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Economic Update

ECONOMIC ENVIRONMENT UPDATE

If you believe we all have something to learn from one another, you will surely respect the opinion of Warren Buffet, one of the leaders in investments and money.   In mid August, he was quoted as saying that "ripples in the industry will continue to cause larger and larger problems in the financial sector and the economy as a whole".   He correctly predicted more huge companies folding under Chapter 11 bankruptcy protection and widespread damage in the US economy.   A few weeks later, Fannie Mae and Freddie Mac (the largest source of funding for the US) required a federal bailout, Lehman collapses (stocks which were worth $66 in February a few short months ago are now worth 21 cents!), Merrill Lynch (the third largest investment bank) is saved at the last minute by the Bank of America after it posts huge losses, and the US government bails out huge insurance giant American International Group (better known as AIG)....are you insured with them?   Yesterday (Tuesday, September 16th), US stocks had the biggest drop in seven years....
The situation in Europe is not much better.   The recent pound's fall against the Euro is the latest sign that Britain is on the brink of recession.   Apparently, this is the worst economic crisis in 60 years, according to Britian's treasury chief.   He continued to say that he believes that "the economic situation is going to be more profound and long-lasting than people thought."
Are you getting scared?    Well, I am - just a little bit.  
But, if we keep our head on our shoulders, and stay rational, we will think logically - not emotionally.    The world has gone through these kinds of times before, and we have come out the other end the better off for it.    If you think back to the Great Depression, or even the stock market crash of Black Monday, (and if you do your homework and check the stats like I did), you'll find that we're WAY higher stock-market wise than we were before those times.   No matter what, it always finds a way to creep back up.....
We just have to ride through the storm
But, it's also a time to be smarter than we were before....here are a few suggestions:
  • If you've never gotten into the stock market, and you have some savings, this is what they're talking about when they say "buy low, sell high" - this is the time to BUY!
  • Hide out in cash flow positive real estate purchases.
  • Don't do anything 'high equity, low cashflow' - it's even a bigger gamble than it was before, and more dangerous economically than it was a year ago.  
  • Don't waste your money on empty purchases (like 'I want purchases') - instead go into debt ONLY for cash flow positive purchases, or if you're totally secure in your job (who is these days?), go for cash flow equal if the other option is to do nothing.
  • Be more cautious than you would have been last year.
  • Before you buy, do your numbers!
  • Do your homework (I'm a teacher at heart, what can I say?) - Or as they say in the real estate circles..."do your DD - due diligence".   Don't we understand 'homework' better?   It's what we hate to do, but what we know will save us later on?

 

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