Every morning I wake up to the news on NPR, since that's how I've programmed my alarm clock. It's a rude awakening indeed, and more alarming than the "blat blat blat" sound of my other less alarming option. Next, I watch the 24/7 bad news channel on television as I eat breakfast. And before a serious case of indigestion has the chance to set in, I reach my office to plow through somewhere between 60 and 360 headlines from around the markets and around the world via Google Reader. And you guessed it... more bad news.
This gloom and doom bad news isn't designed to make you feel good. But good investing isn't about "feelings." It's about thinking, and acting (or not acting) appropriately.
The thing I've been thinking lately is that there's a great deal of news that's NOT being reported clearly, and that's what I've decided to call the "anti-news". So here's the news I hear, and the anti-news I perceive to be true as well.
- The News: We're in a recession, and it's going to be the great depression all over again.
- The Anti-News: We've been in a recession for at least a year now by my reckoning, and other than the fallout in the stock market, it looks nothing like the Great Depression. Back then, unemployment hit 25% (1933) and gross domestic product, the broadest measure of economic activity, plunged 13% (1932). This compares favorably with the 0.2% decline in GDP the Fed is forecasting for 2009.
During the Great Depression the money supply shrank by one-third from 1929-33, and the Fed didn't protect the banking system. Today Ben Bernanke and international monetary institutions are doing everything they can to support the banks, short of controlling them outright.
- The News: In October, the unemployment rate rose from 6.1 to 6.5 percent.
- The Anti-News: In October, the EMployment rate fell by a mere 0.4% from 93.9% to 93.5%.
That means that now 65 people are out of work for every 935 people who still have a job. Let me repeat that: the vast majority of people still have a job. And most people will still need to buy groceries, make mortgage payments, visit the doctor's office, and do all those other things that are part of the economy. And we still have an economy.
If you've followed the "news" that the big three automakers are on the ropes, we're being led to believe that car making will come to an end, and every employee in the industry will be without work, indefinitely. Undoubtedly some families will suffer greatly but others will re-train and re-join the workforce.
The news is not telling us that some industries are short of skilled labor, like the nursing field. Right now we have a chronic shortage of skilled nursing care (largely due to a bottleneck in the educational system). I've read stories (dating back to two years ago) where people downsized by the auto manufacturers have begun to be retrained to enter the nursing field. I wonder how far $25 billion would go in re-training these workers?
- The News: The market is down 50% at 7,500, the lowest it's been in five years. People are selling like crazy.
- The Anti-News: "The market" is not down 50%, just the stock market. The bond market is actually up 2% in the twelve months ended yesterday, and many investors (my clients included) hold some portion of their portfolio in bonds. With the Dow at 7,500, it's actually up more than four-fold compared to where it closed on October 19, 1987 near the bottom of the "crash" (at 1,738), and UP 182-fold compared to where it closed at the depths of the Great Depression (at 41).
Stocks are cheap by several measures, including their absolute prices. How cheap are they? Well, they're "half off," which means that every dollar you invest today buys you twice as much as it would have just a year ago. And people are buying stocks. in fact, they're buying exactly the same number of shares as are being sold (since every share that is sold *by* someone must be sold *to* someone else).
Stocks are also cheap when you look at them from the standpoint of the passive income they generate, or the "dividend yield". As of yesterday, the yield on the Vanguard S&P 500 Fund stood at 2.76%. If the index stopped going down today, and *never* went back up again, a person might double their money in 25 years based on the dividend payment alone. Now I know that 25 years is a long time to wait for a chunk of your retirement money to regain its value (and I doubt it will take nearly that long), but just imagine what the future looks like for all those people who sold their stocks yesterday to buy "safe" Treasury bonds yielding a mere 0.5%... In speaking with one client recently, I layed out this dividend math and she said, "well you'd get eaten alive by inflation." But would you really?
- The News: The consumer price index declined 1% this month.
- The Anti-News: Say what? You mean prices actually went DOWN? Yes, that's the case. Just three months ago fuel prices threatened a 70's style bout of "stagflation" and now we have actually experienced a touch of deflation. That means some things are actually getting cheaper. One of which is oil.
- The News: Oil prices are about $50-60 per barrel.
- The Anti-News: We're actually burning less oil now than back when prices were at $147/barrel, and we're driving fewer miles. This actually helps the environment while it gives our country time to figure out a solution to the energy crisis (hard to call something a crisis that we've known about since Carter was in office), and it reduces the power and influence of oil-producing nations that "don't like us very much" including Russia and the Middle East. And you can still pick up a gas guzzling Honda Pilot or Ford Explorer on the cheap.
- The News: Home prices are down, and going lower (since when did "news" include prognostication?).
- The Anti-News: Unless you plan to move to a nursing home in the very near term, this is nothing to fear. You have to live somewhere, and if you had to move today, you might lose value relative to the peak price of your home. But you'd also be back in the market for a house and you'd have a wide selection to choose from at low prices.Some clients I've spoken with recently are taking advantage of this phenomenon to buy land at low prices (since the speculators are unloading it) and build new homes using materials that are being sold at low prices. They plan to actually employ some out of work contractors, whose hourly rates have dropped precipitously.
- The News: We should have seen this coming. Joe Blow from Smarty Pants & Co. (a prestigious Wall Street forecasting firm) said, in 2006, that all hell would break loose and that things would go badly.
- The Anti-News: Anyone with a modicum of investment wisdom CAN see recessions on the horizon because we ALWAYS have had recessions and we always will. Recessions are a natural part of the economic cycle and nothing to fear. However, predicting the timing, depth and breadth of a recession is fool's work.
The pundits who are now saying, "I saw it all along" are the kind of people who always see bad news on the horizon because they see the future as glass-half-empty. They sit on the sidelines hoarding cash - or gold - hoping for "The Big One" to come along, seeing every downturn in the economy as the beginning of the end. We know that even a broken watch tells time accurately twice a day, and the Doom and Gloomers merely got it right for a change. Too bad they're missing the buying opportunity of a lifetime.
At the end of the day, after you turn off the news, the only thing that matters is what you did with your investments based on what you heard in the news. And the thing to do right now is make sure you're fully diversified, that the investments you hold now are right for you, and that you have someone to help you follow the anti-news and remember why you're investing in the first place.