Sushi Money

Have you had enough of recession-talk yet?  I’ve finally reached the point where if we are in a recession, or if we will be in a recession simply doesn’t matter.  U.S. economic growth has slowed down in many areas.  It may slow even more, or it may pick up a bit.  In either case we’re muddling along looking for new ways to grow the economy.  It’s really not that bad statistically, and yet even with mild economic data, the nation’s mood is gloomy. 

œIf you compare where the economy was at the end of March [2008] with where we were at the beginning of the year, there is no question the economy is down by just about every measure, said Martin Feldstein, the former chief economic adviser to Ronald Reagan who now heads the National Bureau of Economic Research, which formally “declares” U.S. recessions.

Many folks are worried about the job market and are struggling with the worst housing slump in decades. But it also seems that talking about what’s wrong with the economy is like a sport or play-by-play event for the media these days. Everybody’s asking, “Are we there yet?” while some people proclaim that the recession is just beginning.

“Even if the capital markets crisis resolves, it does not mean that this country will not go into a bad recession,” said JP Morgan Chase CEO James Dimon, whose bank saw its first-quarter profit fall by half due to the recent collapse of the U.S. mortgage market. “The recession just started.”

Well, okay.  That’s all fine and dandy.  But while the media keeps looking for a story to spin, one of these days people are going to tire of all the negativisim and look for more positive, constructive approaches to daily life and rebuilding the economy. 

It is an election year of course, and the politicians will continue bashing each other for what’s wrong with our current situation.  But they had better start thinking about 2009.  Whoever wins the election this year is going to have their work cut out for them.  I don’t know about you, but come next year I want all the problems solved!  Lower gas and food prices, a growing economy, a rising stock market, and peace across the world.  A little unrealistic to be sure, but sometimes we need to step back and gain a little perspective.

It could always be a lot worse, such as for the more than 18,000 people in China or between 60,000 to 100,000 people in Myanmar who have perished in recent weeks.  Katrina was pretty bad, but was not even comparable to what these nations are dealing with.  In Myanmar the government is barely acknowledging the devastation and not allowing humanitarian aid to reach the people who need it. And while the people of Myanmar wait desparately to get help, their government is keeping the food for its own purposes.  That’s one of the problems with dictatorships. The numbers of human lives affected are staggering to consider, and what is left for the living will take years of rebuilding. 

From the context of natural disasters, most of us are doing pretty well.  Regardless of how gloomy one feels about the U.S. economy, it’s really pretty darn good compared to most places around the world.  We’ve talked about recessions before, and what’s important.

But on an individual level I submit that what you call it really doesn™t matter.  What matters is what we are doing individually and collectively to improve opportunity and economic well-being for ourselves and our families. 

Nobody enjoys paying so much money for gas, or cutting back spending in a lot of areas just to get by.  But this is where we are, and I find myself looking for ways to appreciate and improve our lives regardless of the challenges. We the living must continue to grow and build our lives and families.  When the economic news starts getting tiresome, a little perspective goes a long way.

Sounds like the title of a newspaper with all the recession talk these days. While millions of U.S. airline travelers are stranded across the nation, the rest of us are paying the highest prices we’ve ever seen for a gallon of gas. But Carol Sottili of the Washington Post’s Travel Section shares a discussion about what travelers can do in the face of so many airline cancellations. It’s finally bad enough that some politicians are talking about airline re-regulation again. The cost of cancellations certainly hurts airlines and passengers, but with the price of fuel skyrocketing, maybe a few extra planes on the ground doesn’t hurt their business either.

What chance many of us thought for avoiding a recession here in the U.S. is now all but certain. Many experts believe we’re already in a recession and that company earnings reports are going to get worse before getting better. Others think that understanding the recession dynamics is really pretty simple. I certainly agree that it’s all about people. I also think it’s all about people’s response to economic challenge, and these days the economic challenges have continued to grow. So if the recession is here, what do we do about it? Matt Callow shows us how to profit from the global recession.

Is it really that bad out there? While some economists think the worst of the credit crunch is behind us, some folks think that a Worldwide Depression is a Real Possibility. That sounds alarmist to me, but as Ronald Reagan once said,

“A recession is when a neighbor loses his job. A depression is when you lose yours.”

He was pointing out that it can be a matter of perspective. Are we going to see a depression? I can’t imagine it, but if gas prices don’t start retreating it’s going to get a lot harder for the U.S. economy. Business week shows us that as with much in life, how bad it is out there depends on whom you ask. But it’s a wake-up call for many as recent data shows that Americans recorded the largest-ever plunge in retirement confidence in 18 years of polling.

The markets continue to wander with many investors wondering if it’s time to step back in the pool. But The Big Picture presents some interesting data and says stocks are really not cheap yet.

As to valuations: “Its hard to really say that stocks are cheap here. At best, I believe we can argue that — assuming that historically high earnings do not fade — that stocks are not terribly expensive. But that is very different than saying they are cheap.”

It’s hard to say what’s cheap or not these days while we hang on every snippet of bad news. But for a little perspective, I like Minyanville’s 35 Signs the Market Hasn’t Hit Bottom Yet.

Awoke to a cold spring morning today with blue skies and sunshine. It would be nice if it were all blue skies for the economy and markets, but there’s still a lot of uncertainty out there. Does it seem like we’re reading more and more about recession paranoia in the media these days? Maybe recession-speak is now fashionable, but perhaps also because of the election cycle. As some economists observe, one way to create a recession is to just keep talking about it. Hmmm, interesting observation about sex there…

Many American consumers are feeling pinched these days. The Fed has aggressively cut rates in the face of many economic challenges, yet some investors are worried about the Fed causing more inflation. The inflation argument may be valid down the road, but it doesn’t sit well when we’re trying to tackle the other economic problems first. Seems like you slay the dragon in front of you before worrying about the one coming next.

All I know is I can bring more certainty to our own life through doing more things that improve financial stability, and doing less things that reduce it. Stuff like increased savings, reduced spending and debt, and becoming more knowledgeable about financial matters. Honestly I can control very little except the conduct of my own life, and even that is arguable at times.

Yet because most of us care about the nature of our life situation in the future, we do something about it. We modify behavior in the present in order to cause change for the future. Or at least we try to do that. Sometimes we fool ourselves for quite a few years, going through the motions, but not really being serious about it.

And then it hits. Some event, realization or dynamic in our lives that induces enough reflection to become aware of our mortality. For many of us it’s hitting the age of 40. Maybe like that keystone analogy and the poll results that shows how people take retirement planning the most seriously around the ages of 40-49.

It’s the realization that says,

“Half my life might be over, and I have very little to show for it!”

If you haven’t yet been hit with that realization, it will come. It’s kind of like presbyopia. “Presby what?!” Well, let’s just say “old people’s eyes.” Somewhere between 40-45 years old, most people are going to have a tough time reading things up close. And you’ll need reading glasses. Just a fact of life. And it’s a humbling experience that I’ve just gone through the past few years. I think reading glasses should come with a financial “how-to” book that helps people understand retirement planning. Because that’s about the same timeframe that most people start really planning for retirement.

I think it helps to remember what’s important, even in the face of a recession and that,

“If it takes change to make our lives better, then we better change!”

There are tons of resources out there of course. Learning from the experience of others can be a valuable source of new knowledge. In the blogosphere an excellent source of insight is the Carnival of Personal Finance hosted this week by Million Dollar Journey.

With an eclectic mix of personal financial advice and interesting stories, there’s something there for everyone. PennyMine talks about Teaching Kids the Importance of a Dollar. Dividends4Life finds Dividend Gold in a Down Market. The Honest Dollar shows us 11 Ways to Trigger an IRS Audit. And The Financial Engineer writes with the economy tanking it’s no time to increase foreign aid by $845 billion dollars. Not really time to increase taxes either…

There we have it. A place to find a beginning, and make a start or new commitment in our own lives. This week I’m committed to finishing our taxes. Now where did I put those reading glasses…

It’s tough watching various stocks and portfolio holdings go negative over the course of several months. I seem to have lost my you-know-what the last few months, and I’m still trying to find it. The Dow closed at the lowest point last week since 2006, about 16% down from the high last October, 2007.

Technically we’re still in a stock market correction and not a bear market. Are we reaching a stock market bottom yet? I’d like to think so, but many folks think otherwise. But we’re starting to see more opinions that now is the time to Buy, Buy, Buy the heck out of the market. I’m re-allocating some IRA funds to a more aggressive long-term strategy. Slowly, but I think now is the time to think about it. If we are nearing a bottom, we may stay there bottom feeding for quite a while.

Also have a ways to go before a lot of negative news is out, and the Fed will probably drop rates again on the 18th of March. I agree that We’re Nowhere Near a Real Estate Bottom, but real estate markets vary widely across the nation. If you’re in the market to buy a home- this could be a wonderful time. Just be prepared to be there a while. We may also be paying more for gas at the pump for a while. I’ve got a summer trip planned that keeps getting more expensive. Hey, but that tax rebate will come in handy right?

Nothing like a down market to teach us about diversification. For those with money on the sidelines there’s some strategic opportunities out there for long-term asset allocation. Here’s an article that talks about how the PBGC (Pension Benefit Guarantee Corporation) is now making a huge move into equities:

“The federal corporation used to invest just 15 to 25 percent of its assets in stocks, with the rest in bonds and other fixed-income instruments. Now, it’s earmarking 45 percent into stocks, 45 percent into bonds, and the remaining 10 percent into “alternative” investments such as real estate and private equity.”

So why is the PBGC doing this? Simply to earn a greater return over time than a large fixed income portfolio can generate. And that’s because the PBGC doesn’t have enough assets to fund all the pension requirements currently on the books.

“The Pension Benefit Guaranty Corporation has adopted a new diversified investment policy to help ensure the federal insurance program can meet its long-term obligations to America™s retirees, PBGC Director Charles E.F. Millard announced today”

“One lesson is that stocks, even amid recent setbacks, remain one of the best ways to beat inflation over the long haul – something PBGC officers and most other pension experts recognize.”

The PBGC may have missed some opportunties over the years (as I have), but the timing is interesting. Maybe there’s a few other folks looking for that market bottom.

“The PBGC is responsible for the pensions of 1.3 million Americans, but we don™t currently have the resources to keep all of our future commitments, Millard said. œThe new investment policy adopted by the PBGC Board of Directors will better manage our invested assets. Although it should generate higher returns, it also offers lower risk through broader diversification.

PBGC analysts figure the organization now has a 57 percent likelihood of fully funding its obligations within 10 years, up from just 19 percent before. Which sounds a little better considering the number of people that are counting on them:

“PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of nearly 44 million American workers and retirees in 30,330 private single-employer and multiemployer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.”

Has the market reached a bottom yet? Next month? Are we in a recession? One thing is sure, bottom or not the stock market’s fortunes are tied to that of the U.S. economy. Many see the U.S. in a recession now and challenging times ahead of us.  Which means a turn-around for the economy may be several quarters or more away. No one really knows, but the doom and gloom prophets are certainly reaching a chorus.  So if you’re stepping back in the market with new money, know that it may be a patient wait with a lot of volatility before the indices head back up.

Perhaps I’m the eternal optimist, but I think the later half of this year could see very strong markets and the economy turning around. Unless the Democrats keep talking about raising taxes. Then all bets are off for a few years. But there’s lots of media driven fear out there. While out shopping this weekend I couldn’t help but notice how all the restaurants were packed as well as the grocery and big-box stores. Maybe we’re still spending money we don’t have?

Economic buzzwords are all over the media these days.  How many ways can we describe what’s happening out there?   Business Week says the economy Looks a Lot Like Stagflation… a word we’re seeing more often.

A dark memory still haunts the U.S. economy: The Great Stagflation of 1973-80, a time defined by an uncomfortable mix of high inflation and stagnant growth. Well, everything old is new again, as they say: A number of recent economic reports point to an early 21st century return of the two-headed beast.

But the Fed Chairman disagrees with that view:

“I don’t anticipate stagflation. I don’t think we’re anywhere near the situation that prevailed in the 1970s,” Bernanke told the Senate banking committee as he testified for a second day in Congress on the central bank’s semiannual forecast.

Since when did economists become so popular anyway?  Well, probably since about 2005 when the housing market toppled over.  But it seems like every third financial article (or blog post!) has something to do with the economy these days, quoting the best (or most willing) of the economists available. Someone making one of the comments for the BW article above says, “I don’t understand why everybody quotes economists so much… they’re always wrong!” Well that may be true, but if you can quote other people being wrong it’s much better than making predictions and being wrong yourself! “Oh my… I can’t believe that guy predicted that… my goodness he was sooo wrong…!”

But the President believes we can avoid a recession.  Wall Street may disagree, but I think its important for him to show a constructive view, not out of any sense of political gain, but to shore up consumer confidence and provide stability in whatever way possible.  We don’t know if we’re really in a recession yet, although the U.S. economy slowed to a near stand-still in the fourth quarter of last year.

There’s too much skepticism these days for me, but I suppose that’s as much a part of the election cycle as it is the business cycle.    Do you know what the average length of a recession is, going back all the way to 1948?  It’s just under 12 months long, or about a year on average for a recession.  Yes we hear people say “This time it’s different…” and “Housing is a bigger factor.”  Could be.  I prefer to believe our nation is a lot more resilient than that.  We’ve been through some pretty tough times and will get through this one just fine.  The economy will just keep moving along, albeit a little slower.  Who knows maybe it’s even pretty healthy and will reform millions of too-big spenders and debtors.

For argument’s sake, if we assume we entered a recession in January, then by July we’ll be half-way through it already. Or maybe not.   Either way, recessions don’t last forever.  If the business cycle is contracting, then it’s going to pick up again in a matter of months.  In another year or two, it should be a whole different ball game.  Think I’ll go out and buy something- anybody for pizza?

If it seems like the price of everything at the grocery store keeps going up, you’re not alone. Wholesale inflation has risen at the fastest pace in decades, with a January surge of 7.5 percent over the past 12 months. When wholesale costs rise, so do the prices that consumers must pay of course, and the cost of food is a huge expense for most of us.

“Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.”

In recent years we’ve seen price fluctuations for all kinds of food products. Retail food purchases for consumers is primarily a local event… we shop at the corner store, and shake our head when we see prices for milk, eggs or cereal go up. In the past when I saw higher food prices I thought it was temporary. But over the last year it has become evident that the price of almost all the food we buy has continued to increase.

Here’s a CNBC screenshot from last week talking about essential food ingredient prices. I’m not sure of the data that the American Baker’s Association uses, but they’re saying we could be paying almost $5.00 for a loaf of bread next year!

And why is corn sweetener up there? Because hundreds of food producers use corn sweetener instead of sugar because it costs less. At least historically. Now corn is in high demand for a host of reasons, not the least of which is the production of ethanol.

Agricultural costs have increased tremendously throughout the world, both due to fuel costs as well as global demand. Within the U.S. a lots of folks are citing ethanol production as the primary reason for rising food prices, seeing the diversion and diminished supply of corn as a major factor. Ethanol is a huge factor affecting grain prices, but many experts see the greatest influences from global demand for food coupled with production swings and weather impacts such as drought.

But let’s look at ethanol because it’s a primary agent of influence within the U.S. agricultural sector. Based on USDA estimates, the percent of corn produced and used for ethanol production is going to double, rising from 14% to 30% over the next 10 years.

It’s like a storm of conflicting forces for which we have no easy answer. In effect, we are growing food to eat and to put in our cars! When farmers increase corn production they produce less of something else. In the U.S. that typically means alternating corn for soybeans, and if there’s less supply of one product, that usually results in greater demand and higher prices for it. Based on current global demand, the net effect is rising prices for all agricultural sectors. The USDA’s assessment of the impact of ethanol production presents clear evidence for the food price increases that we’ll see in the years ahead.

“While the ethanol boom can be expected to bring higher incomes to farmers and reduce government outlays for farm programs, it will also most likely mean higher food prices for consumers. Retail price increases for red meats, poultry, and eggs are projected to exceed the general inflation rate in 2008-10, as the livestock sector adjusts to higher feed costs. As a result, overall retail food prices would rise faster than the general inflation rate in those years.”

And in a global economy the economic ripples of food supply and demand have far-reaching consequences.

“Most important, a period of protracted higher food prices will be bad news for many of the world™s poorest people and its poorest economies. While the share of food in the consumption basket of a rich country such as the US is relatively low, at about 10 per cent, it averages about 30 per cent in China and more than 60 per cent in sub-Saharan Africa.”

Another USDA article examines how corn production and consumer food prices are related. Although it helps explain commodity price influences, after you read the article it doesn’t seem like the USDA really looks at what’s been going on for consumers, but the research provides some key insight. In the language of academic researchers, the USDA explains that retail competition moderates food price inflation and provides stability:

Overall, retail food prices have been relatively stable over the past 20 years, with prices increasing an average of 3.0 percent per year from 1987 through 2007, just below the overall rate of inflation. The main exception occurred when sharply higher farm prices increased retail prices 5.8 percent in 1989 and 1990. Since then, food price inflation has averaged just 2.5 percent per year.

Retail prices are a function of both consumer demand and the interaction between food manufacturers, distributors, and retailers, with each group having some pricing power in the supply chain.

Well, however stable and whatever the “pricing power” of the supply chain, those of us filling up the shopping cart just see prices going up! Keeping in mind that these charts are 6+ month old data, that inflation spike for the Food CPI has continued to increase throughout 2007 and 2008.

Here’s the heart of the issue:

When there are cost shocks in the food production system due to changes in the commodity or farm product market, most retailers respond by passing on a fraction of their higher costs to consumers.

That about sums it up. We’re going to continue to see food price increases over the next few years, if not the next decade. Agriculture will also be subsized less by the government in the future, which means the increasing costs of production and transportation will be passed on to consumers. Groceries and gas are simply going to stay a lot more expensive over time.

Hence, U.S. consumers are not happy right now. Between gas and food, there are too many increases to prices that the average family sees each day. It will be interesting to see how U.S. consumers change to meet these challenges over time.

What can we do for our own families and at home? I was joking the other day about having our own chickens for eggs, although that would be pretty cool if I didn’t have to shovel you-know-what. We’ve already got too many pets as it is. But we can grow and make more food at home! If you’ve had a garden before, you know it provides a lot of home-grown food for comparably little effort (although it does take effort!). A few packs of seeds or plant starts and some TLC, and you can have a bunch of fresh vegetables. Honestly, there are few things to rival the enjoyment of eating food you’ve grown and prepared yourself. Sustainable living is going to take on new meaning for a lot of people.

Personally we’ve begun to change how we shop for food, as well as prepare food at home. As we gear up for the spring and summer gardening season my wife has been baking whole-wheat bread at home. It’s really very good, and costs about half as much as quality store-bought bread (No, you can’t compete with plain squishy white bread by making it at home… unless you’re using paper- but then again it might provide about the same nutrition!). And yes, there is the time involved in preparation, but with a little planning it still saves money and is a lot more rewarding.

Does it really make a difference financially? Yes! It saves dollars and helps foster a mindset of controlling costs and producing more at home. Admittedly it’s hard to make a real dent in the overall finances without a concerted effort though, and that’s something a garden really helps with. Frugal shopping, buying in bulk, staying healthy… it all adds up to lower costs over the long run.

So we’re reading and learning about new ways to save and do more at home. What do you do at home that makes a difference in your financial lives?

For investors, lots of smart folks have jumped on the commodity bandwagon over the past year. Between natural resource and commodity stocks and funds, investors have made a small fortune over several years. I was big into natural resources and energy stocks from ‘02 to ‘05 and then pared back my holdings. That was a mistake for which I then proceeded to miss a lot of the continuing advance. I haven’t changed my core retirement portfolio of balanced stocks/bonds for the long-term but will look a little more closely at commodities going forward. Many professionals believe there is a lot more room for the commodity bull to run and the data at present backs up that view.

For an excellent assessment of our current economic challenges, Money and Markets provides a sobering assessment in Three Great Investment Opportunities and One Grave Danger For Your Portfolio. If that’s not enough to motivate someone to re-think investment goals and tuck away some extra savings, then I don’t know what is.

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    It strikes me that much of the market turmoil in recent weeks is based on fear… and maybe for reasons that have nothing to do with 99% of the investing and working public.  In large measure, so much of the credit, lending and hedge fund crises have been created, expanded and literally blown-up by the banks and investing institutions who designed and packaged their gourmet derivative specialties.  Yesterday we heard rumors of more hedge fund problems and that affected the financial markets as Wall Street finished a difficult week. This coming a couple days after rogue French trader “Mr. Average” causes billions in losses for one of France’s largest banks…. which may also have caused or exacerbated the European market turmoil last week.  How the heck does that happen anyway?!!!  

     Among all the stock market and investing challenges we have faced lately, I started thinking about The Recession.  The big scary word that everyone has been batting back and forth the past few months.  On an individual basis, do we really need to worry about a recession?  For many the answer might be… it depends.   It depends on if your job and income is something that may be affected by the recession of course. 

    There are many arguments for if or why we may be in a recession, and why the financial markets have been so volatile.  Housing, improper lending practices and wholesale repackaging of lousy loans has brought on a crisis of confidence throughout the financial services industry.  Many consumers are mystified by the degree of angst and financial losses that have occured to the largest of financial and investment institutions around the world.  Perhaps not since the savings and loan crisis of the 1980’s have we seen this degree of financial loss, confusion, negligence, fear, public reaction, and pending government legislation.  But this crisis is still unfolding… what the Financial Times calls The start of the great unwinding:

“If the US suffers a recession in 2008 or 2009 it will not be due to an industrial decline or an oil price shock. It will be a recession that began in the financial system. The response of the general public is confusion, tinged with horror, at how intangible finance can impinge on their daily lives. Even some bankers and traders must be struck by the chaos their business can unleash, and feel awe at just how powerful they have become.” 

      It is staggering to consider the losses that have occurred in the financial services industries.  And staggering to consider the ramifications for how it affects the consumer, consumer spending, and a slowdown in business nationally.  We may indeed be facing a long recession with difficult times ahead.  And the way out may hinge on the ability of the consumer to continue to spend.  But many people have jobs that are fairly well protected, or entrenched perhaps.  Government and civil service workers don’t need to worry about the recession per se because they normally won’t lose their jobs.  Workers such as teachers and professors with tenure don’t normally have to worry about their jobs either.  Highly skilled workers such as doctors, lawyers and other professional workers proably have less to worry about as well- and in some cases may do more business in difficult economic times.   Some service industries actually do better during recessions:

“Most of the service division’s 16 major industry groups decelerate in job growth or lose jobs during recessions. Five major groups are at least slightly countercyclical, however, gaining jobs faster in recessions than in normal times.”

Source: Bureau of Labor Statistics, Monthly Labor Review; Updated 2006

     So that shows that even during a recession there is opportunity.  But admittedly there are many workers with jobs that depend on the economic appetite of others, such as factory workers, sales personnel, mortgage and loan workers, etc, etc.  If you don’t have much education or skills, and you live in an economically depressed area… then the recession is something you feel first-hand.  But is it a national recession, or a global recession?   Are there really no jobs, or much fewer jobs?  Depending on the region you live in, maybe so.  But I know in the metro area that I live there are many, many jobs.  Maybe they’re not the same jobs that people either want or had before however, but there are jobs.  Service jobs are available everywhere of course.  We’ve written about the service economy before, and where the jobs of the future will be.

     News and information now travels in seconds and minutes compared to days, weeks and months over prior decades.  We hear every tidbit of news and quotable thoughts by leading economists throughout the world.  We analyze data much more quickly, and the markets react by the minute to news…. the world really is much smaller, and as Edward M. Gomez from SFGate.com writes yesterday, the impacts of a recession in the U.S. are far reaching.

“The news coming out of the World Economic Forum, which has gotten under way in Davos, Switzerland, is not good. At the international gathering of leading economists, high-level government policy-makers and captains of industry, the collective prediction is that a “full-blown, prolonged recession in [the United States] is now inescapable, with the rest of the world set to be dragged into a severe global slowdown despite [this week's] emergency U.S. interest-rate cut by the Federal Reserve….” (Times, U.K.) ”

     Those are pretty tough words- read the rest of Mr. Gomez’s thoughts and it’s downright scary.  Yet I think it’s important not to give into the fear and rhetoric that’s plastered across the headlines every day.  We can even read a list of 10 Reasons a Recession is Coming.   Uh… okay.

     But what does it mean to us?  Probably only something that each of us can answer.  At some point, in order to understand it, I need to make the economy more personal.  Rather than worry about it, or not understand it, I think we need to assess how it may affect us at home (and within our communities) and whether or not The Recession may really challenge our individual ability to have an income and support ourselves.  If the answer is “yes” then I think it’s time to take steps to protect ourselves.  I’m not talking about survivalist measures from a total doom and gloom perspective… or about panderers who would take advantage of consumer fear (Caution: That site is designed to take your money while providing common sense solutions that you already know!).  But in the same way that emergency fund of savings can help us bridge difficult financial times, I think there are practical measures we can take to improve our lives while the economy regains traction over the course of the business cycle.  Because it is a business cycle, and eventually the economic slowdown will turn around while productivity increases.  This time it may take longer, or it may not… we just don’t know yet. 

   But what practical measures can we take if we are really worried about The Recession?  I think there’s a lot we can do.  Simple things like cutting back on spending, increasing savings, and reducing the use of debt.  Maybe start carpooling or becoming more efficient with transportation, eating healthier and exercising more to stay healthy (and reducing medical bills now and in the future!).   And even becoming more sustainable at home through growing a garden, reducing utility costs, etc.  Those are all simple, yet important things we can do in our own lives that will make a difference.  More importantly, we can develop our own human capital through gaining education, skills and experience in certain areas can provide an emergency skillset or knowledge-base that allows us to transition more quickly and efficiently to a new job or career if necessary.   Job retraining has become a hot-button issue for politicians and economists lately, and rightly so.  I strongly believe we must support current and future workers because education and job retraining initiatives will provide strength to our nation from an economic and human capital perspective over the long-term.  If our nation is to remain strong economically from a global perspective, then we must make sure to support our workers’ education and training development.

    We can also focus on those service industries that actually do well during a recession as shown above.  Can you say healthcare?!   Maybe we need to stay in a career or industry longer than we want because it is a practical, secure solution for the time being.  And remember The Grapes of Wrath?  A story of social and economic desperation with a major theme involving the mass movement of people from one region in the U.S. to another simply because there was little work, income, or even food to support them.  A stark illustration perhaps, but I don’t think it’s out of the ordinary to consider moving from one geograhpic region to another if a downturn in employment and opportunity will really affect quality of life and income needs.  I have a succinct opinion on the matter:

If it takes change to make our lives better, then we better change!

   I think back some years ago to a time in the early 1980’s.  I was finishing college and totally engrossed in school and personal activities.  College has always been a time for being totally engrossed in yourself and those pursuits you find most- well, interesting at the time… certainly a time of self-indulgence as well as growth.  But in the late 1970’s and early 1980’s the U.S. economy was in really, really bad shape.  The worst unemployment since the Great Depression, and crazy high inflation (over 12%!) that had spiraled out of control. Many Americans had lost confidence in themselves and the government.  It’s no wonder Ronald Reagan was elected President in a landslide vote with his optimism and strength.  Here’s a look at the long-term U.S. unemployment rate from 1958 through 2008:

Source: Burea of Labor Statistics, 2008

    But during that timeframe, honestly I was pretty clueless to the economic challenges the nation faced as a whole during those years.  Recession?  It really didn’t mean much to me.  I was a young college student with stars in my eyes.  Unemployment?  I didn’t really think about it… I found jobs waiting tables, being a lifeguard, working as an usher at sporting events, working in a chicken processing plant cleaning up chicken parts, and even working hard to get a scholarship.  Yes, I was a college student and didn’t have to worry about feeding a family and paying off much debt at the time.  But I think millions of other people do the same thing each day by scrambling to find work and opportunity.  Remember the recession of 1990-1991?  I don’t remember much about it.  I was working in a secure job and focused on getting things done.  I remember there was a housing downturn, and some challenges nationally, but we worked through it.  The booming 1990’s left those memories in the dust. 

Here’s another view of the long term unemployment rate (as a percent of the civilian labor force) compared to past recessions from 1970 to 2005.  It does show how unemployment usually increases before and during and even after recessions.  But often we don’t even know we’re in a recession until months afterwards.  If we’re in a recession today, we probably won’t even know until at least June, after two consecutive quarters of a decline of real GDP… here’s how the NBER dates a recession, with a lot of other info.

Source: BLS Issues in Labor Statistics, January 2006 (.pdf file)

     So back to our original question… does it really matter if we are in a recession?  I would really ask, “Does someone out of a job really care what you call it?“  I think the answer is self-evident.  People lose jobs, are out of jobs, are looking for jobs and are hired for jobs whether there’s a recession going on or not.  It happens all the time.  Politically and economically recessions matter because the nation’s economic engine slows down and it can have long-lasting effects nationally and globally.  There are real consequences to depressed economies and loss of the ability to pay for goods and services.   So yes, it potentially means people are going to be affected in greater ways by fewer opportunities to work, and business will be challenged to expand.  But on an individual level I submit that what you call it really doesn’t matter.  What matters is what we are doing individually and collectively to improve opportunity and economic well-being for ourselves and our families.   I think the government is moving in the right direction, and a family of five may even see a sizable amount of tax rebate in a few months.  Our national attention is focused on doing more, and improving the economy. Writers and financial sites continue to answer questions that matter to consumers.

     All things being equal, I think it is better to stay informed than not be informed about national and world events.  For that reason it’s important to pay attention to the leading themes we face.  Certainly you can make and lose money by the influences that shape our economy, and being better informed can help one make better decisions… hence, staying prepared or even finding a better job.  But I think our being informed should be framed in the context of the challenges that really can affect us.  I spoke of it the other day- there are a lot of problems we all have that we should pay a lot more attention to, and that we can do something about.

Petrarch once said, “Where you are is of no moment… only what you are doing there.”  That’s a tough statement for the homeless guy living in the street to swallow.  But I think it speaks to an eternal truth that what we are doing with our lives at any given moment in time really does matter.  We can influence and direct our future, we can improve opportunity, we can help others who need assistance, and we can find a job whether or not we are in a recession.

       Trying to balance the perspective of the words you read each day with what is really important in your life can be a challenge.  For example, just thinking about the 5.4 million people that have died in Africa over the past decade is staggering.  And over the past year there’s been a developing  crisis in Kenya where thousands more people face starvation and I can do little about that as well.  Bill Gates can however, and is pouring millions of dollars into helping small farmers in Africa.

“If we are serious about ending extreme hunger and poverty around the world, we must be serious about transforming agriculture for small farmers ” most of whom are women,” he said in a statement. The Bill & Melinda Gates Foundation on Friday unveiled a package of new grants worth more than $300 million, nearly doubling its spending on agriculture.

 There has always been strife and suffering throughout the world.  Usually we tune it out, right or wrong it’s hard to have an impact.  But we can have some impact, and make choices about where some of our money or time goes.  Places like Kiva and MicroPlace are providing wonderful opportunities to have a real economic impact on people’s lives in other nations.  Reading about the life challenges that people face each day around the world certainly provides context to the “challenge” that some of us face here at home.  And when I read the big, scary RECESSION headlines, it helps me to frame that context in a healthier manner, and think about what I can do in my local community.

    In large measure that is why I try to strike a chord of optimism in difficult times, and perhaps why the tenor of my writing is usually more hopeful.  I don’t ever mean to belittle or dismiss the challenges that so many people do face each day.  I know those challenges are real.  And I am thankful for what my family has personally in terms of a steady income. We’re not wealthy by any means, and the effects of economic challenges are very real here at home as well.  We’ve modified our spending based on fuel and grocery costs as well as trimmed back in other areas and increased savings where possible. We are fortunate to have decent income and be able to support our family.  And yet I think it’s vitally important to remember the strength we can find within no matter what our situation, and that we can find and create opportunity in both the present and future through setting goals, intentions, gaining education and continuing a daily effort to grow.

     And besides, when a cafe in San Francisco spends $20,000 on a machine to brew a cup of coffee, how bad can it be out there?  Well, never underestimate the passions of a coffee aficianado, recession or no recession.  Personally I prefer Bill Gates’ approach to helping African coffee farmers.  Instead of spending $4 or $5 bucks on my own cup of coffee, maybe I can find a cheaper cup and have some left over for savings or a good cause.   Those are things I can do something about.   I think we’ll be okay, and there are a lot of things we can do to ease the challenges we may face ahead. Take care of yourself! 

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The news has been almost all negative lately, continuing to pressure markets toward Bear territory. It looks as if both consumers and investors are afraid… fear of potential recession, fear of credit market woes, fear of housing and mortgage problems, fear of… goodness you name it. But a lot of investment professionals are neutral either way. Where there is fear, there is money to be made- not only to the downside, but also with companies that are attractively priced for long term appreciation. Yet the markets head lower because investors aren’t buying, and in fact keep selling. More supply, less demand. And a lot of folks are concerned that things will get a lot worse before they get better, with some even concerned about global recession possibilities.

But there’s still a debate whether the market is consolidating or about to get worse. I’m in the consolidation camp… I think so much of the negative news is already out and that the markets will turn around sooner than later. And can we start looking at what’s right with the economy instead of how bad everything is? I’m up to my ears with the negative stuff. My opinion means little except to my personal approach to investing, and peace of mind. Markets go up, markets go down. It’s not fun, but most have us have little choice but to ride it out as we’ve done in the past. I think I’m more concerned about consumer perception and how that affects confidence, spending and ultimately the economy as a whole. The economy is still growing, albeit “at a slower pace” as the Fed has reported. It’s no surprise that we’ve been feeling pinched by higher prices for quite a while, and the Labor Department numbers finally show the inflation reality that energy and food prices rose in 2007 by the greatest amount since 1990. The highest gasoline and food prices in over 17 years? No kidding… Seems like I remember a recession around the 1990 timeframe too. But don’t worry- Mitt Romney is going to save the auto industry, textile industry, furniture industry and whatever other economic problems we have!

We may be in a recession, or see one soon. But somehow I think we’ll stay ahead of it nationally. Wall street is urging the Fed to take more aggressive action, and they’ll probably cut rates at the end of the month. Congress is supposedly putting together a stimulus package too, and that would boost the Fed’s efforts as well as consumer psychology. The economy may really be that bad, but combine all of that with a dynamic election year and I think the signposts to economic recovery will become a lot more clear in a few months.

You know that line… “Opinions are like a$$holes, everybody has one!” That’s about the sentiment for a U.S. recession next year. The “will we or won’t we” debate is reaching a peak… except of course for those who have already decided (Bill Gross of Pimco) that the U.S. is in a recession right now. That’s not too far out for a call on the economy, because recessions can be very hard to figure out until the economy is already coming out the other side of the business cycle. Often, the real beginning of a recession is only determined years after the fact. So maybe Mr. Gross is right. A lot of other folks have entered the debate on both sides:

• NO: Abby Joseph Cohen from Goldman Sachs says a recession in 2008 is not likely.
• YES and NO: A December Reuters/Zogby poll says 43% of likely U.S. voters expect a recession in 2008.
• MAYBE: Alan Greenspan recently modified his view of a recession from less than 50% to right at 50%.
• NO: Diana Furchtgott-Roth, former Chief Economist at the U.S. Department of Labor thinks a recession not likely.
• YES:ABN AMRO Bank believes the U.S. is entering a “viscious spiral” with a 75% chance of “plunging into a recession.”
• MAYBE: State Street Bank is not on the record, but believes it “remarkable” if the U.S. avoids a recession in 2008.
• HELL YES!: Jim Rogers isn’t satisfied just to say the U.S. is in a recession… he even thinks the Administration is lying!

Who knows… will we enter a recession? If we do, I think it has a lot to do with psychology and the media. All this talk and blather… of which I too am contributing, ultimately influences the perceptions of a lot people. Personally, I’m not convinced… I think the economy will manage to trudge along while contining to slow, but that a combination of productivity, consumer spending and global trade influences will keep us going. If something extrinsic to the U.S. economy happens- such as an economic crash in Asia, then all bets are off. But with the Presidential election taking shape in full force in 2008, the economic noise will get a lot louder for a while. Heck, I’ll bet all the political wrangling may even contribute something to overall GDP!

     What do you do when it seems like everything is getting more expensive? When I head to the grocery store I keep seeing higher prices and wonder why stuff costs so much more than it used to. Lately I’ve had that experience more frequently than in the past. Inflation may be under control from a macroeconomic perspective, but it’s not under control from the family grocery shopping perspective, or for fuel or electricity costs. Our family is not struggling by any means, but we do try to shop with an eye on prices and work hard not to overspend the budget. Yet when I find prices of grocery items influencing my shopping habits, I’ve got to wonder how other people are doing that really are struggling financially. Energy costs are one of the biggest culprits of course, especially as companies pass their energy costs on to consumers. But what about certain farm subsidies, especially where propping up ethanol production is concerned? Corn and other grain products are in such demand that costs throughout the food processing spectrum are rising like never before. Maybe catching up as well, but it’s still fairly amazing.

     I’ve had these thoughts for some time, but today read an interesting article about how Living Paycheck to Paycheck Gets Harder. Similar themes in the article, especially for shoppers. I found it interesting that Wal-Mart and other larger retailers are seeing the spending gap in the days before and after payday get much larger. In many ways that alone might indicate a recessionary theme for the economy. Once you factor in energy prices and local economic issues such as employment, family economic well-being really becomes a critical issue in many communities. I suspect we’ll see a lot more about this theme in the months ahead, especially with the 2008 election in full-swing. Do you find yourself living paycheck-to-paycheck? I think a lot more families are, and that has me concerned about the next few years.  My nature is to look at things postively, with an optimistic eye for the future.  Heck, I just wrote about Appreciating the Economy a couple weeks ago, but I think it’s also important to look at the challenges people do face.

     Back in the early ’90’s, the first President Bush lost the election because people were very concerned about the economy, and it seemed like the political leaders were out of touch with the reality that many working families face. Remember “It’s the economy, stupid?” Seems to me like we are seeing the same thing happen all over again. Certainly there are many aspects of the U.S. economy that are strong and vibrant. But to ignore the challenges and realities that many families do face is akin to turning away from the problem. Those political leaders who do address these issues in a constructive and positive manner will be heard much more clearly from the voters. Personally, I don’t care about the political aspects other than to see that we are helping Americans to grow and succeed in their lives. There are so many ways to foster financial literacy and economic well-being in the nation. Education is vitally important, as are employment and tax incentives for businesses, homeowners and families with children.

     More importantly however, there’s a lot we can do locally to help others. Just taking a few food items to a local charity or food pantry can really make a difference, especially as we head towards winter and the holiday season. Hopefully we won’t see a recession in the U.S., but whether we do or don’t, there will still be a lot of families that need our help.