Friends and family are losing their jobs. The stock market has tanked. Home values have deteriorated dramatically. The situation is dour.
Being hit with one of these issues alone would be concerning enough, but we are facing all of them all at once. People are scared. They are moving to levels of frugality that we have not seen in decades, and are acting as if the US economy will never recover. This is a period of unprecedented pessimism: the Consumer Confidence Index is at it’s lowest levels since the index was created, and things may very well get worse before they get better.
The goods news is that the vast majority of the down-slide in housing, the market, and the economy in general has already occurred. People need to hold on for a little longer and look at the silver lining instead of focusing on the negativity that the media thrives on. There are actually some good things coming out of the recession. The cutbacks of major corporations are giving small businesses a chance to grow. Young people can afford a home again. Business inventory overhang is minimal, less than 1.5 months on average.
An important step in the recovery process is for individuals to begin recognizing that recessions are part of the natural business cycle. As Andrew Lennon wrote in January, the benefits of a recession are the same as those of a forest fire. As much as these periods of contraction in the economy hurt… they are necessary. There are numerous lessons that are relearned in the midst of economic downturns. People and businesses are reminded that saving is necessary. Companies and individuals are forced to trim the fat. Corporations are doing away with excessive spending, executive compensation, and are deleting non-value-add positions. Individuals are foregoing vacations, new car purchases, remodeling, and eating out, but many of those expenditures were were never affordable in the first place; they were being paid for on credit.
It was recently announced that the Microsoft layoffs would be executed over an 18 month period. Seriously, 18 months!? I know friends that are gainfully employed with an impressive education and a strong resume, and they are as scared as a guy who works on the line in Detroit.
To be sure, this is a scary time and there are forces at play that are out of your control. But your attitude isn’t one of those things. Now is the time to be optimistic. The fact remains that difficult times spur innovation. It pushes people to think outside of the norm, take new risks, and allows stale career paths to deviate course. You rarely hear about the positive outcomes of economic downturns, but it is time to start to recognizing them.
Robert Lewis works in the investment industry and lives in the San Francisco Bay Area
