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Location, personality, perception
Old 07-27-2008, 10:50 AM   #1
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Location, personality, perception

I joined this forum only a short time ago, and I’ve been spending that time reading through the threads, becoming familiar with the frequent posters. The avatars are amusing.

Several recent threads, “Downgrade of US debt vs. aliens and psychics,” “Staying the course” and “Two more banks fail,” illustrate how location and personality create perception.[/SIZE][/FONT]

If I lived in an area that had been hit hard by the housing debacle, if homes surrounding mine were in foreclosure, and families were moving out of my neighborhood, then yeah…I’d be twitching at my mattress cover, making sure there was room for a few more dollars. For many people, their home is the most solid portion of their assets (if not their only asset), and to see it lose value so quickly must be frightening.

There are areas like that all over the country, but I don’t live in one of them. I live in an area where houses have held their value, few houses have gone up for sale in the past year and those houses have sold within 3 months. My neighborhood is middle middle-class; my neighbors are teachers, nurses, police officers, middle management office workers, etc. It’s a stable neighborhood. No bank failures.[/SIZE][/FONT]

Location is important to perception. My perception of the housing debacle is that it was a problem long before the first foreclosure. The problem was years in the making, and it will be years in the undoing. Those years will be painful for some people, but eventually it will shake itself out.

I’m an optimist. I’ve read books like “Crash Proof: How to Profit from the Coming Economic Collapse” by Peter Schiff (made me look a little harder at international bond funds), “Financial Armageddon” by Michael Panzer (made me wonder if I should be stockpiling water and canned goods), and watched in awe at Jim Cramer’s meltdown. No matter. Nothing has changed our plan.

DH and I have a plan, and it’s a good plan. We might tweak it a little, twitch it bit over here, hitch it a bit higher over there, but overall we stick with the plan. If the worst happens, and the global markets fail and the global economies totter toward a massive world-wide depression, then NO plan will save you. But like I said, I’m an optimist (DH claims he’s a cautious optimist). So, we’re checking coat pockets and couch cushions for extra change to continue investing.

Personality is important to perception.

So when I read the posts, I understand that some posters may not be in my location, and may not have my optimistic personality. Therefore, their perception of the economy, especially the future economy, is much darker and worrisome than mine. Their concerns and worries are valid; some banks will fail, investment companies will lose money, maybe another investment company will fail, cost of credit will be higher, banks will tighten up, stocks may reach new lows, etc. And what of it? What will change your plan? If none of these things will change your plan, then there’s not much sense in worrying about it.

I need to find an avatar.
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Old 07-27-2008, 11:00 AM   #2
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That is so true!

Our local environment can really influence our perception of the large scale economy. I am not happy about our local housing price trends, but I simply cannot imagine what people living in San Diego or Miami are going through, these days.

I noticed in your profile that you are from Pennsylvania. Apparently some think that Pennsylvania may soon experience a local housing crisis/collapse similar to what has happened in some other areas:

Pa. economists say housing crisis may get worse

By the way, welcome to the forum!
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Old 07-27-2008, 11:04 AM   #3
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ladypatriot, welcome aboard!

An excellent post and in large part I agree.
Along with location-based perception I would include the different classes of investors, too: the Young Dreamers who are still working and have time to rebound and who will find buying opportunities now or eventually; then there are the pension recipients who have less at risk; then there are people who have retired, or are about to, on the basis of investments exclusively or almost so. They will all view the same scenario with varying levels of equanimity.
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Old 07-27-2008, 11:13 AM   #4
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Neat post ladypatriot.
Mostly agree with your post.

For the few of us who have paid off the house and like where we are, the housing crisis is but a passing story. If we had to move then it would be a crisis.
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Old 07-27-2008, 11:15 AM   #5
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You make a valid observation.

My town and neighborhood are also stable middle class areas. Most of the people on my street have been here at least ten years. We did not see the huge run up in prices and, consequently, are not seeing a big drop now. Employment in the area is still strong. It also appears that people in this area were a little more conservative in their financing during the boom. For example, I don't see many 80/20 first/second mortgage situations here, nor many option ARM's in my immediate vicinity. Our local paper just reported that foreclosures in the immediate metropolitan area are down 3.33% from 2Q07 to 2Q08 and the overall rate of foreclosure is only 0.4%.

As a consequence, you do not get a strong sense that things are falling apart here. However, I'm sure that I and my neighbors would be significantly more downbeat if we were in Nevada, Arizona or Southern California, where foreclosure rates are much higher and getting worse by the day.
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Old 07-27-2008, 11:15 AM   #6
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Quote:
Originally Posted by ladelfina View Post
Along with location-based perception I would include the different classes of investors, too: the Young Dreamers who are still working and have time to rebound and who will find buying opportunities now or eventually; then there are the pension recipients who have less at risk; then there are people who have retired, or are about to, on the basis of investments exclusively or almost so. They will all view the same scenario with varying levels of equanimity.
It would be interesting to see how outlooks break down based on the criteria above. I'm personally retired, no pension, some health care coverage, and living off my assets. I'm positive about the long run, and comfortable with my plan.

I'm not sure how we could quantify this, but it would be really interesting to see how many people in my situation are "doom and gloomers" vs "happy campers", and all the other permutations listed. It might go a ways towards explaining why different people react differently. I'm sticking with my theory that the more you've seen, the more accepting you are of what's going on today, but it would be really interesting to see if I'm right.

Anybody got any ideas on how to pull this data together and correlate it?
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Old 07-27-2008, 11:45 AM   #7
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Anybody got any ideas on how to pull this data together and correlate it?
That seems like a four letter word: w*rk.
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Old 07-27-2008, 12:28 PM   #8
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I live in Sarasota ,Fl. which had a huge run up & a huge melt down . I bought my house in 2001 for a good price and at one point it was worth three times the amount .It's now worth about 1 1/2 to 2 times the orginal cost . I'm a careful optimist and there are a lot of things that will get me down but money is not one of them . By the way I'm orginally from Pa..
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Old 07-27-2008, 12:35 PM   #9
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ladypatriot, you are not the optimist you think you are. If you were a full-fledged optimist you would not have bothered to read those books by Panzer and Schiff. You would have dismissed them simply from their titles.
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Old 07-27-2008, 01:43 PM   #10
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Great post. I would also add investing experience as a factor in one's outlook. I suspect that many of the less alarmist contributors have been through bear markets and financial crises before and are used to the panic.

As far a Peter Schiff is concerned, he's been delivering the same message for decades. Maybe his predictions were just early or maybe now he's getting a little lucky (for example, in 2002 he was screaming about an impending market crash). However, anyone who has consistently followed his advice has list alot of money.
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Old 07-27-2008, 01:45 PM   #11
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Originally Posted by newporttony View Post
As far a Peter Schiff is concerned, he's been delivering the same message for decades. Maybe his predictions were just early or maybe now he's getting a little lucky (for example, in 2002 he was screaming about an impending market crash). However, anyone who has consistently followed his advice has list alot of money.
Shhh...

The emporer does too have clothes on.
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Old 07-27-2008, 02:00 PM   #12
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ladypatriot, you are not the optimist you think you are. If you were a full-fledged optimist you would not have bothered to read those books by Panzer and Schiff. You would have dismissed them simply from their titles.
Hah. I'm an informed optimist. The problem with Panzer and Schiff is that they take some factual information (the way mortages were securitized, national debt, etc.) and extrapolate it onto their designed scenarios. In other words, the financial world will come crashing down and economies will grind to a halt because of (A) if (B) happens at the same time (C) happens while there's a full moon.
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Old 07-27-2008, 02:37 PM   #13
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That is so true!

Our local environment can really influence our perception of the large scale economy. I am not happy about our local housing price trends, but I simply cannot imagine what people living in San Diego or Miami are going through, these days.

I noticed in your profile that you are from Pennsylvania. Apparently some think that Pennsylvania may soon experience a local housing crisis/collapse similar to what has happened in some other areas:

Pa. economists say housing crisis may get worse

By the way, welcome to the forum!

Thanks for the welcome, and thanks for providing a link to the news article.

The problem with the article, like many others of its ilk, is that it is so vague. The real, factual information it provides is that 47,000 more people were unemployed between April 2007 and April 2008. It doesn't break down how many jobs were lost, what type of jobs were lost, how many people were not hired back after seasonal layoffs, how many of those unemployed are students, etc.

The second bit of factual information is, "...the Freddie Mac index for Pennsylvania showed the first actual decline in housing prices over a 12-month period since 1995. Pennsylvania housing prices fell 1.3 percent between the first quarter of last year and the first quarter of 2008."

A statistically small rise in unemployment, and a 1.3% decline in housing prices (for the first time in over 10 years), interspersed with purposely vague language isn't enough to set off any alarms for me.

BTW, the article is from the Pittsburgh Post-Gazette. I'm on the other side of the state, near the Philadelphia area. But prophets of doom know no geographic boundaries, and the Philadelphia Inquirer has had its share of similarly depression-enhancing articles.
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Old 07-27-2008, 04:36 PM   #14
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... prophets of doom know no geographic boundaries ...
Bad news sells. "Unemployment rate rises to 5%" makes for a better headline than "Employment rate falls to 95%" (i.e., "Man bites dog and dog sues" makes for a more interesting story than "Dog bites man").

Reading gloom-and-doom books (e.g., Financial Armageddon) allows one to do a "financial what if" should a serious depression or inflationary environment happen again. Of course, one might be better off reading The Great Crash, 1929 - Wikipedia, the free encyclopedia for the depression part of the analysis, for example, because reading good history books allows one to live these previous events vicariously and adjust one's present plans just in case.

For me, I set up DRIPs in one of my Roth IRA accounts. Dividend growth stocks (with dividends reinvested) tend to underperform in strong bull markets, equally perform in regular bull markets, and outperform in sideways and down markets. Most of the rest of my investments are in a diversified portfolio for total return, which gets killed in severe down markets and does OK or great in other kinds of markets.

If a financial condition existed in the past, it can re-exist again in the future. Reading financial history is a good way to think through and prepare for the possible financial storms that might lie ahead. But reading today's headlines, I find, is either free amusement or a waste of time. I don't take market commentary seriously because it's designed to sell newspapers and attract eyeballs.
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Old 07-28-2008, 12:46 PM   #15
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The problem with the article, like many others of its ilk, is that it is so vague. The real, factual information it provides is that 47,000 more people were unemployed between April 2007 and April 2008. It doesn't break down how many jobs were lost, what type of jobs were lost, how many people were not hired back after seasonal layoffs, how many of those unemployed are students, etc.
Unemployment numbers take in seasonal changes into effect... at least they are supposed to. Not sure how the numbers were procured, but seasonal employment changes should not have an effect on the unemployment number.
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