Is the Economy really that Bad - Part 2

Last month on Oct 22 I posted comments on this subject. With the complexity of US and Global economy, confusing news reports about the nation's, and even the world's, financial health is something we should all get used to. Yesterday the Dow was up almost 600 points, while this morning as I write it is down over 150 points. With all of the volatility it is more important than ever to get back to the basics. Make sure your have a some liquid savings for emergencies and continue to invest for the long term. Just listen to Dave Ramsey and you will understand what I mean.

However, despite plunging home sales and prices, the world is still afloat in liquidity. That is why interest rates are still the lowest in 50 years. This means that, unlike the Depression, there is still plenty of money available for investments and having a very high standard of living. Actually now is the time when individuals can take advantage of great deals on foreclosed real estate properties and low stock prices.

Over the last 10 years the rise in home prices can be attributed to how easy it was to get more money than you needed to purchase over priced homes. Now money is not going into mortgages and other loans because banks have tightened their credit restrictions, and loans are really hard to get, even for good borrowers. Although this is temporary, it continues to strangle the real estate market. The huge "Congressional Bail Out" may help to break up the log jam of tighter credit markets. We shall see how this works out.

What does this means to me on a local level for my family and friends here in Nashville TN? Although the economy is not heading towards a 1970's style stagflation, the conditions are right for slow growth (1-2% GDP) and relatively high inflation (3-4% CPI) for the foreseeable future. The best way to prepare is to reduce your debt, downsize your lifestyle, save as much as possible and keep your retirement savings in a well-diversified portfolio that includes overseas funds.

Warren Buffet said "Be Fearful when everyone greedy and be greedy when everyone is fearful. " Warren Buffet said "Be Fearful when everyone greedy and be greedy when everyone is fearful. "