Coffee heat rising

Economy

Assets reviving

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Well, even though unemployment doesn’t seem to get any better, the economy is said to be recovering. And as a matter of fact, my savings are starting to come back. Last March, investments hit a low point of $420,565, having lost just under $160,000 in ten months. This month, the balance is at $480,753, a $60,188 gain in 8½ months. Not bad, considering that after we were told our office would be closed and our entire staff canned, I used $25,000 of my savings to pay off the second mortgage on my house and that I pay my $800 share of the mortgage on the downtown house with proceeds from those investments.

My financial advisers hope I can refrain from drawing down anything, including the mortgage payments, during 2010. I’m cashing in part of a whole life policy to cover that bill—it will pay the entire year’s worth. They think that if I can leave the money alone for a year, it will recover its former glory. With a $60,000 increase in less than a year, that almost sounds believable.

I’d be happy if it would come back up to $500,000—just another 20 grand—and stay there. A four percent drawdown from that, plus Social Security plus part-time teaching, would yield a net income just slightly less than GDU pays me. And that would cover the bills reasonably well, even though Medicare will drive my monthly costs significantly higher in retirement.

If I’d left the $25,000 in savings instead of using it to pay off the loan, of course, the total would be back at $500,000. But consider: the loan cost $169 a month. Four percent of $25,000 prorated monthly is less than half of that. And if anything happened so that I couldn’t make those payments, I could have lost my home. Now it’s very unlikely that anybody is going to take my house away from me. Not even if the market crashes so spectacularly that I lose every penny.

Let us watch and wait.

Image: ScooterSES, Tokens from the U.S. Deluxe Edition Monopoly.
Public Domain. Wikipedia Commons

Who’s that comin’ down the street? Someone who’s hungry!

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Next time you walk up a busy sidewalk or drive down a crowded street, consider this: twelve in every one hundred people around you may be going hungry because of the recession. Yes. That would be three in every twenty-five of your fellow townspeople.

That’s if you’re in one of America’s more privileged regions, somewhere in the Northeast. If you live in the Southeast, something like fifteen in one hundred of your fellow pedestrians or drivers is hungry. And not because they’re on the Atkins diet. Three in twenty wonder where their next meal will come from.

As President Obama reported recently, “food stamp applications are surging and food pantry shelves are emptying.”

That sure is true here in lovely uptown Arizona. And we’re not even in the areas alleged to be the hardest bit.

Got a package of spaghetti, a box of rice, a can of soup, a bottle of baby food? If you’re not going hungry yourself, why don’t you take that stuff to your nearest food bank. Now. Right this minute. Get up, drop the chow in a bag, and get yourself and the bag of loot to the food bank. Don’t wait.

Ghost developments

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Inflation-adjusted housing prices in the United States by state, 1998–2006. Click on the image for a larger view.

Yesterday I spent the afternoon hanging out with my friend Kathy, who lives up against the White Tank Mountains that form the Valley’s western boundary.

The far west and east sides of the Valley were the scenes of the most frantic building campaigns during the late, great Real Estate Bubble, whose collapse has affected the Phoenix area possibly more than any other major metropolis in the country. Phoenix, like Las Vegas (another hard-hit town), has a typically Southwestern boom-and-bust economy. Based on nothing solid, our spates of prosperity evaporate into the dry desert air at the first breath of a hard wind.

The west side has been filled with toss-’em-up tracts, styrofoam-and-stick houses that go off like Roman candles if a fire starts somewhere in the structure, that split and fall apart as the poorly compacted clay beneath them settles, and that stand eave-to-eave, crammed so close together that you might as well be living in an apartment as in one of the laughably dubbed “single-family homes.” Even the most expensive housing there is built this way: people packed in like hens in a commercial chicken farm.

These tracts are half empty. As housing prices ran up, new housing sold for even more than existing housing, which itself was selling for far more than what it was worth. As buyers defaulted, builders went belly-up, leaving many developments only partially built out and many houses standing empty.

Because the frantic building took place on the edges of the sprawl (Phoenix’s City Parents carefully study Los Angeles so they can imitate everything L.A. did wrong), the bust has affected the new areas far more than the central parts of the city.

I was amazed at what we saw as we drove around: mile on mile on mile of shiny new strip shopping  malls, all of them empty. One mall had a single Italian restaurant in it. Another had housed a couple of businesses that had closed and cleared out their equipment, while other space evidently had never been leased.

In one development, an empty mall had a dusty sign next to an empty bank building: “Citibank: Coming Soon!”

We went by a shoe store we both like, because it sells European styles that look nice on your feet without crushing your bones.

Gone.

By and large, the surviving commerce consists of big box stores, beauty salons and supply houses, and a few chain restaurants. Everything else is absent.

It’s eerie to drive through a vast area and see swaths of empty buildings. The place looks like an empty movie set. Or like it had been evacuated and the residents never returned.

Kathy was surprised when I said that our part of town has no empty shopping malls, and in fact centrally located strip malls are being renovated and are fully occupied. She has seen these ghost strip malls for so long, she’s come to think of them as a normal part of the landscape.

What a landscape it is! Vast Potemkin villages of ghost neighborhoods and ghost shopping malls. If this is going on all across the country, America is in deep trouble.

Image: “United States Housing Bubble,” Wikipedia. GNU Free Documentation License.

Prognostications

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Well, somebody thinks the economy is about to improve, big-time!

On the other hand, somebody else thinks (with questionable credibility) that whatever gains we make will be lost to soaring healthcare premiums as insurance companies gouge customers in the wake of national health-care reform.

Enough people think happy days are here again to push the Dow over 10,000.

But certain skeptics think the Dow is manifesting a bubble, and that we can expect swings back and forth around that honored threshold for some years to come.

The Fed allegedly believes the recession is over, though observers see “signals” from Bernanke that the Federal Reserve will keep interest rates low for the foreseeable future. That notwithstanding, others are convinced rates will have to rise in 2010 as inflationary pressures come into play.

Government scientists think my part of the country will be hotter than normal next summer (and for most of 2010, come to think of it).

Others who style themselves as experts assure us that any such phenomena have nothing to do with the free enterprise-threatening hooey that is global warming.

If we imagine any of these things might come true, can we make it happen by thinking about it hard enough? Anything’s possible…

...Your fairy is made of most beautiful things.
...Your fairy is made of most beautiful things.


Image: Sophie Anderson Tucker, Take the Fair Face of Woman. Public Domain. Wikipedia Commons.

How does your (financial) garden grow?

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Over at A Gai Shan Life, Revanche has been contemplating the degree to which her investments have recovered from the late, great economic crash. In comparison to the pickle we were in just a few months ago, even “not great” returns look good!

Coincidentally, just a few days ago I happened to take a look at my own funds’ performance over the past year or so…the first time I’ve had the heart to do so in a long time.

My big IRA, which is professionally managed, has been doing a lot better the past couple of months. Between mid-September and mid-October, it increased by a healthy $4,288. The taxable Vanguard funds increased $1,623 over the same period.

The high point reached by all my scattered investment holdings (not counting real estate) occurred in April of 2008. As of about three days ago, the value of all my non-realty investments had dropped by $110,470 off that high. However, I used about $20,000 to pay off a small second mortgage on my home, and so the real difference in value is about –$90,470.

The low point occurred in March 2009. The most recent figures show a gain of about $49,145 from the low point. Again, we need to remember that I made that $20,000 withdrawal in May 2009, and that some of the gain consisted of contributions to the 403(b).

The total package of investments, then, has a ways to go before my illusory riches come back. I certainly don’t expect to regain the remaining $90,470 of the retirement savings that evaporated in the economic meltdown anytime during 2010, even if I succeed in leaving the funds untouched. Really, I’m pleased just to recover that $49,000.

What a ride we’ve had, eh? How are your investments doing? Are you seeing any sign of life yet?

Living within your means is good for the economy

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This Sunday’s New York Times Magazine ran a letter to the editor by Economics Professor John Lunn and Accountancy Assistant Professor Martha LaBarge, both of Hope College, Michigan. The letter comments on Paul Krugman’s article in the September 6, 2009 edition, “How Did Economists Get It So Wrong?”

In their letter, they note that historically, some “bubbles” never led to recessions, and they add this interesting remark:

The market system works well most of the time. Perhaps a key factor affecting whether a shock to the system or even “irrational exuberance” leads to a serious recession is the level of buffer stocks held by households and firms. When savings exist and debt levels are not inordinately high, the economy adjusts to a shock. But when debt levels are high and savings low, the bursting of bubbles in houses and equities can turn into a severe recession. (My emphasis)

How much more dead on target can you get?

This is exactly what I’ve been trying to say for lo! these many months: living within your means, refraining from purchasing objects and services that you don’t really need, and staying out of debt not only do not harm the economy, as steady long-term habits they actually benefit the economy.

A major contributing factor to the late (we hope), great deprecession was that far too many Americans took on far more debt than they could repay. Innocent of the potential consequences of the many questionable loans that were offered, people were led to pay more than properties were worth through loans whose ballooning payments they couldn’t hope to cover even if they had not lost their jobs. Not only that, but they were up to their schnozzes in credit-card debt and car loans.

Had the average man and woman on the street taken a more realistic view of their lifestyles, had they been spending no more than they earned, had they restricted borrowing to instruments whose terms and balances they could reasonably handle and to lenders that do not charge usurious rates, had they been setting aside adequate funds in savings, even the run-up and collapse in housing prices might not have pushed the economy into a recession as profound as the one we’ve been experiencing.

This brings me back to my basic thesis: Frugal living is not just the responsible thing to do. Frugal living is patriotic.

Image: Public Domain. Wikipedia Commons.