Where are we ? Where are we going? And When are we going to get there?
Well, we know we’re right here. There is considerable debate however over where ‘here’ is. The same debate continues on through where we’re headed and when.
Part of the conflicting debate would be the undeniable factors are there for sure; credit market troubles, housing value declines, weak U.S. dollar, rising oil pricing. Then the statistics that point out a Q4,07 Gross domestic product of almost zero with estimates to match that number in Q1,08 and rising unemployment all paint a less than rosy picture.
Yet on the other side of the coin, we could look at the credit market problem in the context that their write-down on these bad loans represents only 3% of the total debt portfolio. We can look at our incredibly low lending rates with only a 0.5-1% anticipated interest rate climb by year end, Economists tell us that the weak dollar is a self-correcting situation, with strong foreign investment in US goods and services eventually strengthening the US dollar in world markets.
Time to pound on media negativity again: Reno Gazette Journal, Saturday (high readership day), March 1, 2008, front page headline reads: ”Recession talk: Is it self-fulfilling ?”. With a large photo of a man with the caption; “Hans Will is holding off on buying a home until he feels the market has bottomed out”. Further, over this striking headline are large color graphics showing: House sales down 48%, Foreclosures up 614%, Taxable sales down 3.2%, and Crude oil process up 13%. While this may be a factually correct article, the simple fact that the word ‘Recession’ heads off the Front page headline, concerns me.
Actions cause reactions. What is the predictable reaction to this front page article if you were to make any decisions based on this headline ? Would this make you want to run out and look for a house to buy ? Buy a new car ? Invest in the stock market ?, Order new equipment for your business ? Hire a new employee ? Of course not, nobody buys anything if they think it’s going to be cheaper tomorrow. The Reno newspaper article actually puts up the notion that it’s debatable what the reaction to this type of story evokes ! Now if your TV stock analyst says on the air, I’ve downgraded General Electric from a ‘hold’ to a ‘sell’. What is the reaction ? How fast and you hit speed dial to your broker and scream “ Sell all my GE” and GE stock takes a nosedive. All as a reaction to a comment or a newspaper article. Recession in the headlines has the same reaction……pull into survival mode and wait everything out.
Counter to the newspaper article, I see that the magazine ‘Success’ has relaunched. I looked at a copy and it’s loaded with articles about flourishing entrepreneurism, how to increase your financial IQ, how to grow your business in challenging times, personal development recommendations that will give anyone added skills to achieve their goals, etc. And while nothing in this magazine changes the world we live in, it may well change the world we see through our mindset. Where some see risk and uncertainly, other might see opportunity. It all has to do with how we perceive our world. What are we thinking about. Recession or low interest rates. Falling house values or great buys in the market ? Escalating oil prices or increased opportunity for alternative energy ? Weakening US dollar or potential to sell your products into new international markets ?
I am a firm believer in the old phrase “What we focus on becomes stronger in our lives”. Why focus on potential bad outcomes ? Why write newspaper headlines about recession ?
And as a practical matter, for those waiting on the market to ‘bottom out’. Think about this: buy today with borrowing $300,000 at 6.5% 30 year fixed loan = $1,896 monthly payment. The same loan at another point of interest = $2,097. That’s an added $73,000 payout. That home will have to drop about 25% in value to offset the increase in interest as is expected to happen by year end. So how well informed is it to ‘Wait until the market bottoms out’ ? And if enough people understand that we’ve had down markets and credit crunches before and will again and we’ll live through them, it might be sooner than later as to when the economy gains altitude again.