By Martin Brown
In recent months I have become known as Mr. Optimist when it comes to the economy, and I suppose with good reason. What can I say? I’m a “glass is half full kind of guy.” After all, recessions are not that unusual. On average they come around every five to seven years. No bull market lasts forever. At some point the bears are bound to return and stocks are certain to fall. But this type of market is full of discounts bargains and recession bargains.
This particular downturn is starting to go beyond the ordinary economic contraction, in other words a recession, possibly passing a deep recession as well. When that happens the next stop is the “D” word.
You guessed it, depression.
And while I continue to believe that is unlikely, it’s certainly true that there are some ominous signs, the darkest of which are: the rapidly growing unemployment numbers, the stock markets steady trend downward, and now the most dramatic drop in the consumer price index, one full percentage point in a single month, which has not happened since the index began in 1947.
Granted much of that was driven by a 14% fall off in energy prices, but retail sales have fallen off the cliff, as consumers have dramatically cut spending in the face of uncertain financial conditions.
The fear is that we might be facing a deflationary cycle and that’s an unsettling prospect from which the silver lining is that the Federal Reserve can stop worrying about inflation and focus fully on aggressively re-inflating the US economy.
The bottom line for the SMW consumer, investor, or both, is that we’re seeing some bargains that we have not seen in a very long time. Here are a few you may consider:
1. Google, the stock.
For example, on Friday, November 21st, it closed at $262 a share. One year ago a single share of Google sold for $725. And compared to the performance of other big corporate names that’s quite good.
Take for example one of the previous stars of the financial sector: Citigroup, it closed under four dollars, last year it was over $35 per share. General Motors at three dollars a share is worth exactly ten percent of its value of one year ago. The obvious question now, is this a good time to buy? Perhaps. It might be the bargain of the century. Some one in 2080 might say “Can you believe my grandmother bought stock in General Motors at $3 and today it’s worth over $900 a share.” Or they might say, “My poor grandmother, she put her money into GM thinking the government was going to bail them out, they didn’t and she lost a bundle.”
That’s the scary part of deflation: it’s very hard to say when you’ve hit bottom. At least as it pertains to GM and Citigroup we know the bottom: that’s zero.
And that’s just three or four dollars away from where they are today.
For consumers, the choice is clearer. When you want something and you see a really good price, go for it.
And this holiday season, and in the winter months coming up just behind it, we are sure to see a bumper crop of great prices as retailers try desperately to keep their ship afloat with one sale on top of another.
Speaking of keeping the ship afloat, pun intended, any article about bargains would not be complete without a mention of—
2. The cruise industry.
If you ever wanted to take a seven-day cruise for $350, your time has come. There are lots of cruise lines offering jaw-dropping bargains so find one now online. And while we’re on the subject of travel, check out hotel rooms in some of America’s priciest markets. From New York to LA, it’s time to book a room at rates not seen since the travel market freeze in the months following 9/11.
Of course all this talk of bargains begs the question, should you go for it or lock up the credit cards?
I think that depends on the best reading you can take of your own immediate future. If you’re working in the financial sector, not at a solid Wells Fargo, but a very shaky Citigroup for example, hold tight. No matter how tempting those bargains are, you may want to hold onto any money you can at this point.
But if on the other hand, you’re working in the healthcare field, say, as a radiation technologist, chances are you’re job is just fine. Shop for bargains and enjoy that cruise. Healthcare jobs don’t, as a general rule, rise and fall with the economy.
We only know the top of a market or the bottom of a bad slump when it is in our collective rearview mirror. My guess is that some of these deep discounts won’t be quite so deep in another couple of years. As for that GM stock, take a risk and buy a hundred shares. Don’t you want your grandchildren to say you were a visionary?
That’s what I’m going to do. I’m always going to bet on tomorrow.
If it was good enough for Lil’ Orphan Annie, it’s good enough for me.
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