The Economy Is Back, Baby!

MansionBack in July of 2010, I wrote a post entitled, “Am I Living In A Parallel Universe?” discussing the disconnect between the robustness on the ground in San Francisco and the incredibly negative mood by the mass media.  Even my online friends were making fun of my bullishness.  You guys know who you are!

Hopefully you guys not only increased your asset allocation towards equities, you also took advantage of the amazingly bubbliscious bond market and refinanced your debt.

At the end of 2010, Twitter was valued at some $3 billion bucks.  Prince Alwaleed’s 3% stake for $300 million in December of 2011 now values the company at some $9-10 billion!  The same thing has happened for Facebook, now valued at some $100 billion.  There is so much liquidity out there it’s absolutely ridiculous how much new wealth is being created.  Look at more representative companies of the economy, such as McDonald’s and IBM.  Both stocks are near record highs.

Let’s discuss some reasons why people continuously are slow to recognize change.  We’ll also discuss how you can improve your sense of reality by being more honest with yourself.

WHAT’S WRONG WITH PEOPLE

* We are delusional. Delusion is the root of many problems.  You are a C-student but you think you deserve an “A” lifestyle so you spend more than you have and get yourself in trouble.  The perfect metaphor is that you believe you can fly, so you jump off a building and die.  Back in the summer of 2010, you didn’t believe the economy was recovering because your mind selectively chose to highlight all the suffering in the world, even though you yourself were fine!  People love to point out that everyone else is suffering but themselves.  You know that’s just stupid because if you’re fine, and you represent everybody else, then of course everyone is fine.

* We are dumb. Let’s face it, we all think we are smarter than we really are, but the fact of the matter is, many of us are just dumb.  There are actually people out there that think that grades don’t matter.  Seriously, that’s just stupid if you think grades aren’t one of many indicators people look at to select the best people possible to partner up with.  When traffic is horrendous, you can’t get a reservation at your favorite restaurant until 10pm, your friends are all getting jobs, and the stock markets are marching higher due to better earnings and a re-rating, and you still think the economy isn’t doing well, then you are dumb.

* It’s hard to let go. Change is stressful and we hold on for longer than we should.  Money losing stocks are a great example.  The stock is down 10%, and we believe it’ll recover.  The stock is now down 30%, and we continue to hold on until the stock is down 50%.  We finally sell, and the stock goes up.  We are so stubborn and so slow when it comes to change, that we end up missing out on opportunities.  When we feel hurt, we want other people to hurt too, so we can feel better about ourselves.

* We are as blind as dingbats. There are certain people or organizations out there that are just no-brainers to latch onto.  In “Riding Rocketships For Greater Success“, I talk about how everyone should identify who is the rocket ship in their midst and hop aboard.  If you are not constantly surveying your community to identify who is the one with great potential, you are just missing out.  You need to build those relationships with those rocket ships, leverage off what they are doing, and create your own success as well.

HOW TO IMPROVE

* Be honest with yourself. The first thing to do is to conduct a thorough self-assessment of ones attributes to reduce the amount of disillusionment.  I can’t surf, which means I will never be a cool surfer dude with nice deltoids and back muscles that can pick up beach babes.  I can’t control myself around cheeseburgers and butter cookies, which means I will never have washboard abs or be a male model.  I have trouble hitting a top spin backhand, which means I will never be a truly elite tennis player.  Damn, I’m depressed now!  But, that’s OK, it’s better to be realistic than delusional.

* Recognize that many people are smarter, more attractive, and harder working than you. She will also get the better assignments and get more attention because she’s not only speaks three languages fluently, she’s just that much hotter than you.  He will always have more money than you because he started his business years earlier.  Once you recognize that you aren’t hot sh*t, you are better able to recognize reality.

* Once you recognize reality, systematically work on improving those things you care about.  You can’t be everything to everyone, but you can be great at a focused list of things.  The goal is to figure out what’s important to you and focus like a mad person to get there.

CONCLUSION

2012 is going to be a better year than 2011.  You just have to open your eyes to see that things are improving.  Credit card use is on fire again.  Car sales are at a record high.  Unemployment rate has dipped to 8.6%.  Interest rates are at record lows.  Consumers are cashed up and spending.  Meanwhile, every single bad thing is known, barring another terrorist attack.

With political false promises as a final buttressing point, how can the economy not be back?

Readers, do you feel the economy is alive and kicking again?  Why do you think people in the summer of 2010 refuse to acknowledge the economy was improving?  Share with us some of your positive and negative anecdotes.

Photo: Future 28 year old Facebook engineer’s Pacific Heights Mansion, 2011, SD.

Regards,

Sam

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Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. HMI says

    Nailed it! The one thing I would add is a lot of people love to be negative. Doom and gloomers, like to be doomy and gloomy. The economy is improving, I suppose it’s tough if you’re still unemployed to admit that. It’s hard to admit failure without a scape goat.

    Cheers,
    Dan

    • TekGems says

      Its hard to generalize because “economy” is too large of a word and what really matters to people is the industry they are in. Why don’t you tell a construction worker that he is using the economy as a scape goat. I had a friend who was bragging the economy was great because he just got a high paying job ($100k+). Three months later he got layed off and hasn’t found a job since. All of the sudden, the economy sucks. Regardless of how you are doing or what your opinions are, there are those that are suffering… I’m glad if you are working, but I also suggest being humble about your surroundings as you don’t know the situation of the people in public you face.

      • Financial Samurai says

        The fact of the matter is, even in the most robust economy, there are people suffering. And even in the most dire economy, there are those who are making fortunes.

        What we need to focus on is ourselves. How are YOU doing TekGems?

        • TekGems says

          Yes, yes, what you say is all very true. Regardless of stock prices and jobs your friends may have, the macroeconomic statistics state what the unemployment rate is (http://www.bls.gov/cps/ 8.5% as of Dec 2011). That is a big concern for everyone regardless of your job status. I don’t think its fair to portray people that are realistic as doom-and-gloomers. Maybe we just have more compassion for our fellow man…

          Personally, I had to get a second job because I couldn’t make ends meet with the first job. Never had to do that ever in my entire life, but I do what I need to do to support myself and those around me.

      • Dan says

        Agreed, the economy is a large general word. If the field you work in is becoming obsolete or slow, it’s time to pivot and develop other skills in an industry that isn’t as cyclical. As for the construction worker, construction isn’t slow everywhere it’s picking up in Alberta. Maybe it’s time to move?

        I know these options are easier said than done, and I do have empathy for those struggling. The point I was making is the economy always “sucks” for somebody. In general, it seems to be improving.

      • The Prudent Homemaker says

        I agree with TekGems. I live in Las Vegas. 1 in 17 houses is in foreclosure. We have the highest unemployment rate in the nation right now–more than double the national amount.

        Sure, “only” 25% of the people in the U.S. were unemployed during the Great Depression, but that didn’t mean that the Depression was over. I think the same thing holds true now. A large amount of the population is still struggling. We are not at a “normal” unemployment rate of 5% or less yet.

        It would be great if 2012 turns out to be better than 2011 for us, but so far, I don’t see that happening. We aren’t making enough to pay our mortgage this year, or meet our other needs.

        In 2007, we went 8 months with no income. We had income after that, but we’ve had serious income cuts since then, with each year being worse than the previous year. We are currently making 70% less than we made in 2006 (over $90,000 less).

        I hope this year gets better, and soon, before I lose my house.

        • Financial Samurai says

          Hi There,

          I hope you don’t lose your house either! Maybe you can live there for free and get government assistance? Seems like thousands of people have been able to do that over the years.

          Wondering though, as 2007 was a spectacular bull market…. if you went for 8 months with no income in the best year in a decade, perhaps you guys should think about doing something else?

  2. Untemplater says

    I love the headings you used throughout this post. Your posts always make me laugh and think at the same time. Change is hard and I admit I have a hard time with it a lot of times. I think the economy is picking up. Sure there are people out there that are having a tough time, but unfortunately there will always be cases like that even in the very best of times. Summer of 2010 sounds so long ago. I don’t think I thought we were doomed back them but I was still being cautious with my spending and cutting back on costs.
    It made me realize I had a lot of things I didn’t need which turned out to be a great thing!

  3. Jeff @ Sustainable Life Blog says

    I think the economy is back for some people – but probably like I said in 2010 – not for everyone. There’s still massive hurt out there for those lower skilled workers, but I dont think someone with my skill set would have a problem finding a job – here in WY or somewhere else. My spending has picked up a bit, but that’s mostly due to a wedding and buying things that I probably wouldnt have bought for a few years.

      • Jeff @ Sustainable Life Blog says

        I’ll happily scout sweet locations for a conference in wyoming, or even a yakezie meet up – there isnt really many major airports around though, so flying in can be expensive (and i’m one of 3 bloggers that I know about in the state (one does food, other self reliance)

  4. PKamp3 says

    Judging from the traffic in the Bay Area? The bull is back, even if it’s just a baby. Try making it to SFO during rush hour – my sister was flying into SFO the other day and was delayed until 6:30. It was a horrendous drive, which can only be a good sign!

    I hope you took a look at that Dice study I sent you (the WSJ article) – the average engineering income is now in the 6-figures. Let the good times roll!

    • Financial Samurai says

      I just found something disheartening. I played tennis with a 31-32 year old guy who is interviewing at Google, and he said they are offering him only around $125,000 base, plus bonuses…. might come out to $200,000… but this is a far crew from the 28 yo $450,000 applicant I had for my rental.

      He said his friend makes $150-$200K at Google as well. Good, but not ridiculous. Thoughts?

      • PKamp3 says

        $450,000 is VP level income. On the technical track, it’s theoretically possible, but only a very few percentage of engineers will make it. Did you catch his title? “Principal Engineer” or “Fellow”, perhaps?

        He’s definitely an outlier… the number I’ve seen tossed around for high tech workers is ~ $144k all in (2008). Maybe that number is around $150k now, but $450k is a huge number by any stretch of the imagination.

        Your friends make a good amount – don’t forget that they are the top 5% of the whole nation. I think at 31-32 they are either engineers or senior engineers at this point – correct me if I’m wrong.

        • Financial Samurai says

          My tennis buddy is a software engineer.

          Do you want the typical option package compensation structure is and how much? Can one get rich this way?

          Didn’t catch what the rental apps title was. Perhaps he was including all his accumulated stock. Now I wonder and am really thankful I rejected his application!

  5. Money Reasons says

    My problem is I hold onto stocks too long… They climb and I keep thinking they have steam left in them when they don’t.

    There is a business cycle, and hopefully we are back on it. I’m glad to see the housing market come back. I’m thinking about becoming a financial partner with a guy that buys real estate… Not sure how that will go.

    I agree though, I think (barring a terrorist attack) we are looking good lately! Plus, January was positive, and usually (what is it 90% of the time) when January is positive, the rest of the year is positive!

  6. Newlyweds on a Budget says

    I don’t think the economy is kicking again and I certainly don’t think it will go back to pre-2009. I think we’re doing BETTER than 2009, but still a ways to go. I hope people will learn from this and learn to save money and prepare better for financial times–and I also hope that people will think seriously about a 6-9 month emergency fund!

  7. Dollar Disciple says

    I definitely think the media perpetuates the situation since bad news sells more advertising than good news.

    Also, while I think it’s good to be realistic about ourselves, I also think that it’s possible for people to change! Saying “I’ll never have washboard abs” is a really self-limiting belief. Anyone can have washboard abs, as long as they want kickin’ abs more than they want that extra slice of pizza.

  8. Glen Craig says

    The economy has been changing and it’s been catching up to us. We aren’t the manufacturing country we once were. We’re now service and internet strong. But many still look to those manufacturing days as a measure of our economic health.

    For many, the economy is floundering. But there are so many examples of people and companies out there that are booming and growing.

    I’m feeling bullish too. You have companies like Apple and Starbucks that sell premium (read: expensive) products and they are pulling in incredible numbers.

  9. Aloysa says

    I also believe that 2012 will be a much better year. I think economy is definitely doing better. I don’t know if we go back to pre-2009 level. Not in 2012. Not in the real estate market. But we are on the right path. Maybe I am just too optimistic. But I do have a good feeling about it (I am not delusional lol).

  10. Kris says

    I think it will be a better year and that the economy is doing better – the problem I always see is the politicians *causing* economic problems like they did a few months ago – creating the problem with our credit rating. They do it for their own personal and political gains, and the media follows that. If we ignored politicians and ignored the media, I think that people would see that things are definitely improving.

  11. krantcents says

    There is a syndrome for this phenoeinon! If the economy is not helping you with raises and bonuses, it sucks. There is a saying that if my neighbor loses theri job, it is a recession. If I lose my job, it is a depression. Itis all about the individual! We are self centered in this respect. That is why it takes a lot to increase positive consumer sentiment and just alittle to decrease it.

  12. AverageJoe says

    I think lots of people are slow to recognize and grasp changing times because they harbor the Who Moved My Cheese? mentality. They’re more worried about bitch’ about the cheese being gone than they are about going out and finding a new/better/funner/wilder way to live.

  13. retirebyforty says

    The market is on fire. I’m afraid to put new money in. Will it pull back a bit so I can add investment or should I just go ahead and buy? Who knows. I have a pretty good feeling about the economy so I probably will just keep dollar cost averaging in.

  14. Matt says

    I am one of those eternal optimists who doesn’t care about what “the economy” is doing. I understand and recognize that certain factors and numbers used to measure the economy were down, but like you pointed out, my perception was skewed because I wasn’t affected. I also group myself in the “personal responsibility” crowd. I am responsible for my economy and you are responsible for yours. The economy as a whole has very little effect on personal economics, unless you let it.

    • HMI says

      Well said Matt. In the downturn a friend of mine increased his revenues by 25% in a market that should’ve been getting hammered (house painting). People are out there succeeding in every industry.

  15. yourPFpro says

    I find it hard to believe the economy is suffering right now. When I go to the mall on a Saturday night and I see 60 people waiting in line for Cheesecake factory, I know this must be false. If the economy was truly in dire straits like the media often reports, there wouldn’t be a 30 minute wait for overpriced crap. People wouldn’t be throwing around money like there’s no tomorrow every time I go to Vegas. The economy is just fine, it’s just not very newsworthy to report this.

  16. Shilpan says

    Sam,

    People were pessimistic back in summer of 2010 because people are sheep. We are all brainwashed by the media and, unfortunately, was majority of people think that world is ending just because pundits keep repeating same ole crap over and over in media. That’s why I don’t have cable anymore. :)

  17. Nathan says

    I think the biggest contributor to bearishness is LOCAL NEWS.
    It’s gotten to the point where people feel vindicated for their own financial missteps if they see that “things are still terrible.” Those who missed out on the 100% rally because they didn’t let go of their fears in time, want another correction in the markets.

    I think trade volumes and the US market are going to start picking up as more and more people gradually accept that the Fed has told us YOU WILL lose money if you just sit on cash over the next 2 years and companies are telling us that economic headwinds are subsiding.

    • Financial Samurai says

      Agreed Nathan.

      It will be interesting to see the herd asset allocate out of money markets into real estate and stocks. I can’t wait actually, as that will be good for the job market and consumer confidence.

  18. traineeinvestor says

    Blame the media – pessimism sells better, especially when there is a minority group of (sometimes) comparatively better off people to put the knife into – and the politicians who encouraged entitlement mentality to become so ingrained in our society – it’s much easier to moan and complain and demand that someone else pay (more) than to get off your butt and make it work for yourself.

    Sometimes I think the US should amend the constitution to guarantee freedom from the press rather than freedom of the press.

    If the economy was as bad as some people claim, you’d be having hunger riots on the streets instead of seeing crowds pushing and shoving to buy the latest Apply gizmo.

    • Financial Samurai says

      “Sometimes I think the US should amend the constitution to guarantee freedom from the press rather than freedom of the press.” Got to agree. The mass media annoys me. It’s like they CAN’T think for themselves!

      This is one of the main reasons why I write/blog. To speak the truth and challenge the mass media!

  19. BK says

    Sam,
    As always, I appreciate your candor, intelligence, insightfulness, and optimism. I think you are better situated than most, both financially and intellectually, so it contributes to your optimism, but I do also think you work hard, which also contributes to your success.
    I was recently forwarded a newsletter that I felt was insightfully written and factually accurate that I would value your opinion on. I agree with the perspective presented on the merits (which is quite dire on its outlook), but felt that if you could remain optimistic in spite of it, that your optimism would be persuasive. I am not sure if I am allowed to reference another newsletter in your blog, so let me know if it is not permitted. Here is the link for the article:
    http://www.stansberryresearch.com/pub/reports/201112PSI_issue.html
    Your thoughts and opinion would be deeply appreciated.

    • Financial Samurai says

      I couldn’t get through it. The newsletter was way too long.

      Yes, government is corrupt. So, I am constantly perplexed why people want to vote for raising taxes and voting for bigger government.

  20. Mike Hunt says

    It’s interesting to see the USA doing so well while things are slowing down in Europe so much. From the 2008 downturn I had thought we were all connected so why the decoupling now?

    Mike

  21. Lisa @ Cents To Save says

    I think positive change is coming for many. Here is Central Florida, the job market is easing up a bit and that is always a good sign. Will wages improve? Probably not in my particular career choice. That market is flooded by graduates from the influx of for profit schools in this area. But, the employers know the reputations of these schools and that will help them decide on a candidate.

      • JT says

        I really just thought it was a joke. GE being rather politically connected to your man Obama and all.

        MCD’s up because of longer store hours and poorer consumers. IBM climbed Buffett mountain. You cherry-picked those. Either way, market’s up, which is cool, I guess. Also, I’m delusional, dumb, and unable to let go. Sounds like a good horoscope!

        My interpretation of the article: it doesn’t matter what you think, but what other people think. Valuable life lesson right there.

        • Financial Samurai says

          BINGO! It doesn’t matter what you think. What matters is reality. And the reality is, other people are feeling bullish, which is why the economy is bouncing back.

          The great thing though is that we have the power to stop being delusional, stop being dumb, and force ourselves to let go. If we don’t, we might go broke!

  22. Miss T @ Prairie Eco-Thrifter says

    I actually think we are headed for another financial crisis and recession. Where I live and from what I see, many people haven’t learned their lesson. They are blind like dingbats. They are still spending more than they have and aren’t worrying about it. I guess the first round didn’t hit them hard enough?!

    • Financial Samurai says

      Really?? Perhaps they saved and invested very well and that’s why they are spending more money! They are bullish about their career!

      I do believe people have much more money than we know.

    • MacroCheese says

      I agree completely with Miss T.

      This is a momentary blip as the systemic issues that plague the world, and the US, have not been resolved.

      The Fed, along with the current administration, will certainly not let anything bad happen before the election so they will keep the ship afloat as long as possible. We STILL have not crashed like we needed to after 2008.

      Samurai – Never use SF/Bay Area as your frame of reference for the economy. Ever. Just like the NYC real estate market is in NO way representative of the real estate market as a whole.

      • Financial Samurai says

        And what area do you hail from? Do 700 million people in the world not use Facebook?

        How can I talk about another area, when I just live in this area?

        If my area is booming, why wouldn’t everybody in the world want to move here and boom as well? Planes, trains, automobiles get people here quick!

  23. John | Married (with Debt) says

    I think the indicators of a rebounding economy are indicators of more spending on credit and a shift back to living above our means.

    It’s a shame that for many smart people to make money, a lot of dumb people have to do dumb and dangerous things.

    I don’t think the Euro crisis is behind us. If you think Lehman Bros was bad, wait until an entire nation like Greece or Italy says “Fuck you” to their creditors.

    Optimism, however, will be a major factor in recovery and reassuring consumers who do have money to get back out there.

    Another thought provoking post, Sam!

    • Financial Samurai says

      I donno John. I don’t believe people can consistently spend money they don’t have.

      I really do think people are bullish about their prospects and income, and are therefore spending.

      I’m saying this as a guy who is very disappointed with their 2011 compensation.

  24. My University Money says

    Socrates said, “The more you know, the more you realize you know nothing.” Perhaps you are at this stage of enlightenment now Sam. I think you could add that we are often gullible to your list. It seems like we will believe whatever the latest “news” is and the markets react accordingly. Of course all this does is pass on any small profits you’ve managed to make to the hedge fund managers that love this irrational (and exploitable) volatility.

  25. MoneySmartGuides says

    I’d like to think the economy is back. From Christmas until now, all the stores and restaurants I’ve been to have been packed. Either people are getting jobs and spending now, or they are going into more credit card debt. I’d like to think that they are getting jobs, but who knows.

    I also think the media either plays the ‘doom & gloom’ card or the ‘irrational exuberance’ card. The economy could be back, but they are stuck preaching the doom & gloom. Next thing you know, you’ll turn on the news and it will be breaking news “the economy is back!!”

  26. JP @ Novel Investor says

    I’m not sure if the economy is alive and kicking but it’s definitely waking up. Once I see 2 consecutive quarters of continued GDP growth, lower unemployment, and improved housing sales watch out. The jobless rate out this morning was a small step forward.

    As many have said the media tends to focus on the negative especially when times are good or improving. Many people are starting to question the media’s illusion and spend.

  27. Winston Smith says

    Great analysis: I know a guy with a good job and the Cheesecake Factory has a line.

    Please explain how California won’t go bankrupt.

  28. Kay Lynn @ Bucksome Boomer says

    I was on the bandwagon with you last year that the economy was better. Maybe it was just in California, but the freeways have been busy and businesses packed for over a year.

    Finally, people are going to have to believe following last week’s employment numbers!

  29. G$ says

    I’m not quite as optimistic as you but as someone with several interests in startups including Twitter I hope you are right!

  30. Jason says

    I agree with you that the economy is on the up-swing. I work with many companies and most that I see today have shifted from survival thinking to growth thinking, and that is good for all of us.

    With that said, I think recovery will be slower than with prior recessions. The whole recapitalization process (of everything – banks, companies, real estate, and families) takes time to work through.

  31. harp 2.0 says

    Yes that’s true that the that people are “smarter” with their money now since the housing bubble burst, but is it really smarter or is there simply less consumer confidence. One of the main reason why the great depression was as bad as it was, besides the banks not being insured, was the hysteria that caused a ridiculous trough in consumer confidence.

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