Big picture folks - we are in a bad, vicious, negative economic cycle with no end in sight. I hate to repeat bad news, but we’re in for a much longer recessionary period than we can imagine. Even though I’m not an economist, I’ll try to highlight in this post why we’re in for a long dark period and how we’re going to get out of it (hint: it’s not the government).
We’ve gone through a tremendous period of leverage where everyone was able to get credit, this led to assets to being way overvalued (stocks, homes, businesses). This took a while and it will take a while to get out of this. The US government is also highly leveraged, the stimulus bill and new bills to be passed will add trillions to our debt. The credit markets are still badly frozen. All this on top of a recession where people are losing jobs and unable to pay mortgages, education which leads to more freezing of the credit markets. What does this mean?
Brace yourself for massive de-leveraging around the globe. It’s already happening. Less leverage and reducing leverage means asset prices come down significantly (housing, stocks, etc) and at worse, deflation starts happening. This benefits savers whose cash now reigns supreme and it goes further than ever before. However, savers are not spenders and they can’t leverage their cash either - so it stifles the economy even more. You’re already seeing the US saving more and spending less, good in principle, bad for stimulus. It’s going to be a long time before we emerge. A good baseball analogy is that we’re probably in the bottom of the 2nd inning.
So the solution is the government, right? NOT! As you already saw with the TARP (which I incorrectly supported), the money didn’t loosen up the credit markets at all. The stimulus package while nice, isn’t going to be enough to stimulate the economy. We’ve got commercial assets that are very toxic, stocks that are still overvalued, earnings that are still taking a beating. The government doesn’t have a great track record for producing great results, no disrespect to Obama. Anyone who is betting on the government to solve their problems will be sorely disappointed.
What we need is a big dose of HOPE for everyone.
Hope
Imagine if everyone lived a life full of Hope and Inspiration instead of negativity. How fast do you think we can recover as a nation, as a world? I know some of you think I’m pretty negative in this post, honestly, I’m not. My personal belief is that we’re in a cycle of negativity which is keeping everyone down and totally blind to seeing opportunities. I got to hang out with some folks at a retreat last week and everyone was seeing opportunities and going for it. Imagine if everyone was doing that, imagine if we had entrepreneurs around the world seeing opportunities and taking risks, having hope for a better future. They’d employ people, they’d focus on solving problems, they’d seek to build sustaining operations with profitable enterprises. What about social entrepreneurship?
Imagine if you could build a successful business in this environment, what your business would like when we emerge from the recession. It’s time we stop expecting the government to get out of this mess, we must have more hope and inspiration and set an example for other entrepreneurs to work hard, innovate, create, lead, and pull others up.
Isn’t it time that we lifted our eyes out of the darkness of negativity and start seeing hope and pursuing dreams today?
I’m also very bearish on the markets and the economy. That said, you’re right that entrepreneurs could lead us out of this mess. The coolest thing about that? Anyone you and I know can be an entrepreneur. There’s no degree or entrance exam for that job.
absolutely, we need more of them!
Well said, AL.
I do agree with opportunity rising out of a crisis. I think this article here depicts it best.
What we have to realize is that markets and businesses are shifting. Trying to force them to stay “as is”, will just cost us TRILLIONS of dollars as a country, and simply delay the inevitable.
Due to layoffs, there is going to be an extraordinary amount of talent available which will drive innovation and entrepreneurship. We’ve got to embrace that momentum, instead of treating it as a fear.
Our hope is in allowing the opportunity to arise.
So true, entrepreneurs are capable of finding the necessary resources to create sustaining enterprises, we need more of them to take advantage of the talent that is available.
We ARE headed for another Great Depression. I believe we can expect a small ‘bounce back’ from the stimulus package, however, it will ONLY be short-term. Economics expect, Harry Dent Jr., expects stock values to increase a little and then plummet drastically. He predicts the Dow to reach levels as low as 3,500 -5000 by 2010-11.
It is a scary picture, indeed. But there are always opportunities in every market. It is time that we put on our thinking hats and begin to be more creative. Regardless of economic conditions, there will always be things people need, there will always be demand. We are entering into a time in which the Thinking entrepreneur will strive. Have hope and optimism and take positive action; the products and services entrepreneurs aspire to implement, in my humble opinion, will be our only saving grace for the hard times ahead…
Never forget:
“The future belongs to those who believe in the beauty of their dreams.” - Eleanor Roosevelt
Make it happen because YOU CAN DO IT!
wow - that’s pretty darn bearish! you are right about the thinking entrepreneur, it’ll take creativity, we cannot continue doing the same things, new models need to be created.
Things will be start recovering in the 4th quarter. I’m willing to bet on it.
I think the real problem is that nobody is accountable. If you can rent a house for 1/3 of a mortgage, obviously the house is overvalued. A mortgage with taxes & insurance should never be more than double the rent.
Loan officers where paid a commission if they get people the loan. There was never checks and balances.
I would love to invest in a company that buys foreclosed homes and rents them until the house market corrects. In parts of Northern Virginia there are houses that are selling for $40k-60k that were selling for $220k-240k before. These homes are really worth about $100k-120k conservatively.
If you have cash, now’s the time to slowly invest it over the course of the year.
that is pretty bold to expect a recovery in the 4th quarter, that would be great. you are right that there are pockets of great opportunities in real estate.
Hope? Please. Only two things can lead us out of this recession: time and government. We could wait for time to eventually catch up, and only after the market severely overcorrects. Or our government–the only institution large enough to stem the downward spiral–can take measures to soften the landing and hasten the recovery.
Your biggest complaint is TARP? Are you aware that money supply is up significantly from last fall? That without TARP many banks, maybe the entire financial system, might have failed?
Hope all you want, but the entrepreneurial cycle is a long one (why do VCs have 7-10 year investment horizons?), and although it might fuel the next boom, it’s getting choked by the current bust. Nest eggs are wrecked, credit is still tight (but not nonexistent), and the economy is gasping–in the process, many small businesses and startups and getting cut of at the knees. No dose of hope is going to immunize you to this situation.
The only hope I have is that policymakers in Washington take steps that shorten the length and reduce the depth of the downturn. I’m not happy to be relying on Washington, but the grown up realist in me recognizes what’s going on.
appreciate the comment. i’d have to disagree with you slightly, i’m very bearish, but the government cannot be the only answer, we need to redefine the entrepreneurial cycle. in this environment, everything is cheaper, labor, talent, rent, assets - a good entrepreneur will find a way to marshal these assets into a sustainable business.
I never said there aren’t opportunities now. I’m working with several companies that are well-suited to growing in this environment. But all of these new countercyclical business aren’t going to make a dent in this downturn. It’s going to take years and years for these companies to grow, and what we need right now is an economic policy that limits the length and depth of this recession.
What frustrates me is what I call “free market fundamentalists,” who, even after the failure of Wall Street and the market to foresee and prevent our current predicament, cling to the dogma that lower taxes, less regulation and less government will solve our problems. Free markets, like most things, are best enjoyed in moderation.
I appreciate your efforts to keep people’s spirits high. My clients remain optimistic, even as our NYC neighborhoods see shuttered shops and foreclosed condos. And I think entrepreneurs need to stay focused, even though many of us are going to be wiped out through no fault of our own. But what worries me is that the business community in general doesn’t seem to have learned that there is an important role for government in our economy (especially in regulation), and that as a citizenry it’s important that we elect competent people, not ideologues who aren’t up to the task.
Great post, Andy and I agree with you 100%. I just hope that small business / start up owners get the support they need from the government to survive and grow in this economy.
especially in washington state, where the B&O tax makes no sense. we need to invest in entrepreneurs.
I agree with this. Optimism will breed optimism and lead us out of this.
That’s why US government has been trying to increase consumers’ confidence (i.e hope). That’s why they will not really tell how bad the crisis is. Only independent economists have been voicing out that this crisis is really bad and it will take until end of 2010 before it starts to recover.
Government is hoping that increased consumer confidence will spur spending thus helping economy to recover faster. But with such a low savings rate among US citizens, I doubt there will be any spending… what to spend when you are about to be kicked out of your job and you are defaulting on your house loan?
The real culprit is the current financial system that is based on interest (usury) and the fiat money. World needs an alternative financial system which is usury-free.
interesting comment, i’m not sure how we get a usury-free financial system?
here is an article by Toby Birch that may answer this question, at least partly read more
See, I think there are two parts to this…
First, negativity is sometimes a useful thing. Quite frankly, consumers needed to curb spending, and since they obviously weren’t going to do it themselves, a swift kick from the economy created a lot of negative expectations, so people finally got the picture and cut back on spending.
However, for people who are smart and wise with their money, they should always be hopeful because they can take varying level of risks and not have to worry about whether or not they are going to make tomorrow’s car payment.
There’s no sense in being negative if you don’t have severe financial issues to worry about, but if you haven’t planned well and spent your money on frivolous items as opposed to saving and investing it, then you should be negative, and with good reason.
That picture is hilarious.
I agree with a lot of your points. Here’s the thing though:
I think there ARE a ton of entrepreneurs. I am one myself. However, I think this economy stifles new ideas. For me, I can’t AFFORD to start a new business right now. I’m currently in a decent job that pays well and hasn’t laid me off, and to give that up in order to risk my savings at this point is not an option. I agree that what doesn’t kill you makes you stronger, but with the tight wallets in today’s economy, I can’t risk launching a B2C business.
I still have great hope and am doing anything I personally can to stimulate and keep the economy going, but unfortunately I’m not at the point where I can create my own business. And it’ll get worse from here on out as it gets tougher and tougher to get investment capital and loans. 2nd inning, indeed.
I would like to remind everyone that there is no ‘credit crisis’ unless you are not credit worthy. I still get re-fi offers, and I still get credit card offers, and I know for a fact of business that are getting credit ines. It used to be that a bank wouldn’t lend you money unless you didn’t need it, the financial system was much more stable then. I the past 2 decades banks moved from a cautious to a reckless lending scheme, and we all got used to it. Now we are paying the piper. There’s no free lunch and we are paying for it now.
But keep in mind that are economic system is sound and self-righting and there is no evidence that government intervention has ever gotten us out of an economic crises. It didn’t work in the Great Depression, it didn’t work in the 70’s, why does everyone think its going to work now?
Thanks Andy,
I’m currently planting crops() when this country is in famine state because I do have high hopes that despite whatever situation we’re in, hope never fails.
Unlimited wishes - The reason
Basics - Roti, Kapda aur Makaan and life is always happy.
Much appreciate your statement-
“Anyone who is betting on the government to solve their problems will be sorely disappointed.”
I couldn’t agree more. I have nothing but contempt for foolish thinking as shown by ‘Robert’ in saying only time and government can get us out of this. What a joke. when has that EVER worked?!
Does this not ring true now more than ever?-
“In this present crisis, government is not the solution to our problem; government is the problem. From time to time we’ve been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else?”
Good post. The post was professionally written and I feel like the author has extensive knowledge in the subject. Thank you.
Is it Obama on the foto? Who is near him?
I hope the economy recoveries today. We should to take away a lesson from this situstion.
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