TMFDeej (99.47)

Is the glass really half empty, or am I just seeing it that way?

March 23, 2008 – Comments (3)

I need a sanity check here.  Are things really as bad out there as they seem to me?  I really don't like being so pessimistic, I used to be a fairly positive individual but I can't seem to think of anything positive to write about the current state of the U.S. economy  Then I go and read Barron's on Saturday and almost every article was extremely optimistic, such as "we've hit bottom," "Are you Ready for Dow 20,000?," yada, yada, yada.  Most of the articles cited the high level of negativity that currently surrounds the market and the economy as the reason why we are due for a major rally.  I understand that the markets are forward looking and that even though things are bad now we may see a nice pop in stocks as people anticipate a recovery a couple of months down the road.  Well, what if that anticipated recovery never comes.  Poof goes the rally. 

I just kept thinking to myself, "Am I nuts? The way I see it things definitely are not going well for the economy right now and I don't see how they are going to get better."  How is consumer spending, which accounts for something like 70% of the U.S. GDP going to be strong when the price of everything is rising like nuts, banks are tightening their lending standards, the values of our homes are dropping like mad, the jobs market isn't great, the government is racking up HUGE amounts of debt, our population is getting older by the day, etc...?  Here is a scary stat that I came across tonight.  At the end of 2007, 36% of consumers' disposable income went to food, energy, and medical care.  This is the largest bite that these necessities have taken out of consumers' wallets since Merrill Lynch started tracking this statistic in 1960.  Perhaps the prices of these things will drop short-term, but long term they don't have any place to go but up given increasing global demand and a falling dollar.  Both of these things won't necessarily happen, but if I was a  betting man...and I am...I'd say that one will.

I know that we're all supposed to go out now and buy shares of retailers, restaurants, and all other sorts of things that have gotten beaten down by the slow economy but I just can't bring myself to do it.  I don't see how consumers are going to have the money to spend on fun stuff that they have had in the past.

The last time that the U.S. went into a recession the recovery was fueled by a boom in lending and housing prices.  It doesn't look even remotely like those things are going to be around to save us this time.  The situation that we are headed into today seems much more similar to the 1970's to me than 2001.  If we are headed into a 70's-like situation, stocks have a lot further to drop.  During that downturn the S&P 500 plummeted over 35% from its high to its bottom.  The S&P is currently only 15% below the record high that it set last year.

Someone out there please give me a reason why things are fine.  I guess one could say that credit will loosen up and help fix the housing market, consumers will keep spending no matter what, the price of food and oil will drop dramatically as the economy slows, etc... but these things haven't happened yet and anyone who says that they will soon is just guessing.  I'm trying not to turn into one of those we're all doomed, "Honey go buy all of the canned food at the store and get out the shovels because I'm digging a bomb shelter." nuts but I am having a hard time staying positive about the direction that things are headed.  Perhaps I just need to go out and spend some money that I don't have to help cheer myself up.  That's how America got itself into this situation isn't it?

Deej