While I’m reading and hearing a lot of pessimism in the media, I am increasingly optimistic about the buying opportunities that are currently available. In fact when I hear the recession being called a possible financial depression, I think about buying more shares of SPY and VTI. In doing some research on the term depression I have seen several definitions:
- A prolonged, severe recession.
- A drop in GDP of more than 10 percent.
- A drop in GDP of more than 20 percent.
#2, a drop in GDP of at least 10% (absolute year-over-year), is my working definition. (For reference the Great Depression represented a fall of about 35%)
What we’ve seen in the first 9 months of 2008 is nothing compared a depression. There have been 2 down quarters in the 12 month period, but overall net GDP growth. Sure Q4 is likely to be bad. I’ll stick my neck out and guess it’ll come in at minus 18% annualized (about -4.5% absolute Q3 to Q4).
The popular press (or unpopular press) has covered this financial “crisis” with a stunning mix of balderdash, rubbish, and misapprehension. There, that’s off my chest. Now on to what’s making me optimistic.
- Reasonable, even occasionally cheap, stock valuations. (e.g. good, even great buys)
- My neighborhood. I’m seeing houses priced between $160K through $215K get snapped up within days; sometimes as soon as they are listed. Further I’m seeing continuing, targeted investments in real estate by folks I consider savvy. I’m seeing low mortgage rates that allow buying rental properties that immediately generate positive cash flow.
- A dose of reality. Finally some borrowers are getting the message that “debt, for the lack of a better word, is BAD”. While this insight will have a negative impact on the economy in the short term, it is likely to have an overall positive impact in the long term.
- Technology. It’s baa-aack! I’m talking about computers and the internet. I’m also talking about materials, advanced transportation (rail, aircraft, hybrid autos). I believe that technological innovation will propel the world economy forward over the next 5-10 years. And, the US economy will benefit disproportionately due to it’s innovative, entrepreneurial, and dynamic heritage.
Feel free to call me Polyanna; I’m buying stocks!