wearmanyhats

The media has gone to great pains to report on the rise of unemployment, job layoffs, and, in the early part of 2008, the rise in food prices.  Blogs, including this one, have given ideas of how to fight bad times.  Why is that?  Well, one reason is because a large number of working Americans today can’t remember the last time we had a recession.

Ron Muhlenkamp, Founder, President and  Portfolio Manager of Muhlendamp and Company, made a presentation at the Money Show in early November.  In it, he pointed out that from 1945 to 1965, we had five recessions.  Basically, the country was in a recession twenty to twenty-five percent of the time.  In the next twenty years, it was about the same.  However, in the past twenty years, we’ve only had two recessions.

That means anyone who has just started working in the past twenty years has only encountered one recession.  Muhlenkamp likened it to people who live in a climate where they can grow a garden all year versus people who live in states that have snow half of the year.  No one would expect to grow anything when the snow is on the ground.  Likewise, anyone living in the states where weather is good would expect anything less than the chance to be growing their garden.  So it is with recessions.  If our population were used to recessions, perhaps it wouldn’t be making headlines.

Or would it?  The last recession, starting in 2001 and ending two years later, wasn’t as noticeable as this one has been.  Any idea why?  Perhaps it has to do with the fact that the nation has seen so many big bank and brokerage failures this time around.  Perhaps it is because the price of gas had been so high for most of last year.  Perhaps because so many big companies have been begging to have a government bailout.  Take all of those factors and stir in a healthy dose of falling real estate values, high government and personal debt, and you have a more noticeable recession.  It’s the kind that teeters on the edge of depression, the kind that makes people afraid.

Yet there are great signs of hope.  First, the price of fuel has gone down.  People can pay off their debt better.  There has been a deflation in prices.  It’s not a good thing, but it’s better for the consumer in the short run.  There has been the FDIC insurance to bail out folks who would have otherwise lost everything in the bank failures.  Yes, some folks lost and will never get back large chunks of money.  But they at least aren’t destitute.

The key to whether we will get pushed into a depression largely depends on a few things now.  First, will small businesses simply die, thereby leaving millions more unemployed workers?  Second, will there be a sudden upswing in the price of gasoline now that OPEC has cut production, or will Americans keep vigilant?  Third, will the banks loosen up the purse strings to keep the small businesses in motion?  Finally, will the Obama administration figure out how to pay down our national debt.  Can we get out of the wars overseas enough to get our fiscal house in order?

The one thing that is worth mentioning, is the huge gap that exists still between the “haves” and the “have nots.”  Wall Street Nice Dressers can’t see what is happening in small town America or in the middle class America that may have fallen on hard times.  While some bankers may be out of work in New York, many are not.  How can, for example, the CEO of AIG even understand the anger toward him when he is getting million in bonus money?

Muhlenkamp’s presentation can be seen fully on Moneyshow.com. It’s a long one, and unfortunately poorly videotaped.  But he is an obviously knowledgeable man about recessions. His next appearance will be at the Money Show in Orlando on February 4th - 7th and would be worth your time to check out if you are in the area.  If not, the video library is free on Moneyshow.com and provides a wealth of free learning from men and women who work in the trenches every day. It’s worth checking out.

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