The Bottom Line
By Chad Wilson
September 4, 2008
Foundation Bank --
The Bottom Line
A Lesson from the Weather
Volume IV Issue VIII – Thursday September 4, 2008
A monthly newsletter of financial commentary for our friends
Are we really in a recession? History will have to be the judge. Through our conversations with the small business we work with, we tend to get two answers when we ask how their business is going. “Things are really tough right now,” is one of the answers. The other is “Actually, our business is doing really well.” This leads me to believe that things are bad, but they are not widespread. I’ve found an example from the weather world that may help to explain. In the summer, we experience isolated thundershowers that may be severe in one part of town, with sunny skies a few blocks over. Likewise, perhaps our economy is experiencing an isolated recession. It may be pouring rain in some areas of our economy, while others areas are sunny and dry. The areas that are hurting most are Real Estate, Lending, and Retail. This is the only explanation that I have for why GDP (which is the measure of health in the US Economy) was revised upward in the second quarter. Not only that, but GDP has yet to turn negative – which is one of the components you need for an official recession. From this data, it would seem that the tax rebates had a positive effect on the economy in the second quarter, and may even trickle into the third quarter as well. But the question now is whether or not the “shot in the arm” will have any lasting effect. The second half of the year will tell the tale.
There are some pundits who have been proclaiming the hypothesis of decoupling. What this means is that the rest of the world is not as dependant on the US anymore. The theory asserts that foreign economies have been “decoupled” or divorced from the US economy and can stand on their own. It may sound good in theory, but its merit has been nearly debunked in the last few months. The rest of the world appears to be entering the very same vortex of economic challenges that the US began encountering a year ago. The Shanghai Composite Index in particular is down over 50% year. Japan’s economy actually shrunk in the 2nd quarter. Even the GDP in Europe shrunk for the first time since the Euro was introduced almost a decade ago. So it appears that if the US sneezes, the world still catches a cold – at least for now.
Do we have too much stuff? George Carlin used to do a comedic routine that highlighted American’s love of “stuff.” He mentioned that we have so much stuff, that we have to build or buy buildings just to hold our stuff. It’s true. One business that has seems to have steady demand (even in this economy) is the storage building business. We have tools and toys a plenty that we store, either in a wooden unit in the back yard, or a rented unit across town. Our love of stuff is not limited to smaller toys. Experian Automotive estimates that 35% of US Households have 3 cars or more. It might be a motor home. It might be an antique car. It might be a truck for hauling the boat. What is most interesting in this discussion, is that our appetite to purchase stuff is our best friend, and our worst enemy. It is good for the overall economy for us to buy things. Sales produce jobs. But our tendency to spend can also be our undoing on an individual basis. Spending beyond our incomes creates too much debt, which leads to anxiety and stress, which leads to bankruptcy or worse. So the only way to rightly manage our hunger for stuff is to make sure you have disciplines in place to keep your stuff within your means. You’ve gotta have a budget, so you can enjoy what you should, and not what you shouldn’t. And if you’ve already dug yourself into a hole, it might not be a bad idea to sell one of those three cars!
Chad P. Wilson, CFP
Foundation Bank – a division of McKenzie Banking Company - 731-554-2423
The above is strictly informational commentary and does not constitute any sort of recommendation. Please consult your own financial advisor for specific tax, loan, or other investment advice.
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