Posts Tagged ‘economy’

How to Survive and Thrive in a Recessionary Economy

December 3, 2008
Courtesy Paul Lachine /Newsart.com

Courtesy Paul Lachine /Newsart.com

10 Common Sense Tips That I Learned

I am no rocket scientist, but I have been through at least 2 recessions, and actually did quite well during those periods.  Here are some common sense tips to get you through these trying times. First, the Don’ts.

1.  Do not believe what you read. Fear and panic sell far better than common sense and good news.  Take all facts reported with a grain of salt, and discard all opinions.  Television, newspapers, magazines and even e-news sites are in business to sell you something (advertising); not necessarily to make you better informed. They may even have their own agenda.

2.  Do not believe anything a politician or government expert says. If they really knew more than us, they would have seen this debacle coming a long time ago.  For example, even I wrote early in 2008 that the recession started in late 2007.  No politician dared utter the “R”word until late October 2008. I (and many others) saw the real estate collapse coming in 2005.  But the politicians liked how the free-wheeling market kept the economy chugging along.  It is intuitive that these folks tell us what they think we want to hear, not what we need to hear. Or maybe they never had a clue. It really is time for us to start thinking for ourselves.

3.  Do not heed advice from any Wall Street “expert” or analyst. These folks really do not have any better idea what is happening than you or I. If they did, they would all be wealthy and not need to peddle advice for a living. If they tell you to sit on the sidelines for 6 more months, that is because they will be back in the market in 3 months so that they can sell to you in 6 months.  If they tell you to buy now because stocks are cheap, it is because they are trying to unload their losers.  Really, if you flipped a coin for every stock market decision, you would consistently outperform 85% of the pundits out there. If you must be in the market, here are some common sense approaches.

a) Dump your losers and marginal performers now and take the tax writeoff. At least you will see some immediate tax savings, before the tax rates get hiked up to pay for the bailout.

b) If you must buy, buy solid companies with a good track record and plenty of available cash on hand.  Do not try to time the bottom of the market, as no one knows where it is.  Use dollar cost averaging to buy.  Ride the cycle through the bottom and when it starts coming back up, stop buying when the price matches what your first purchase was.  Companies paying dividends are especially nice at these prices.

c)  Consider that we are in a bear market for the near term, and that the stock market will most likely underperform other investments for the next year (or two or three).  Consider other investment vehicles.

d)  Market volatility may tempt you to speculate on a quick killing.  Don’t! Go to Las Vegas instead.  At least you will get a free drink while you lose your money.

This market collapse cannot be compared to any other.  The laissez-faire free market capitalist economic model is in danger of total collapse. Think of what that means.  Also, we cannot compare recovery periods by looking back in time.  The world’s economies are now inextricably linked in a way unlike any other time period.  Our recovery depends on the recovery of so many other nations, many of whom do not have a mature economic infrastructure to help them back onto their feet.  These countries could act as lead weights to our recovery, despite all of the infusion of capital by the Feds.  Do not be naive about how long this economic downturn could last.

Now here are some common sense things to do.

4.  Strengthen Your Position. If you are a business owner, now is an excellent time to visit your clients and reassure them that you will be around for the long haul to meet their needs.  It is also an excellent time to increase your market share by acquiring weaker competitors and to lure top talent away from them.  Just be sure to pay what they are worth, or they will be gone the minute the economy recovers.

5.  Cash is king.  Debt is death. If you were foolish enough to accumulate a pile of credit card debt, start by paying that debt off.  The interest you save is most likely the best return you will ever see on your money.  If you are debt free, then start an aggressive savings program by paying yourself first.  Search for the best interest rates on the Web.  There are many online banks, FDIC insured, that pay far more than your local bank.  Also check out credit unions.

6.  Consider alternative investments. Fill a need.  Right now, banks aren’t lending.  Maybe you can be “the bank”, provide capital to a worthy business, or be a lender on real estate.  Your returns would be far better than a money market account, and you would be alleviating the credit crunch for someone.  Just do your homework beforehand.  Check out Virgin Money as an intermediary.  Richard Branson is already ahead of the curve, as usual.  Or maybe invest directly in real estate.  The nice thing is that real estate values rarely drop to zero (unlike stocks).  Just don’t leverage, and always remember that a prime location at an expensive price is always better in the long run than a lousy location at a cheap price. Plan on a long term holding period.

7.  Chart Your course. Develop a 3 month, 6 month, 1 year and 2 year plan of action. Set your goals, then your benchmarks to reach those goals, and follow them religiously.  Review the plan every 3 months and revise as needed.  Without goals and a clear plan of action, you are doomed.

8.  Look for opportunities. They are absolutely everywhere, in every field.  This time period is a bargain hunter’s treasure trove; literally the best I have ever seen in virtually every area.

9.  Think positive. No recession lasts forever. You will survive, and maybe even learn a thing or two about economic cycles.  Take time to laugh and whatever you do, keep your sense of humor.  If you don’t have a sense of humor, make friends with someone who does.

10.  Strengthen Your Relationships. Spend more time with your family and friends.  Offer to help those less fortunate than yourself. Take the time to make yourself a better person.  Know that, when all is said and done, it is not what we have in our account, but who we have in our hearts, that truly makes us wealthy.

Paris – Safe Haven in a Troubled Real Estate Climate?

September 27, 2008
Autumn in Colorado

Autumn in Colorado

Yesterday, I came across two interesting articles, both British based, about real estate prospects in France, and Paris in particular.  One was a commentary in the Financial Times, which you can read here.  The other was on BBC – America television. Both highlighted the differences between the French real estate market and that in America and the UK.

As is well known, the American housing market is in a severe downturn, resulting from overbuilding, rampant price speculation and lenders feeding the process with poorly underwritten loans to unqualified borrowers.  All of this started to unwind in 2006 and the process could take another year or two to resolve itself – if credit is available to purchasers.  Right now, the credit markets are all but dried up, and if that continues, there will be no loans available under any terms to allow the free market to resolve the situation. Simply put, banks have no money to lend, because all of their reserves have been set aside for the bad loans they currently own. Many are on the brink of failure.

The situation is not much different in the UK, albeit on a lesser scale.  The UK and Ireland experienced their own version of the housing bubble. They are going through the same process of rapidly falling house prices and lack of available credit.  Their banks are looking for government bailouts.  Banks are merging in a last ditch effort to survive. Barclay’s is no more, Bank of Scotland is gone, and the taint of the poisoned US subprime market permeates the portfolios of all of the remaining UK banking institutions as well.

So why has Paris, and the rest of France to a lesser degree, survived this housing meltdown relatively unscathed? There are several underlying reasons, as pointed out by the BBC.  First, there is not the fever in France to get into the “home ownership” game.  France traditionally has been a country of renters, and much of the property that is owned has been in the same family for generations.  Speculative “flipping” is simply unheard of.  Second, the French people have no credit card debt.  They are a country operating under the philosophy that you do not buy something if you do not have the money to pay for it.  Of course, that financial philosophy went out the window long ago in the US.  Most French credit cards are actually debit cards.  If the funds are not in the account to pay for the transaction, it simply does not happen.  Third, French banks are and have traditionally been far more conservative than their American and British counterparts.  Home loans are amortized for 15-20 years and usually require a minimum 20% down payment.  No 125% financing here.  Loan qualification is a rigorous process.

As a result, the financial underpinnings of the French banks and the French real estate market are more along the lines of what we in the US knew in the 1970’s and 1980’s.  This is also why, to a large degree, French real estate has appreciated much more slowly in the last 10 years than, for example, the US or UK housing markets.  The Spanish housing market is a totally different creature, having been overbuilt, rife with corruption and now crumbling.  That reality adds a double whammy to the many Brits who bought a 2nd home in the sun there with the suddenly realized home equity in their homes in Great Britian. Now, they are upside down in both Spain and at home, and for many this represents the loss of their entire pension savings.

The French real estate market is not immune to what is happening in the rest of the world, of course.  Unemployment is increasing, their trade exports are dropping due to the recent strength in the dollar, oil and food price rises are impacting the everyday Frenchman, and tourism is way down.  Home prices in many parts of France have seen a downturn, particularly in the southwest regions like the Languedoc.

In Paris, buyer demand for properties has tapered off dramatically.  Most Parisians cannot afford to live in their own city.  Foreign demand is also down.  However, like London and New York, demand for premium properties continues to remain strong.  Notwithstanding the volume slowdown, the prices in Paris continue upward, to the astonishment of most of the rest of the world. The most recent study shows Paris prices appreciating 9% in the last year.  I do not think this will continue indefinitely.  I would suspect Paris prices to flatten out or even drop slightly in the short term, until the global economy gets back on its feet. After all, Paris is an international city, and international money, particularly oil money at the moment, continues to play a key role in sustaining this market. Paris too is not totally immune to what is happening with the rest of the global markets. However, with beautiful architecture, a rich and colorful history and a fixed supply of real estate, Paris will continue to be in high demand, so long as it does not follow down the road of mistakes made by other real estate markets.

Perhaps, for those of us who feel more comfortable with our investments in real estate instead of the stock market, Paris may be the last truly safe haven for rational long term real estate investment, at least until there is some stabilization in the markets we have been more familiar with in the past, whether they be in the US or elsewhere.  Whether we like it or not, the French got it right, and we didn’t.