Good news during a recession

Dear Valued Client,

The experts have finally told us what we already know: the economy is in recession. Now what should we do? How should we feel? More importantly, how does this report of the obvious economic slowdown affect our investment behavior?

Let’s put these questions into a larger context. The economic and market turmoil we are currently experiencing is a consequence of the overheating of the post-911 economy. The overstimulation of the consumer and financial markets brought on by cheap money led to over-leverage and unabashed euphoria for the future of real estate, home equity as a financing vehicle and speculation in global financial markets. That’s the bad news.

So, what’s the good news? Let’s focus on four points:

1. The housing bubble has burst. The frantic trading in of condos around the world, from Miami to the Mediterranean, is over. Prudence and patience are now the operative words in real estate. 
2. We’ve been told for a long time that the low (even negative) savings rate in this country was unhealthy and dangerous. Now that "savings in the form of real estate appreciation" is over, people will begin saving more.
3. The fear that the consumer would be strapped with credit card debt is now a reality. Credit card debt is not going to excessively fuel anyone’s holiday shopping this year. And less debt is good.
4. The exuberance of the past few years has made baby boomers wonder if they would ever see reasonable stock prices again. Well, stocks prices are now lower than they have been in a while, and are at these prices just in time for an entire generation nearing or entering retirement.

Less debt, more savings and cheaper investment opportunities. These are all positive features of our new economic order. With this economy, we can expect a slowdown in spending – a negative economic growth. That slowdown is what makes a recession.

Looking ahead, we can anticipate a re-energized consumer, renewed economic expansion as the world population grows and prospers, and higher stock prices.

The U.S. economy has prospered and grown throughout periods of turmoil – times of war, the Great Depression, numerous recessions, political scandals and more. The economy will flourish again and investors who stick with their investment course will be rewarded.

For a review of your investment portfolio and how to position it so you can continue delivering on the vital promises you make in life, call us today at 858.752.1726 to schedule a wealth management appointment.

Sincerely,

Dion Gouws, CPA