Wednesday, October 15, 2008

5 Ways This Economy is Great for You

The stock market is in a free fall. Housing is depreciating in value. Commodities demand is coming down and prices are crashing. There is a liquidity crunch and no one can get a loan. Government is taking stakes in private banks. So is this all bad? Gloom and doom?

Yes, its bad. But here are some ways this crisis can actually benefit you if you fall in certain groups:
  1. Asset Poor Income Rich: If you have college loans, don't own a home and happen to have a job in a stable industry - this may be good for you. Let me explain - let's say you make $100K a year but you have $50K saved up (say that's your net asset worth). Compare yourself with a rich neighbor who has $3 Million saved up in equities and home value with a $50K job. You are much better off now because you can buy the home and equities that the asset rich are now willing to sell at lower prices.
  2. Cheaper Homes for Renters: House values falling by 30% or more will now let you own a home (once the liquidity returns) at a lower price. And the long-term rates have not gone up as much as the house prices have gone down, so you are better off.
  3. Americans: The crisis is global. And while we had a huge bubble, the institutions here are (surprise, surprise) stronger than in emerging markets. So, Dollar is gaining value. And those fancy new airport terminals (Beijing, Bangalore, New Delhi) may now have to be paid for by someone. What this means is that your dollars will have greater purchasing capacity.
  4. Value Creating Jobs: If you have a cousin or brother-in-law that was magically making millions by working at a hedge fund while you worked hard to find cure for cancer or fix bugs in software that keeps email working - you will no longer have to live with the absurdity of him or her offering to "help you" with your investments so you can finally afford a Hybrid! (See Jeff Nolan's remarkable story about value here.)
  5. Economists: Krugman got a Nobel Prize. Taleb got validated (in my humble opinion). Roubini is a whiz kid. Buffett is proven smart for not trading in insane instruments. Gross of PIMCO was right again. When you are advocating the position that people's millions are not real, that they will have to return to normal times, that people with poor credit can't own homes, that Wall St can't continue to increase its share of GDP indefinitely, that intrinsic value and risk management matters - nobody wants to listen to you during the good times. Now, we will all listen to them. Till, we find the next big one!
What do you think?


Jeff Nolan said...

cheaper homes for renters, probably. However, it's going to take more money down to get that house and with rents increasing as a result of more renters entering the market, well you can see the pinch. Plus taxes and fees across the board will rise regardless of who is the next president (e.g. California's financial mess and the unwillingness to reduce spending to balance the budget).

I do agree that for people who have cash and little debt, their $$ will go farther.

skeptic optimist said...

What if you are student loan free, own a home without any debt and also have a stable job, a decent car - though not a hybrid? I still think this is not a good time to invest - sometime between 2009 March through 2010 would be a good time!

PS -
(I still consider Hybrid cars an overkill as you pay more for it than the gas money you save - and the toxic substances used for making their batteries are far more harmful than the carbon emissions you prevent by using a hybrid)

Anonymous said...

A bird in hand is worth two in the bush.

Anonymous said...

Ron Paul's speech:

Watch this video about the economics of the world to know the greatness and defects of American economy with reference to above

Do watch it at leisure as it is a 55 min video, but watch it. It’s worth watching.

Unknown said...

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Anonymous said...

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Anurag Batra said...

Thanks for throwing a rope to those who are ready to jump off a cliff. There's a flip side to being an American, though - My dollar has great purchasing capacity - but I'm afraid of going anywhere beyond my borders lest I get shot by maniacal terrorists whose trainers my country trained.