“The State of the Economy: Pain Management or Redemptive Suffering?”
I am not Catholic, and I beg for forgiveness from those who think I may be blaspheming by using the term ‘redemptive suffering’ in a non-religious context.
Whew. Now that we have that out of the way …
Watching the news media, you’d think the world is about to end.
Markets are in turmoil. Economies are contracting. Capitalism is dead (if it were ever truly really alive in the first place). Compared to 1998, the world is indeed looking pretty bleak right now. After all, if you’re used to drinking water out of a pitcher and then someone takes that pitcher from you and replaces it with a small glass of water, you’re going to say “wow, I just ‘lost’ 50% of my water’. But, you still have water, though, don’t you? And, chances are, that glass is a bit bigger than the glass you had before you got that pitcher to begin with. So, yes, times are tough. And there’s certainly a trickle down effect caused by one sector after another ‘collapsing’ (residential, financial services, jobs, auto, jobs, etc).
However, how bad is it REALLY?
For commercial real estate, here are some facts …
from National Retail Online:
Across property types, what is shaping up to be a prolonged recession is already dragging down occupancy rates and cash flows as tenants grow averse to new lease commitments. Three consecutive quarters of negative absorption drove up the national office vacancy rate to 13.7% in the third quarter from 12.6% a year earlier, according to Reis, a New York-based real estate research firm. Meanwhile, the national retail vacancy rate climbed to 8.4% from 7.3% during the same period. Even the typically dependable apartment sector hasn’t been immune to the economic and financial strife, with the vacancy rate climbing 40 basis points over the past year to reach 6.1% in the third quarter.
So, office vacancy went up 1%, retail up 1% and apartments up 4 bps. Wow, I feel a depression coming on!</sarcasm>
Finally, in closing, I can’t sum up my feelings on this topic better than commentator Roger Kimball in his blog entitled “How Bad Is It?”
The economy, I mean. The President-elect warns that “the worst is yet to come” and “millions of jobs” might be lost. Olivier Blanchard, head of the International Monetary Funds, agrees: “The worst is yet to come,” he told a German newspaper recently. Type “economy bad news” into your search engine: you’ll find plenty more where that came from. Jim Cramer, the excitable, “progressive” financial analyst, set the tone some months ago with his “this-is-Armageddon” video.
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Or maybe the current turmoil is, well, the current turmoil.
Let’s get a bit of perspective on things. Yes, yes: my 401K is a 201K now, too. As I write, the market is hovering around 8000, down from a high of more than 14,000 not so many months ago. In October, unemployment jumped from 6.1 to 6.5 percent–ouch! Inflation this year is about 3.7 percent, up from 2.7 percent last year (and 1.6 percent just a few years ago). Not good, what? How does it compare with, say, the golden age of Ronald Reagan. Well, by the end of 1982, unemployment was 10.8 percent, up from 8.6 percent the year before. The Dow was 700–that’s seven hundred . Inflation peaked in 1980 at 14.76 percent, dropping over the course of 1982 from 8.39 to 3.83. Thinking of buying a house? The prime interest rate in 1980 touched 21.5 percent. In 1982, it went from a high of 17 to a low of 11.5 percent. It is about 4 now.
What, Sherlock, do you make of all these numbers? Here are two things: One, the market, and all associated economic indices, fluctuate. Two, we are a lot richer now than we were in in 1980.
So, yes, things are bad. And, yes, I believe things are going to get worse (more jobs lost, more foreclosures, deeper credit crises). But, I believe that — even when we ‘bottom’ out — things have been much, much worse in the past (I don’t think many of us will need to stand in bread lines for example). However, this ‘worsening’, also opens up opportunities as I’ve blogged about in the past. So, as entrepreneurs and investors, we have to be nimble, open-minded, and work smarter AND harder to take advantage of them and benefit in the long run.
So, my suggestion to anyone serious about not just surviving, but THRIVING during these crazy economic times: turn off the CNBC and get to work!
Photo Credit: Fillmore Photography