Ramsey Reflections, Part 5

Continuing reflections on Dave Ramsey's Town Hall for Hope...

Takeaway #6: Three Things to Do If You're Losing Hope

1 - Get up! Take action! Get moving!

Don't wait for Congress or the President to rescue you. There's a great place for you to go when you're broke: to work! If you don't have a job, talk to everyone. Think creatively, be proactive.

2 - Don't participate in loser talk!

One survey found that your income will likely be within 10% of your closest friends. Some have "The Spirit of Eeyore" upon them, because they sit around moping with their loser friends.

Read "Who Moved My Cheese?" Our cheese has been moved. We've got to start thinking different. Be a reader. Keep learning.

3 - Learn to Give Again

Give extra during difficult times. If you don't have money, give of your time. Serve the homeless, serve soup at the union mission. Visit someone in a nursing home. The more you give hope, the more hope you'll receive.

Thanks, Dave, for an inspirational, fun-filled, hope-filled evening!

This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.

Ramsey Reflections, Part 4

Continuing reflections on Dave Ramsey's Town Hall for Hope...

Takeaway #5: Don't Fear

Your faith in God should keep you from fear. If a spirit of fear pervades our lives, we're paying too much attention to the news and not enough attention to our heavenly Father. Dave's wife reminded him of this one day in New York, when Dave allowed the depressing talk of others to get him down.

But faith and work must be kept in balance. As someone said, "Trust as if it all depends upon God; work as if it all depends upon you."

Once upon a time, a person came to visit a beautiful ranch and commented to the owner, "How blessed you are that God has given you this wonderful ranch." To which the owner replied, "Truly, I'm blessed. But you should have seen it when only God had it."

Some of the greatest companies began during recessions or depressions. Dave listed several, including Hobby Lobby and Microsoft, encouraging us to keep working and innovating. Don't be immobilized with fear!

This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.

Ramsey Reflections, Part 1

Last night I attended Dave Ramsey's Town Hall for Hope. I figured that since some people are looking to me as some kind of money expert, I should be up on an event of this magnitude.

What's the occasion? Why would Ramsey go to all the trouble to do a free telecast and do enough advertising to attract over 1,000,000 people to personally attend at the 6,000 locations? He wasn't announcing a new product. He wasn't running for office. He seemed to just have a passion to do all in his power to snap America out of despondency over the economy. Over the next several blogs, I'll try to summarize my main reflections and takeaways.

Takeaway #1: Don't Allow Bad News to Immobilize You!

Bad news travels through a lightning fast T2 line; good news through snail mail. I've noticed that, even during good times, the news is quick to print how many jobs were lost in any given month, but fail to report that the new jobs created during that month more than made up for the losses. Bad news sells. As a result, everyone is soaking up reports of dismal job markets, retirement funds disappearing, businesses going under. Ramsey example: the stock market went up 20% in recent weeks. How many saw that in the headlines?

Ramsey's fear is that many are immobilized by bad news. So you lose your job or your hours are cut back. Rather than learning new skills to start a new job or beating the bushes to see who's hiring, you sit at home, watch Oprah, and complain to your friends about the dismal market.

The Ramsey remedy? Choose Tigger over Eeyore. Be an optimist instead of a pessimist. Be proactive rather than reactive. If you've just been thrown off a cliff, you've got a choice: either allow your body to bounce along the cliff, or spread your wings and fly. Perhaps you've been thrown out of the nest for a reason. Don't despair! Move on to the next thing.

(More Next Blog)

This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.

On Predicting the Economy

To make business plans or retirement plans or even plan for a summer vacation, we'd like to take into account the future of the economy. If things are to get worse, we need to go conservative. If they'll pick up in six months, we'd like to start paddling out into the surf so that we're ready to catch the next wave of growth and prosperity.

Since we're not economic experts, we rely on the opinions of those who spend their days researching the economy, interviewing people on the economy, and helping to set government policy concerning the economy. That's probably why CNBC has record ratings during this economic crisis. We crave expert advice.

Which brings up an important point: can the experts be trusted when they make pronouncements like, "The next six months will be rough, but I see us getting back to steady, albeit slow growth in the last half of the year."?

Unfortunately, I don't believe there's adequate evidence that the experts can predict the future of the economy. Here's why...

1) Governmental figures and most heads of companies have every reason to bias their reports toward the positive. This is shown on a smaller scale by how CEO's of failing companies keep giving hope to their employees and stockholders, even when all the facts in their grasp tell them that the company will fold completely in six months. If they were to admit that the company's failing, stockholders would immediately sell all their shares and employees would bail for other jobs.

Aren't government officials in the same position? If they felt the evidence led them to think we were headed for a depression that history would label "The Greater Depression," they couldn't speak out about it, lest everyone lose confidence in the economy and sell off all their stocks, thus ushering in an even worse recession.

2) Studies show that experts do a poor job of predicting the economy. Professor Philip Tetlock teaches at the University of California-Berkeley. He's an expert on top experts. For about 19 years (culminating in 2003), he studied 300 academics, economists, policymakers and journalists, to find out how they made their economic forecasts and chart how often they were right. According to Tetlock, "we found that our experts' predictions barely beat random guesses - the statistical equivalent of a dart-throwing chimp.... Ironically the more famous the expert, the less accurate his or her predictions tended to be."(1) Thus, odds are, that expert you heard forecasting the economy on the evening news, if you were to chart his past predictions, would probably have been wrong as often as he was right.

My guess as to their inability to conjure up an accurate picture of our economic future is that, in order to predict it, they'd have know many facts that nobody can possibly know. For example:

• If our economy did better after government intervention following the last depression, how can we know for certain that the government intervention was the cause of the recovery.
• Since no two economies are ever identical (in a sense, a visit to the past is a visit to a foreign country), how can we know that what worked then will work now?
  
• The world's economies are more entertwined than ever before. How can we know what may happen in another country to either delay or speed our recovery?
  

Those are just three of the difficulties that I see springing up from a veritable Pandora's Box of economic possibilities.

So what do I do in the present economic climate? Despair?

No, I simply do what everyone should have been doing when most economists were predicting more cheery economic futures - don't believe them. Nobody knows. Realize that at any time, things could turn around and we'd be off to a prosperous decade, so that whoever bought up the cheap stocks would look brilliant in retrospect. Alternately realize that at any time, the economy could go to hell and we'll see a repeat of the Great Depression. Then again, things may continue as they are now for some time, neither getting better nor worse.

As author Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."

In other words, we don't know the future. Once we accept that, we can go about our plans with that in mind. That's why we major on the basics that work in any economy:

• work hard. You never know when you might get sick or your services might no longer be required.
  
• keep sharpening your skills so that you'll be the last one fired in a downturn and the first promoted in good times.
• save all you can.
• keep a large emergency fund on hand in case you lose a job for an extended time.
• don't live beyond your means. Debt is always scary, good times or bad.
  
• diversify your investments. Since the past isn't prologue, we can't know if the long-term gains of stocks or bonds or CD's or real estate will be the same as the past. Since we can't know which will do better, we diversify.
  

Disagree? Agree? Want to add to the discussion? Feel free to post your opinion below.

End Note

1) Eric Schurenberg, Why the Experts Missed the Crash, Money Magazine, February 18, 2009, 4:10 PM, ET.

Personal and Business Advice in Turbulent Times

Last night I attended a Town Hall Meeting at Kennesaw State University. I heard some great advice I felt I should pass on.

The Economic Summit Town Hall Meeting, held Tuesday evening at the KSU Center, allowed individuals and business owners to voice their economic concerns and get responses from experts. Sponsored by the Kennesaw State division of the Small Business Development Center and KSU’s Econometric Center, the panelists included Joseph Brannen, President of the Georgia Bankers Association; Tony Britton, Senior Vice President of Wachovia; Dr. Gene Henssler, President of G.W. Henssler & Associates and host of the popular radio program, Money Talks; and Dr. Donald Sabbarese, Director of KSU’s Econometric Center.

After opening remarks by Dr. Lendley Black, Provost & Vice President for Academic Affairs, Lydia C. Jones of the SBDC introduced the discussion format and established an informal, accessible atmosphere to discuss potentially volatile and emotional issues. “Please, no political comments!” Jones warned.

Although we hear abundant reports and advice on the economy, the unique value of this meeting was the opportunity to ask specific questions and to get answers that applied specifically to our region.

The bad news is that building and manufacturing are suffering. One in six homeowners are “under water,” owing more than their homes could sell for. Although exports have been the good news in recent years, now other countries are hurting, which will of course negatively impact overseas sales. But then, we’ve heard all the bad news over and over.

What about the good news?

• Ninety six percent of our banks are well-funded. Two thirds are profitable.

• The government has acted to restore confidence in the markets. The FDIC now guarantees our bank holdings for up to $250,000. (The time when the government failed to act was 1929, allowing the Great Depression to take hold.)

• Five hundred people per day are moving to Georgia.

• Atlanta is well-diversified, has no geographical boundaries, has a world-class airport and is business-friendly. No wonder it’s growing at two times the rate of the country. Atlanta real estate hasn’t “burst.” It’s only down 6.9%, one of the lowest declines in the country. (Compare this to Miami, where house values are off 44%.

Specific answers to people’s concerns:

1. Should I get out of stocks? “This is the dumbest time ever to get out of the stock market,” advised Hennsler. When stocks are cheap, this is the ideal time to buy, not sell.
   
   
2. What about unemployment? Sure, unemployment is creeping up. But in recent years it’s been at an unprecedented 5%. Manufacturing is hurting, so move into growth areas like education and health.
   
   
3. Are banks doomed to failure? No. They’re simply changing  getting back to basics  like coaches concentrating on blocking and tackling. We had gotten away from that. People with good jobs and good credit can still get loans for houses and businesses. People with bad credit and shaky jobs and no collateral won’t be able to get loans. That’s the way it’s supposed to be. We had gotten away from that. Build relationships with bankers. Give them a detailed business plan. So much of business is about relationships. Pursue them.
   
   
4. How can the government give away all that money? Won’t we have to pay for it? Henssler believes that the government could actually make money on these bailouts. Companies will have to pay on the loans and the government will own assets that they’ll be able to sell, hopefully at a profit, in more stable times.
   

In the end, Lydia Jones asked the panelists to each share pitfalls we should avoid. They responded:

1. Don’t get rid of your key people.
2. Be informed, but don’t take drastic measures.
3. Keep your optimism.
4. Don’t overreact. Keep the lines of communication open.
5. Don’t cut back on marketing. Sell, sell, sell!