(Economic) Reality Bites
I generally write about the economy and the markets from my little ivory tower, throwing stones, feeling frustrated and getting critical even though I am largely immune from the day-to-day impacts. Gas at $3.50 a gallon? It sucks, but I can handle it. A carton of orange juice that costs me $5 bucks? Irritating, but it’s not going to change my life. Even a domestic stock market that is down more than 10% from its high isn’t going to materially impact my existence. I am very lucky and I am acutely aware of my good fortune. Sadly, my stagflation hypothesis appears to be playing out, and this is likely to have a material impact upon many in my community and beyond.
This really hit home today when discussing financial forecasting in the context of my children’s school. I have sat on the Finance Committee for around four years and have largely lived through the good times; I am only now seeing the bad times. Those high gas prices, those rising food prices, the increases in daily living costs even in the face of a weakening stock market, lower short-term interest rates and crimped access to liquidity? These economic realities hurt people, honest, hard-working people, who want the best for their children and their families. And in the context of planning for the next fiscal year, we are coming to grips with several adverse circumstances: the likely spike in bad debt expense (tuition payable that simply can’t be paid on time), as job losses and tighter credit markets make it harder to make ends meet, which causes us to think about increasing tuition assistance; skyrocketing insurance costs, which means that staff benefits cost more to both the insured and the school; financing for school construction projects, and on and on. In sum, this simply isn’t a pretty picture.
It is easy to get hyper-intellectual about economic circumstances when I read about it in the Wall Street Journal, The Economist, Barron’s and online sources. But sitting in a meeting and talking about real people with real children living in my community and anticipating the struggles they’re likely to endure in 2008 and for some years in the future, it feels bad. Really, really bad. To those who happen to be fortunate like me, all I can say is be charitable, be prudent and be mindful of exactly how lucky you are. Because you, my friend, are in the minority.
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COMMENT:
AUTHOR: Andrew Clavell
EMAIL: andrew.clavell@gmail.com
URL:
DATE: 01/16/2008 11:33:23 AM
Extremely will put, and timely. Sometimes this sort of stuff is needed to haul in the reins of the bloviators (me included).
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COMMENT:
AUTHOR: George Burdell
EMAIL: gs03jsa@msn.com
URL:
DATE: 01/16/2008 03:33:04 PM
Excellent post!
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COMMENT:
AUTHOR: Dave
EMAIL: frieddave@gmail.com
URL:
DATE: 01/16/2008 06:44:01 PM
I guess I have a hard time being sympathetic to (most) people who presently find themselves adversely affected by the economy. By and large, it appears that the people who have been affected by the economy are either (1) victims of outsourcing or (2) victims of the subprime mess.
In the case of the former, I would suggest that they either move to less economically marginal region of the country or else pursue education with which to enhance their career prospects. In the case of the latter, I would suggest that these people not be financially illiterate, which is to say, not take on more debt than they can comfortably handle.
In some respects, the latter group is the more interesting, comprised as it is of many reasonably well-educated people: your dentist, your friend from college, the teacher, etc. These are people, who, by dint of having gone to college, assume that they can readily assess the risks they are taking by signing mortgage papers.
What these people fail to realize of course, is that they are not hedge fund traders or investment bankers, and so do not have a pile of cash with whcih to ride out the bumps inherent in any modern, market economy.
I find it hard, really, to sympathize with either group. Perhaps I am a cold-hearted bastard. I fully concede that my viewpoint is not popular here in Manhattan, but I do not follow popular opinion precisely because popular opinion said CDOs were priced correctly, etc.
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COMMENT:
AUTHOR: Head Pig
EMAIL: headpig@lipstickthispig.com
URL: http://www.lipstickthispig.com
DATE: 01/16/2008 07:07:05 PM
Great post and principles to take into 2008 IA. Granted numerous Americans have put themselves in a tight position but there are many that will feel the pinch just because. Kind of ironic how Helicopter Ben can relieve some of the Wall St creators of this mess back in August but it is Joe Sixpack that will bear the weight for sometime. Keep up the good work and thanks IA.
The Pig
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COMMENT:
AUTHOR: Paul Rubillo
EMAIL: prubillo@dividend.com
URL: http://dividend.com
DATE: 01/16/2008 07:44:19 PM
Great Post Roger. The job cuts that are just starting to kick in may be the biggest dagger coming. The Fed seems to be trying to conserve any bullets they have, as the dollar is getting ripped apart and Gold makes all-time highs. We’ll get the cut and then it will be a hold your breath moment for the Fed.
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COMMENT:
AUTHOR: ZBicyclist
EMAIL: zbicyclist@yahoo.com
URL: http://mikekr.blogspot.com
DATE: 01/16/2008 10:33:07 PM
Good post. Just as Tip O’Neill famously said “all politics is local”, all economics ultimately is, as well.
My wife teaches in a private school (parochial) that’s running a large deficit; luckily we aren’t dependent on that paycheck if it doesn’t continue next year. I was on the board of that school (before she started teaching there), served as assistant treasurer, and my daughter went there, so I think I’ve seen most sides of this one.
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COMMENT:
AUTHOR: Daniel Goldberg
EMAIL: acepace@gmail.con
URL:
DATE: 01/17/2008 10:07:49 AM
Dave, the problem is, these people might have been the only people affected at start, but the economy is interlinked in more ways then one. The damage caused by some demographic groups being short on cash is multiplied and affects everyone.
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COMMENT:
AUTHOR: Acheson
EMAIL: Amyacheson@aol.com
URL: http://acheson.wordpress.com
DATE: 01/17/2008 11:32:12 PM
And maybe soon the frozen funds problem will start to spread with depositors figuratively lined up on the sidewalks?
1/18: Huge UK REIT fund frozen:
BTW many thanks for your continuing insights
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COMMENT:
AUTHOR: to Dave (Cold Hearted)
EMAIL: pk22901@yahoo.com
URL:
DATE: 01/19/2008 07:41:03 AM
Do you have anyone in your family, friends, or community that’s having a hard time? Think of people you know who might be:
unlucky or conned
ill or injured
a bit slow
too idealistic
Seems you write these people off. Have fun w/ whoever’s left.
And don’t let the door slam your ass on the way out.
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COMMENT:
AUTHOR: Dunk
EMAIL: nbaltoguy@gmail.com
URL:
DATE: 01/20/2008 12:22:36 PM
Dear Head Pig,
You ARE a cold-hearted bastard. I suggest you leave your island now and then and interact with people not blessed, lucky, or motivated (if you will) to live in Manhattan.
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2 years ago
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