The “Books” say an average business cycle is 44.4 months and we have lived through many of them. Some longer than that and some as short as a season in New England. A business cycle is like the exhibit from our youth…“What makes an ocean wave, wave” at the New England Aquarium. In the exhibit, you get to move the wave with a lever and if you move the lever too much you have to pull it back as the wave comes crashing down…and again, you go too far the other way and the wave crashes in the other direction. It’s impossible to control an ocean wave. So here we are now in the middle of a business cycle “The Ocean Wave”.
As Americans we do the same thing. When we feel confident and wealthy, we tend to spend a little too much; perhaps buy a car that has all the bells and whistles or buy the house we all dreamed of or even dined at the newest expensive restaurant we’ve never been to… building up that ocean wave. We did this as a nation and created a very large wave. We are in the “Trough” of the business cycle which is like a dead calm in the sea. Nothing moves. We are paralyzed by our own actions and cannot find a direction to get back…there is just no wind for our sails. As individuals, we are going through our own personal process of what will get us back on track. In some cases, we cancel our vacations, limit the activities our children participate in at school or even bring lunch every day. By drastically cutting our spending, we have moved the “wave” too far in the other direction thus hurting the economy even further. Not only have we given up those fancy dinners…we are not even going to the local diner for the blue plate special.
Consumer confidence is measured at an all-time low today and we are letting our emotions and fear govern our decisions and actions. The News Media has the ability to heighten this fear by focusing on the negative and over emphasizing the issues at hand. As FDR said, “The only thing we have to fear is Fear itself”. This speech was given in 1933 in the middle of one of the biggest bank panics of the century which followed the Stock Market Crash of 1929. There was a “RUN” on the banks where consumers wanted to withdraw all of the cash they had in the banks for fear it would be gone. The banks had lent this money out for loans, mortgages etc. and the banks quickly ran out of cash. FDR implemented the Federal Deposit Insurance Corporation “FDIC” that to this day insures our deposits up to $250,000. This speech did spark a generation as well as the economy, and it was backed by a plan of how to get us moving as a country. Today, we do not look up to our leaders. And as of this moment, we do not have a plan of how to get out of the economic turmoil we are in. So as a strong country, we must take matters in our own hands and move ahead…full steam ahead.
We are in a very unique situation in the economy: Mortgage rates are creating new historical lows every day, house prices are nearing levels of value we have not seen since 2004. As we always do, we will look back on this day and say, “I wish I had bought that home, or vacation house or even that investment property”. Trust me; it happens every time we go through these business cycles. As I mentioned earlier, we are letting our emotions govern our business decisions. That is not allowed in business. It’s business and there is no crying in business!! Remember the saying “Buy Low and Sell High”. This is not just some catch phrase. It is a sound business decision that should be followed regardless of your emotional ties.
So what do we do now?
· Keep spending but in a healthy way. Make sound buying decisions based on needs versus wants. By putting some money back into the economy, we will slowly recover.
· Look to your advisers!! Not your friends or family, but your financial advisers. This would be the person that handles your investments, your banking, and your estate. These are professionals that do this time and time again all day every day.
· Be patient. Throughout history we have experienced turbulent times in the business cycle. And we have pulled out of it. In the words of Warren Buffett, “Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.”
For information regarding home financing or the economy, please contact me at Bill@billnickerson.com or 978-273-3227