Tuesday, May 20, 2008

Ouch! I am watching CNBC and see that the Dow Jones Industrial Average is down 220 points for the day. (OK, I know that the S&P is really the barometer to watch, but if I said that is was down 15 points would it be nearly as dramatic?) What to do now? Run for the hills screaming the world is at an end? Put our few dollars left (after we filled the Yukon up on the way to Pizza Nova) in a mattress? Go to work for the US government? (currently the biggest source of new jobs--yippee!)

A few months ago I wrote an opinion piece for the New York Times but it was rejected and the venerable Point Weekly picked it up... and here is what I wrote:

It is a bit of “good news” and “bad news” when one has lived long enough to recall major global events spanning decades, including economic, political and social cycles. But when we are able to take a longer view of such cycles are we able to realize that things are not always what they seem. This is especially true in an election year. Consider:
· For the period from 1854-2001, the U.S economy has experienced 32 distinct economic expansion and contraction cycles. The duration of the contractions has averaged 17 months while the expansion have average 38 months; however since 1945-2001 the contractions have averaged 10 months and the expansions lasted 57 months.
· In 1983, fixed home mortgage rates averaged 13.5%; 25 years later the fixed average is 6.05% and actually heading down. The simple reality is that US home ownership rates are at a historical high of about 70%.
· As to unemployment, the 2007 average rate was 4.6% of the working population; as recent as 1982 the same rate was 9.7%.

For those of us seeking employment when we graduated from college in the early 1980’s, these three facts made it a formidable challenge to find suitable work; it made owning a home nearly impossible.

This is not to say that at any particular moment individuals are not experiencing pain, disappointment and frustration due to the current economic cycles. Modern recessions are lasting approximately 9 months, hardly the stuff our grandparents of the Great Depression.

So what to do? I went to Home Depot yesterday in San Diego and I have to tell you I was really surprised how many people were there spending significant amounts of money. I would also surmise that the den of inquity also known as "Fashion Valley Mall" was similarly situated this past weekend (I refuse to go there anymore to see the asinine spending of our youth on their credit cards burning holes in their pockets--it depresses me too much). But I think for the prudent investor or entrepreneur there is significant opportunity in the market in the investments that really matter--real estate, stocks, and other "hard assets." For those willing to put time and sweat equity into a distressed asset, you have significant potential upside.

But if I see any of you going out to buy a new car or something with a high depreciation factor I will track you down and kick your butt...with love and affection of course but it will still be stomped...don't get suckered into these purchases because it will enslave you to long term debt with zero possibility of appreciation. If you have any specific questions or opportunities you would want me to think about I will try my best to give you counsel. Do you think gas prices are high now? I think we are on our way to $200 per barrel oil and gas prices over $5 per gallon. (I would love to be wrong on this one!) And you know what? $5+ gas may end up being a good thing for us! I will address this topic in the near future. For now, don't get your undies in too big of a bunch.

But for now I am off to Hawaii with Ruth for a few days of R and R...but will blogging as we vacation...Aloha!

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