Assumptions can Kill You (and your economy)

Those most familiar with the industry – the folks who made millions, even billions from a business sector – are the best suited to become the federal regulators who can oversee that sector. After all, they are clearly the most knowledgeable. The “best protector of hen houses would be the fox” theory of government. Let mining and logging interests become the environmental “deciders,” petroleum industry barons draft and implement oil-related tax and regulatory statutes, and investment bankers and financiers rule the SEC, Treasury and Commerce Departments, etc.

We cannot apply the Constitution of the United States of America , which every elected federal official is sworn to uphold, when times get tough. That’s the “when times get tough” exemption in Article… er… I can't find it, but I know it’s here…. We should let power concentrate in one branch of government, surely an efficient choice, without legislative and judicial checks and balances, and we know that the executive branch has everything under control and will always make the right decision.

Our houses are really our saving accounts, which will be there on a rainy day and we can use a home loan or a HELOC (home equity line of credit) to cover an emergency, a lay-off or putting our kids through college. We really don't need a separate savings account, since home prices are solid, right?

We are the most competitive nation in the world; we rock, so we really do not have to fix our infrastructure or educate our children, because we are Americans and we are so far ahead of the rest of the world!

We do not need government interference in business, since corporate America is responsible and will not pollute our air or water and they will only sell pure food and drugs without all those terrible regulations. We need to be more like the wild laissez faire markets of Asia , real “capitalism”!

We don't need government to run Social Security – that's too “socialist”; we'd be much better off if individual Americans could instead invest that same money in the stock market instead of having the government administer the program! The private markets will make that social security payment much bigger. Hey, we don't want government in health care either for the same reason.

I’m Peter Dekom, and I am shaking my head.

How Markets Correct - Believe!

There was an online article (AOL) from the Associated Press this morning with more “bad news”: “The Commerce Department said Friday that construction of new homes and apartments dropped by a bigger-than-expected 6.3 percent in September to an annual rate of 817,000 units, the second weakest performance in government statistics dating back to 1959. The only weaker monthly showing occurred in January 1991, when the U.S. was in a recession and going through a similar painful housing correction. [And this is not counting the October meltdown, which will be measured next month!]

“In a bleak sign of future construction, applications for new building permits fell a sharp 8.2 percent to an annual rate of 786,000 units, the weakest level in more than 25 years.

“The government also sharply revised lower its construction data for July and August. That was after dismal news earlier this week that retail sales fell by 1.2 percent in September.”

Where is the silver lining in this story? For homeowners who can stay in their homes and are not looking to sell any time soon, the reduction of new home construction is an overall reduction in the inventory of houses… even though the population of the United States continues to grow. This means that sooner or later, as the “bad housing” is weeded out of the marketplace and the credit markets restored, there will be more demand than supply. Yes, it will take years and not months to get there, but we will get there. Also, if you have some money set aside for home remodeling, you have some interesting bargaining room with a lot of unemployed contractors and building-trade specialists.

The markets have crashed, pensions funds have been decimated, and the floor may not have been reached yet. The silver lining? Bad companies will tank, financial institutions will have to invest and lend on much more responsible criteria, but good companies are trading as record low numbers because “everything” seems to have dropped. As entrepreneur Mark Cuban recently noted, if you do your homework and figure out which companies sell real products and services and generate real revenues, if you liked them when the Dow was 14,000, you'll like them better when the Dow (and their stock price) dropped by 20%, and you'll love them when the market and their share price falls by another 20%.

Each market fall represented a buy opportunity to billionaire Cuban, and Warren Buffett’s clear migration into the stock market at this time should tell everyone where the future lies. Long term, we will be a country, we will have a viable economy and America does have a future. As we leave the world of growth by over-borrowing into growth by responsible investing in genuine business plans, the markets will correct, and long term values will generate the rise we all believe can happen.

This economic crash is not permanent. It may take years to recover our full strength, so the real issue is how to sustain life for the expected several years until we do. But this return to prosperity has to start with a belief in each and every one of us that recovery is inevitable. And, notwithstanding the “stupid dog tricks” ineffectively applied by an apparently inept federal government, we need to start believing now. This is as much an individual decision to begin recovery as it is a governmental mandate. Those who can should start investing and lending now. It takes guts and leadership. Believe!

I’m Peter Dekom, and I approve this message.