Tuesday, February 12, 2008

The "R" Word and Other B.S.


The “R” word is of course recession. B.S. is self explanatory. Recession is defined by the experts as two consecutive negative growth quarters. To those who believe we are in recession may I point out that we have not had one negative growth quarter yet let alone two. So much for the word.

Now let us consider the other B.S. If you read the newspapers or watch television news you would have to believe our economy is going straight into the toilet. For the last six months there has been a loud and consistent cry of agony. Foreclosures are through the roof. Unemployment is rising at an unbelievable rate. We probably will never recover. The government should do something. Bail-outs are the only answer. Banks should be forbidden from foreclosing on past due home loans. Adjustable rate loans should be frozen at the introductory rate even though the contract that was signed by the borrowers clearly called for such adjustments as rates changed. If we don’t act, people could lose their houses and cars. Oh woe is us.

Well guess what. If people fail to pay their loans as they agreed in their contracts they should lose their homes and cars. If banks suffer huge losses, how is it the problem of the taxpayers? If bankers loaned money based on suspicious appraisals to less than desirable borrowers they should lose that money.

This is not the earth shattering problem the media would have you believe however. We are not experiencing a recession. We are in a business cycle. Consider this. An individual is on a staircase and he is playing with a yoyo. As he walks up the steps, the yoyo goes up and down. Sometime the yoyo is up and sometime it is down, but the individual continues to climb the stairs. The individual is the economy and the yoyo is business cycles.

Now for some more B.S. When the banks made these bad loans, they bundled some of the contracts together and sold them to other banks at a discounted price. The banks buying the discounted loans thought they would make millions because everybody knows that real estate will always gain in value. Well guess what. When builders over build and banks over loan and realtors over sell and buyers over buy, disaster ensues. A housing surplus occurs. Inventories grow. Credit tightens. Buyers can’t buy and therefore sellers can’t sell. Values decline. You wind up with what is happening now.

Is this the end of the world the media would have you believe? I say no. What we have here is one of the great opportunities of a lifetime. Several years ago in Seattle, Boeing had some reversals and laid off a lot of people. Houses were vacated as people just up and left. There was even a sign on one of the highways going east that read, “Will the last person leaving please turn out the lights”. Some very smart folks decided to buy up all the houses they could and now they are millionaires. They took advantage of a business cycle and didn’t succumb to the hype.

The problems facing our economy right now are for the most part inventions of the media. Our unemployment numbers have been very steady. Inflation is virtually non-existent. The people who are having money problems are probably the same people who would be having problems regardless of economic conditions. Sometimes hype becomes epidemic. People see their very solvable problems as bigger than they are. The victims among us who think they have been taken advantage of by the banks, and the realtors are finding an excuse for their excesses.

It is time for smart people to gobble up these steals that are available. Don’t buy the hype. The business cycle will turn upward probably as soon as the latter part of this year. Take the “R” word and the B.S. and make lemonade. This country needs a few more millionaires.

Ron Scarbro Feb 2008

No comments: