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With all the doom and gloom headlines splashed across the financial media, it is no wonder that everyone thinks we are headed for the next great depression with little hope of a recovery. Yet there are definitely some positive economic signs out there amid all the negative press - you just need to look a bit! Now, I am not saying things aren't bad or that we are not in an economic slump -- I have myself written some downbeat posts about our economic outlook -- but I do feel that all too often we focus on the negatives rather than on some of the positives. Here are some examples of recent positive economic developments that we can all benefit from now and take as optimistic signs for the future.
1. Lower Oil and Gas Prices. Crude oil prices have dropped more than 25% in the last two months and the US dollar has strengthened considerably. These two factors alone have contributed to lower gas prices at the pump and something we can are all directly (transportation costs) or indirectly (lower food prices) benefiting from. While I do think oil prices will go back up in the longer term, the current respite should help all our bottom lines and hopefully remind our government about the benefits of lower energy prices and why a long term energy plan for our nation is a must.
2. 3.3% GDP growth. This was a huge growth number reported in the last quarter. In fact the future also looks brighter with the OECD recently raising the estimate of America's 2008 GDP growth rate to 1.8% (from the 1.2% published in June). Despite a weak jobs report and worsening housing data, keeping a positive growth rate in current economic conditions is truly a sign for optimism. It also means we are technically not in a recession despite all the naysayers.
3. A stronger US dollar. The dollar has rebounded strongly of late. Up around 10% against the Euro and Pound, and more than 20% against the resource driven Canadian and Australian dollars. While this does dampen our export growth, it is good news for airlines, overseas travellers and shoppers buying imports, from electronics to clothing goods. The higher dollar also provides a natural hedge against rising inflation and the need to raise interest rates - always a good thing in tough economic times.
4. Once in a lifetime investment opportunities. We have all read stories about those investors who got in early and made millions from stock investments in companies like Microsoft (MSFT), Apple (AAPL) and even some of our large and battered financials. However over the last two years a lot of once-high-flying companies have had their stock prices coming crashing back to earth. With across the board falls in stock markets, there are now lots of well known dividend paying stocks available at bargain basement prices that offer the potential for you to become one of these storied investors. If you are an investor with a long-term view, this could provide multiple opportunities to get into some great brand name companies like Citibank (C), General Electric (GE) and even Microsoft at very attractive price points. When the economy does fully recover, as it surely will, these stocks will boom and so will your portfolio. For a less risky and more diversified option, invest in a large low fee S&P 500 fund using the benefits of dollar cost averaging to slowly build your investment portfolio.
5. Housing affordability at its highest levels. At the turn of this century and for a few years after that, homes were almost unaffordable to the average American family in most major cities. Buying a house in a good neighborhood and school district for less than half a million dollars was hard to do without facing onerous debt obligations or having to take on exotic loans (and hence the sub prime mess). However, the silver lining from the housing crisis is that home prices have dropped all over the country and especially in metro areas around Los Angeles, Chicago and Washington DC - areas that experienced some of the biggest price jumps and drops in affordability. So for those who have lived within their means, enjoy stable jobs and have enough money saved for a 20% down payment, now is the time to find great housing deals.
There you have it: five reasons to look on the bright side of things for a change. All this being said, you still need to proceed with caution, especially if there is more economic turbulence ahead. Keeping an emergency fund, controlling your spending and doing your best at work/business will mean that you will be better prepared if things turn worse, and position yourself to reap the benefits once things starting looking up again more permanently.
Disclosure: Long
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This article has 24 comments:
1. Gas and oil prices are lower BECAUSE economies across the globe are slowing.
2. The GDP growth number is entirely fictitious. If one applies a realistic deflator (5%? 12%) instead of a ridiculous 1.3% inflation rate, then economic growth is negative--and has been for over a year.
3. The dollar is strengthening against the currencies of nations that are following us into recession.
4. The once in a lifetime opportunities are probably on the short side. Citibank and GE will survive in at best a diminished form. Microsoft is a plausible investment, but it faces many real risks.
5. Housing needs to drop another 15% before it reaches the historical average level of affordability. And it will probably overshoot on the downside. An average is not a floor.
5.
Anonymous
A Pessimist: Is the married optimist.
1) oil and gas price reductions are too little too late. the economic deer has been shot and has lost a lot of blood. it is great the grass is getting greener but the last thing the poor beast is thinking about is eating.
2) the gdp 3.3% is still preliminary. as pointed out it is not indexed properly to inflation. but the most telling is that gdp has not been negative since 1958. gdp simply is screwed with to the point that it is not an indicator of economic health.
3) a strong dollar only hurts our economic engine by making imports more affordable and making our exports less affordable. it is great that mr & mrs smith can travel on their vacation to europe now - oh except they lost their investment nest egg and are worried their kids are going to move back in with them.
4) few people are investing long as it is obvious some dynamic in the market is screwy.
5) housing affordability - too many houses, too few buyers. supply and demand. housing will go down more. if you own a home and just want to move your relative position is unchanged so go ahead and buy (i hope after you sell). if you want to sell a rental or second home - sell now. if you want to speculate or can wait - wait.
andy, you had big cojones to write this article. nahhh, you just wanted to poke a stick into a pig for a little weekend enjoyment.
If the negativity is a contrarian indicator, this one proves it like so many others..
The more I read "Now is the time to hide in your bomb shelter at your rural farmhouse", the more I think about shopping for stocks and property.
The pessimist is always miserable.
For the love of God, please stop recommending that people buy index funds! If they wanted to set it and forget it, why would they be reading this article??
Warren Buffett
ca 1970
I'm long Apple and for the long term. This is a tech company that is no longer just one guy (Jobs) but lots of brilliant minds, financial security, no debt, piles of $, and spending more on R&D which assures they'll keep ahead of the pack in innovation. But they also give their customers the best retail experience around. Go into any Apple store and you'll see what that means. This is an experience people just don't have anywhere else..though i hear that Best Buy is trying to emulate them.
the market has gone through a lot and more to come. But in the long run, with good stocks, money is made.
Just because everyone believes something doesn't mean it isn't true.
In addition, write in complete sentences, not fragments, e.g., "Up around 10%..."in no way constitutes a complete sentence.
Good luck with your long positions, but when you hit rock bottom don't bother asking for help later on because when everyone is in the same situation there will be not enough help to go around.
I sold everything I had when the Nasdaq was at 5100. Why? Because there were analysts starting to write reports like, "XYZ company would have to have 300% growth for 15 years before their P/E ratio would be 30"
Inotherwords, this market needs more certainty. There are risks all over the place that cannot be easily calculated. Apple is a case and point. How much will Mac, Ipod, Iphone, Itune sales be hurt by the economic slowdown we're in? That's an unknown, and just like people are willing to pay a premium for log term growth visibility, the reverse is true for unknowns.
This is a difficult market. There's no doubt about it.
2. That number was inflated in several ways and should not be relied upon. Even ignoring the wrong signs on several of the components and the "stimulus checks", one cannot ignore the silly "chained dollars" method of calculating the deflator. GDP growth in real terms has been negative for 5 years and remains so. If you don't believe a chart of nominal GDP priced in gold, ask anyone who works for a living. They'll tell you the same thing. If you happen to ask anyone in California, make that 8 years.
3. Dead cat bounce inspired by weakness elsewhere.
4. There are always once in a lifetime opportunities. Today's involve being short, especially Treasuries, which are at historically overvalued levels. And there are always opportunities for good stock pickers. But how is this optimistic? It's no better than at any other time, and probably worse: even "cheap" stocks have earnings yields no higher than 7-8%, and few pay anywhere near that much in dividends. With the dollar losing 10%+ of its value every year, you won't get much out of them. And those dividends won't look like much once the benchmark interest rates hit 10%.
5. Housing is horribly unaffordable in historical terms. Only with the most myopic view focused solely on the 21st century could anyone conclude otherwise. 20% down? Here in San Francisco, one of America's wealthiest cities, the median household income is $68k. The median house in the City proper costs $790k as of July. Once a frugal household is done paying its crushing tax bill and the rent on a modest rent-controlled apartment, it might save $15k a year. In a mere 11 years (no help from the Fed's 2% interest rates here, eh?), it would have the down payment saved up. Too bad it'll need to put 60% down to qualify for a mortgage it can actually afford. When the median house costs 3x the median income, housing is cheap. When it costs 10x and people call that cheap because 2 years ago it was 14x, those people are silly but housing is still expensive.
Keeping an emergency fund, unless it's in gold, and living within your means are foolish in the extreme. Borrow more, spend lavishly, and declare bankruptcy when when the game is up. The entire system is set up to encourage that, and you would do well to get your piece of the pie while the Chinese are still willing to lend it to us. There are no prizes for prudence; you'll be stuck with a fat tax bill no matter what. Might as well enjoy getting there.
concisetrading.blogspo.../
Ryan