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The Pollyannas Have Their Day (And Say)

“Don’t believe the mainstream media. now is the time to buy. we buy when others sell and sell one others want to buy. even with whats happening in the real estate market, right now is the time to buy real estate too. do it right and cash in big.”

-Comment left on Yahoo! Finance website

Despite a logjam of bad economic news lately, it seems the “Pollyannas” (referring to an overly-optimistic character from a children’s story of the same name) are running rampant on Wall Street and elsewhere. Emboldened by a Dow Jones Industrial Average that has risen 484.12 points since Wednesday’s opening, “don’t worry, be happy” is their war cry. Consider the following headlines and snippets from mainstream media outlets the past couple of days:

“Buy Now, Don’t Regret Later”
Yahoo! Finance, July 16

But perhaps we do have to be bold more often, and maybe even a little foolhardy when our gut tells us that this is important, or when we come across something alluring in our adventures. If something enchanting catches our eye — whether it’s a Ukrainian samovar or just a hat on your way to work — maybe it’s best to get caught up in the euphoria of the moment.

“This Real Estate Rout May Be Short-Lived”
SmartMoney, July 15

Noted market experts such as Pimco bond-fund manager Bill Gross and economist Mark Zandi of Moody’s Economy.com predict the meltdown in housing will continue for many months, with home prices declining by 10% or more from today’s depressed levels… Yet, such pessimism appears overdone, based on much recent data. Sales of existing homes are showing tentative signs of increasing, while the plunge in prices likely is nearing an end.

“Mean Street: Pollyannas of the World Unite! It Is Time to Buy”
Wall Street Journal’s Deal Journal, July 15

All this bad news can only mean one thing: It is time to buy.

Pollyannas of the World Unite! You have nothing to lose but your chains of media-induced panic.

Of course, there is no getting around the seriousness of the situation, given runaway oil prices and the sorry state of the nation’s financial sector. But take a few minutes and peer through the fog of Breaking News flashes scrolling across CNBC every 30 seconds.

Consider these big flashes: A major restructuring at General Motors. Is this news? GM has been lumbering from one restructuring to another for the past three decades.

George Soros and Jim Rogers predict an end of the world as we know it…yet again. Can anyone recall when either was bullish about the U.S. economy?

Wall Street analysts fall over themselves to downgrade financial stocks. Remember the Goldman Sachs reversal of its bullish call on financials a few weeks back? It is pure herd behavior. Good luck finding analysts who like a financial stock at any price.

A bearish Wall Street is swept by powerful ill-winds. But remember the line from the movie Pollyanna, “When you look for the bad in mankind expecting to find it, you surely will.”

And truer words describing the mindset of a bear market have rarely been spoken.

By the way, does anyone know what becomes of overly-optimistic Pollyanna in the children’s story? She gets crippled in an accident.

Sorry to blow the ending for you…

“I’ve never replied to nonsense like this before but I could’t resist there is no way that this minor blip even compares by the numbers I would bet in ten years we won’t even remember the “housing bubble” I think that the time back in 2001 to 03 was worse, give me a break. f@#% the critics. The U.S. economy is still the greatest on Earth. Think about it.”

-Comment left on Yahoo! Finance website

Sources:

“Buy Now, Don’t Regret Later”
George Anders
Yahoo! Finance, July 16, 2008

“This Real Estate Rout May Be Short-Lived”
Jonathan R. Laing
SmartMoney, July 15

“Mean Street: Pollyannas of the World Unite! It Is Time to Buy”
Evan Newmark
Wall Street Journal, July 15, 2008

Consumers Buying What They Need, Not What They Want

This afternoon I read an interesting article by the Associated Press’ Jeannine Aversa about consumer spending at a time when the U.S. economy is slowing and prices for items such as food and gas are rising. According to a recent government report on retail sales, clothing stores, furniture and home furnishing retailers, electronics and appliance stores, building materials and garden supply places, and health and beauty shops were among those merchants who saw their sales drop last month. Sales at bars and restaurants posted a modest increase from the previous month, as did sporting goods, hobby, book and music stores.

Aversa noted how consumers are changing their spending habits:

• 60% of the American public say they are now less comfortable buying a big-ticket item, such as a home or a car, than they were just 6 months ago, according to the RBC Cash poll conducted by Ipsos, an international polling firm, earlier this month. 12 months ago, 48% said they were less comfortable about making a major purchase.
• 53.6% of people surveyed focused more on what they needed, rather than what they wanted, when they went shopping over the last 6 months, according to BIGresearch, a firm that tracks consumer behavior. Pam Goodfellow, a senior analyst at BIGresearch, says the focus is more on smart shopping and bargain hunting.
• Because declining home prices and rising prices at the pump cannot be controlled, consumers are “controlling the little things… filling up the cart and putting things back at the check out,” said Candace Corlett, principal at consulting firm WSL Strategic Retail. She warned, “They are learning restraint and that is deadly for commerce.” Although, most Americans aren’t giving up things like medications, cell phones, and cable TV.

Photo by Ruth Elkin, stock.xchng

The research firms pointed out specific areas that were suffering from the pullback in consumer spending. 35.2% of people polled were scaling back vacation plans, according to BIGresearch. WSL Strategic Retail said fashion accessories, home decor items, premium brands of food and specialty coffees, eating at restaurants and take-out foods, and tickets to entertainment, are the top areas where consumers are cutting back.

Marshal Cohen, chief retail analyst at consumer and retail research firm NPD Group said video games, toys, and skin care products are the three areas he believes are least likely to see spending cuts.

Source:

“People’s decisions to cut back add up to weaker economy”
Jeannine Aversa
Associated Press, April 25, 2008

Economists Predict 6% Jobless Rate, 2 Million Lost Jobs

Earlier today I read an interesting article that discussed the U.S. employment outlook and which jobs may or may not be good bets in a deteriorating economy. Martin Crutsinger of the Associated Press wrote:

While the downturn is expected to be short and mild, economists are still forecasting the unemployment rate, which jumped to 5.1 percent in March, will climb much higher before the nation’s job engine sputters back to life.

Economists are forecasting a jobless rate that will peak at around 6 percent, but probably not until early next year, several months after the recession is expected to end. Analysts said as many as 2 million people could lose their jobs in the current downturn.

Mark Zandi, chief economist at Moody’s Economy.com, said:

All the indicators suggest that we will see even larger job declines in coming months. Businesses are getting nervous and pulling back.

“Safe” Jobs:

• Healthcare
• Education
• Farming
• Some manufacturing (airplanes, heavy machinery)
• Government

“Unsafe” Jobs:

• Other manufacturing (automakers, housing-related like appliances, furniture)
• Construction
• Housing-related industries (real estate agents, mortgage brokers)
• Wall Street firms
• Discretionary services (tourism-related)

Source:

“Job winners and losers in hard times”
Martin Crutsinger
Associated Press, April 7, 2008