Friday, November 21, 2008
Another quick check-in...
I actually received a real comment on my blog in response to my car accident post. It was a little strange in tone, but who am I to argue? Not me, if only because it was an anonymous post. I've been reading some of my earlier posts, and I examined my post on the Subway in Wal-Mart. Things are getting much worse, bot here in the 'burbs and the nation as a whole. The government, in an understandable but futile response, is hitting the turbo button on the printing press, trying to inflate us out of this mess. Stocks have been destroyed by the crash, and the prevailing wisdom is that stocks are now cheap. Perhaps, but the reasoning behind this view is flawed. It uses earnings (estimates or historic) that do not reflect the present situation. Take the Christmas shopping season as an example. We know it will be bad, but we don't know by how much. When retailers gave their guidance earlier in the year, did they know how bad the consumer would hurting? I doubt it. By using the sales data from Christmas '07, would the stock seem cheap? Probably. Will the stock seem over-valued come January? Oh you bet.
The scariest thing about this crash is the realization that Main Street is only now showing the signs of reducing it's consumption. From what I've read, economist are calling this a balance-sheet recession. In a nutshell, we're paying off our debts, so we can't spend like before. The recent growth in America has been based on borrowed money, and that credit has dried up. The book "The Day of Reckoning" puts it thus: If a man borrows a million dollars, he lifestyle will immediately improve. He can buy a new car, home, boat, boob job for the wife, bling for the chick on the side, etc. Has his standard of living gotten better? Sure. Is he rich? No. Eventually, he will have to pay back the loan. Not only will he have to reduce the spending to which he had become accustomed, he will need to further reduce his spending to pay the interest. If he took the million and bought a Dunkin' Doughnuts franchise, or went to medical school, etc., then the money could have made him wealthy. Now he's more broke than before he grabbed the loan.
Repaying our debts results in the in what economists call the paradox of thrift. If I save money, I benefit, but the economy does not. There is no velocity of money. Even this example is a little inaccurate, since people aren't saving. They're repaying their debts. The money is being removed from the economy and sent to bond holders or banks who now need to shore up their own balance sheets, so they aren't to hyped to lend the money to someone else. If you depended on the average person to buy your product and it isn't a staple, you're in deep shit. Sellers of quasi-luxury items are especially vulnerable. An excellent example is Starbucks, also known as my second office. A $5 latte is not something people are willing to buy right now, and the company lost money for the 1st Qt for the first time ever. Ouch. Some of that loss is the result of charges relating to the closing of 600 stores, but it's still telling. Truthfully, do we need $5 cups of coffee? No, but buying one makes us feel richer than we really are. It's an pseudo-affordable luxury; the type that eats our savings quietly.
Thrift is the new buzzword, and of course companies are trying to co-op the term in the eternal effort to get at one's loot. It follows the shopper's logic of:"All this stuff is on sale! Look at all the money I saved!" It's a punchline of course, unless you actually required any of the things you bought. That new fur-trimmed leathercoat may have been a steal compared to the usual price, but you still wasted money. I'm just as guilty when it comes to books and other toys. I have a book on my desk, and I haven't read more than a few pages. It may have been cheaper on Amazon.com than Border's, but so what? I never should have bought the damn book in the first place.
So now what? There's not much anyone can do at this point save hope and pray. There are opportunities out there, but I am so confused by this whole mess, I don't know where to begin. There's no country where I'd relocate, nor would I be in a position to do so if I could find one. I'm in a good position to ride out the storm, but I am also powerless to benefit as well. I suppose most people are in the same place, but I'll regret not being able to capitalize on this moment for some time. I just reminded myself I'm lucky to be alive, so stop wallowing in self-pity. More later.
The scariest thing about this crash is the realization that Main Street is only now showing the signs of reducing it's consumption. From what I've read, economist are calling this a balance-sheet recession. In a nutshell, we're paying off our debts, so we can't spend like before. The recent growth in America has been based on borrowed money, and that credit has dried up. The book "The Day of Reckoning" puts it thus: If a man borrows a million dollars, he lifestyle will immediately improve. He can buy a new car, home, boat, boob job for the wife, bling for the chick on the side, etc. Has his standard of living gotten better? Sure. Is he rich? No. Eventually, he will have to pay back the loan. Not only will he have to reduce the spending to which he had become accustomed, he will need to further reduce his spending to pay the interest. If he took the million and bought a Dunkin' Doughnuts franchise, or went to medical school, etc., then the money could have made him wealthy. Now he's more broke than before he grabbed the loan.
Repaying our debts results in the in what economists call the paradox of thrift. If I save money, I benefit, but the economy does not. There is no velocity of money. Even this example is a little inaccurate, since people aren't saving. They're repaying their debts. The money is being removed from the economy and sent to bond holders or banks who now need to shore up their own balance sheets, so they aren't to hyped to lend the money to someone else. If you depended on the average person to buy your product and it isn't a staple, you're in deep shit. Sellers of quasi-luxury items are especially vulnerable. An excellent example is Starbucks, also known as my second office. A $5 latte is not something people are willing to buy right now, and the company lost money for the 1st Qt for the first time ever. Ouch. Some of that loss is the result of charges relating to the closing of 600 stores, but it's still telling. Truthfully, do we need $5 cups of coffee? No, but buying one makes us feel richer than we really are. It's an pseudo-affordable luxury; the type that eats our savings quietly.
Thrift is the new buzzword, and of course companies are trying to co-op the term in the eternal effort to get at one's loot. It follows the shopper's logic of:"All this stuff is on sale! Look at all the money I saved!" It's a punchline of course, unless you actually required any of the things you bought. That new fur-trimmed leathercoat may have been a steal compared to the usual price, but you still wasted money. I'm just as guilty when it comes to books and other toys. I have a book on my desk, and I haven't read more than a few pages. It may have been cheaper on Amazon.com than Border's, but so what? I never should have bought the damn book in the first place.
So now what? There's not much anyone can do at this point save hope and pray. There are opportunities out there, but I am so confused by this whole mess, I don't know where to begin. There's no country where I'd relocate, nor would I be in a position to do so if I could find one. I'm in a good position to ride out the storm, but I am also powerless to benefit as well. I suppose most people are in the same place, but I'll regret not being able to capitalize on this moment for some time. I just reminded myself I'm lucky to be alive, so stop wallowing in self-pity. More later.
