginning of the next one. More fortunes'll be made by investing now and waiting patiently for returns than waiting for a safe time to invest.
Some ideas on how companies should invest are here.
It's also a good time for leadership – away from fear. Here's hoping we'll get that.
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Philip Davis
-
3
Bill Gross
-
4
Tyler Durden
-
5
TraderMark
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 13 comments:
"But, other than housing prices which were arguably too high anyway, the real economy seemed to be doing pretty well."
Aside from the fact that the average American was spending more than he saves, there are some other factors you could look at.
The average homeowner lost $85,000 in value this year, with 74% of homes losing value. Would that make a rational person think about putting their "credit card under the mattress", as you put it?
Banks have written down $500 billion in mortgage losses, on their way to probably $2 trillion dollars. Could this cause a clampdown on credit? Seeing as how total credit is 340% of our GDP, could this have a negative effect on the economy?
In addition, how many people formerly employed selling homes, funding, building, remodeling, furnishing, and so on, are now out of a job?
Yes, the powers that be are absolutely taking advantage of the situation.
But people have myriad reasons to cut back on expenditures and start saving money! Don't expect the hoi polloi to renew their appetite for more junk to fill up their rented storage units anytime soon.
I also would like to mention that I forwarded your article on telecoms to my friends in the industry last night and they all commented that it was more refreshing than usual inane nonsense that I forward from this site. Most of the article I forward are for humor value but its about time we had some serious writing here. Thanks from the serious investors.
Leadership is required here. Although I am apolitical I think (hope) Obama will have a positive affect on the overall market psyche when he takes over the reigns.
Is this just your personal opinion? Because there's lot of evidence that all these problems were and are very real.
Spoken like a true believer in 'buy & hold'. More fortunes will be lost following this advice than will be made.
"Want to be socially responsible, buy your family a fuel efficient car, furnace, or solar something or other. "
Are you nuts? You'll never make up the cost of the new car with the money you save on fuel. This has always been one of the dumbest arguments for buying a new car. Besides, what are you going to get for your old car? Nothing!
You should apply for a job on CNBC; you'd fit right in with all those blowhard idiots like Kudlow, Gasperino, Bartolomo and Cramer who only see a rosy picture. These people are responsible for raising investor hopes while riding the market and the economy down the toilet. They have been calling the bottom for months encouraging people to buy, buy, buy.
What are you buying?
The last sixty years, in economic terms, has been about Optimism, for good reasons.
Now, the pendulum is swinging back to Realism and Pessimism.
The reasons that led to the growth of the last sixty years is now dissipating, prior to reversing.
As usual, Supply & Demand have a habit of finding their levels, although sometimes they overshoot both ways.
In this instance, there may well have been good reasons for appointing the current FED chairman who happens to be a Depression expert.