Tag Archives: financial mess

Less is More Sometimes

By Larry Luxenberg  

As a result of the pandemic and economic downturn, there are now two kinds of Americans: those who are spending less because they have less money and those who are spending less because they don’t have anywhere to spend their money.

For an economy that is two-thirds driven by consumer spending, that doesn’t bode well for a quick recovery and overall statistics. But despite the crude economic measures we employ, the true purposes of an economy are to satisfy people’s needs and wants. If we possessed better statistics, those measures might paint a different picture.

For the first group, suffering will be epic — high joblessness lasted 6 to 8 years after the Great Recession and food insecurity remained high even longer —  and the bleak statistics will adequately measure their distress.

But for the other 75 to 90 percent of Americans, the picture could be quite different. Economists assume that every dollar spent is for something a consumer wanted and if they can’t have it or have to substitute something else, their satisfaction is diminished. That, of course, is a good shorthand and adequate in normal times.

What we are living through is anything but normal and normal statistics don’t capture our current experience. As half or more of the population lives through an enforced idleness, satisfaction has to come through different means. A leisurely trip to the mall is out. A free zoom call with distant friends and relatives is in. People are reaching out more and spending less on leisure pursuits, apparel, fixing up homes and myriad other things.

Many people remind us that “if you have your health, you have everything.” For the million or more people who have contracted the virus and for the 80,000 or so who have died, their health is compromised or they have succumbed. Stress has soared and with it crabbiness, abuse, substance overuse and mental illness.

For others, who retain their health, many have regained an appreciation for the simple pleasures of life that do not carry dollar signs. For large segments of the population, such as the vulnerable elderly, their first impulse after a murky loosening or even an all clear signal will not be to shop until they drop. Their first, second and third impulse may be caution and to keep the purse strings tightly clamped.

The result could be continued high unemployment, the failure of many already shaky businesses, and continued weakness in measured Gross Domestic Product and other key traditional economic measures.

But what of true happiness? That’s a harder thing to measure. Many people hanker for a simpler time. Now that it has been delivered to their doorstop, they may find that they don’t like that imaginary simpler time. But others may find that spending and happiness are not the same and while traditional measurements of economic activity continue to look dreadful, they are fulfilled and much happier than the economists believe that they should be.

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Out Like a Lion

By Larry Luxenberg  

March is typically an odd month, the transition from the harshness of winter to the promise of spring. This year it’s been the reverse in the worst way in modern memory.

The month began in New York as a normal time with mild weather, the stock market near record levels and unemployment at a half century low.

March ended in a totally unprecedented way with two-thirds of the country confined to their homes, an explosion of illness and death across the U.S., the biggest jump in unemployment on record by a factor of five and $8 trillion of stock market value wiped out.

Congress had just approved a record bailout of everyone, adding $2 trillion of debt to plug massive holes in an economy at a self-imposed standstill. Coronavirus cases had gone from a handful to more than 100,000, making the U.S. suddenly the world leader.

Muddled mixed messages proliferated and fear was rampant. While glimmers of hope popped up here and there like the regular appearance of forsythia, cherry blossoms and daffodils, the gathering storm overshadowed everything as the world braced for the mysterious plaque to strike and dissipate.

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Survival Mode

By Larry Luxenberg  

With the economy in free fall, for most businesses it’s a sudden shift to survival mode.

Most businesses spend most of their time trying hard to grow, to innovate, to take on new markets and better serve old ones. Few people with a choice go into business just to survive. But that’s where we find ourselves today.

You can’t grow if you don’t survive. Businesses that worked hard for decades to flourish, now find themselves facing excruciating choices. Capabilities and staff that were nurtured for many years, long established relationships, beautiful facilities — all are now on the chopping block.

President Eisenhower, the wartime U.S. commander of the European theater said that in war everything and everyone is expendable. With an imploding economy, that same attitude and urgency must be applied to businesses.

With a brutal recession on the near horizon, thousands of businesses will not survive. Those that hunker down and go into self-preservation mode quickly have a good chance to not only survive but to thrive after many of their competitors depart the scene.

Austrian economist Joseph Schumpeter called this the “creative destruction” of capitalism. After every painful recession, there is a flowering of innovation. It’s easy to see the destruction. Much harder to spot the bright new industries and new ways of doing business that are coming along.

After the 90-91 recession that shook America to its core, the Netscape browser appeared in 1995, ushering in the Internet and a towering wave of innovation.

Out of the current difficult period, good things will develop but only to those who survive and are sufficiently nimble to spot the emerging opportunities.

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A Dark and Dangerous World?

By Larry Luxenberg  

For years I’ve felt like a lonely optimist in a dark and dangerous world.

In 2007, the U.S. economy was booming. House prices soared, unemployment was rare and anything seemed possible.

Then came the Great Recession, stock market collapse and the world financial system’s near failure. No one knew what to do.

Since that scary winter of 2009, the U.S. economy has rebounded. Car sales have doubled and housing starts quadrupled. The unemployment rate is half the recession peak.

Anecdotally, the pickup is dramatic. Help wanted signs have sprouted in store windows, trucks clog highways and realtors occasionally smile. The stock market has nearly tripled. For the first time in years, U.S. energy independence is possible.

Yet most Americans believe the country is on the wrong path. Only a month ago, the stock market plunged amid a weakening economy and troubles in China.

While problems never disappear, perspective is in order. U.S. GDP is up $3 trillion from the recession low to $17.4 trillion. The number of people with jobs in the U.S. is up by 10 million from 2009 to 148 million now.

Is everything perfect? No. But gloom and doom are overstated. After a scary drop in late August and September, the stock market rebounded and is flat for the year.

An investor must be an optimist and it’s possible they are at least partly right.

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Budget Deficit Shrinking Fast

By Larry Luxenberg  

During the tumultuous political climate of the last five years, nothing has been more contentious than the U.S. budget deficit and government spending.

While Congress and the Administration have been fighting tooth and nail over this, shutting the government on several occasions and forfeiting the country’s AAA bond rating, something surprising has happened.

Both sides are bracing for a possible government shutdown again this fall and no one seems to notice that the deficit is fast disappearing.

Today, The New York Times reported in a small, single column story on the bottom of page B6 of the business section, that the deficit will shrink by 15 percent this year and by 75 percent since the first year of the Obama Administration.

As the economy healed from the Great Recession, taxes rose and spending has slowed and in some cases declined. A deficit that had reached a mind boggling $1.6 trillion is headed for $425 billion this year, down from $483 billion last fiscal year (the government year ends Sept. 30).

While still humongous in dollar terms, it’s not bad in an $18 trillion economy. After six years of spending austerity, the budget is now rising again, but still slower than revenues.

It’s not that there aren’t fiscal issues — entitlement spending still needs big changes and the government debt needs to be extended — but the fiscal crisis has ended long before the wrangling stops. http://www.nytimes.com/2015/08/13/business/economy/us-budget-deficit-rose-in-july-but-8-year-low-is-expected-for-year.html?smid=tw-share

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Financial Affairs — Much More Complex Than Most People Realize

By Larry Luxenberg  

Do it Yourself? — Not!

 
I run into a lot of do it yourselfers who manage their financial affairs adequately, even capably.

But many run into issues and by the time I am called in, it is often too late or significant damage has already been done.

Recently, I’ve been brought it to work on the financial affairs of several people where the need arose unexpectedly. I had to guess the clients’ wishes and scramble for clues to piece together their financial pictures. If we’d had the opportunity to talk for even a short time, the process would have been much more successful and much easier. Other times I’ve come across mistakes where the do it yourselfer didn’t realize he was in over his head.

There’s no buzzer that goes off telling you that you have to make a significant decision or you should look into something that hadn’t occurred to you.

Most people manage their financial affairs one piece at a time without even a list of all the pieces that are required. Each piece, in and of itself may be fine, but the overall structure can collapse if even one critical piece is missing.

Personal finance is much more complex than most people realize. I encourage everyone to learn and be involved with their financial affairs. But I also strongly recommend calling in professionals before the crisis hits.

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