My Lunch With Marci Rossell
Just launched the blog and already am behind on my posts! Tuesday we had the pleasure of having lunch with Marci Rossell, she was an absolute delight – I wish you all could have been there with us!
I have never personally met her before, and was taken by her enormous amount of energy and wit. All in all, I have to admit I was expecting to hear more doom and gloom economic predictions, and was pleasantly surprised to walk away holding my head high with a belief that everything will be OK. Without giving too much away, I’d like to share a bit of what we discussed.
Before she began, she wanted to make clear that first and foremost she is a Diehard freemarket economist. Any recession goes through at least two phases: Containment and Resolution.
We are currently in the resolution phase.
She says she expects the economy could stabilize this year and one of the major signs pointing towards this has to do with housing prices. The median house is now valued at approximately 180,000 and the median income is 50,000. With my lending background, here’s a quick rule of thumb: for every 200,000 borrowed … the payment (principal and interest) will be about 1,200 dollars. (200,000 @ 6% over 30 years = payment of 1,199). If you take 50,000 divided by 12 months, this gives this median income earner a monthly gross income of 4166, which would bring their housing debt ratio below 30%.
Simply stated, the median earner can afford the median house. This will contribute to stabilization.
She also said that we’re not going to see high home values across the board for a really long time. Historically it takes about 10 years for houses to regain their previous peak. Which means those of who bought in 2006 shouldn’t count on their houses returning to that value for another 7 years.
Marci explained that economies have the ability to heal themselves, and one of the ways they do that is through prices falling. It doesn’t always feel good to cut prices – “I don’t want to cut my speaking fee” she says with a smile, “but I know when I do I am contributing to the recovery.” Keep an eye on falling prices and the speed at which they fall, as this is the key for economic recovery, and here’s why.
Individual spending, does not really fluctuate. As individuals we have the same basic expenses month in and month out – housing, utilities, transportation, insurance, food etc. Whereas business, well business spending is what swings. Those of us in the meetings industry, think about our budgets! Meeting budgets alone were cut tremendously! Some even down to zero. Same goes for advertising budgets, payroll expenses… you get the ideas. Businesses are what spend the largest chunks of money, and also take the biggest swings. To use intro to econ language, lets say we have 100 dollars and 70 dollars is typically spent on food. If prices drop at the grocery store, and we now only need to spend 45 dollars for the same food, we have just freed up 25 dollars that we can now spend elsewhere. Our spending amount did not fluctuate, but we have now just spread our monies to more places. This is was restores profitability.
We can’t expect to see this reflected in the media yet, as the reporting of numbers lag at least three months. So don’t be surprised that the numbers will LOOK BAD moving forward for at least the next few months, but understand what is going on underneath…. We are healing.
On 401ks…
The inclination is to do EXACTLY THE WRONG THING. You don’t go to the store and say “hmmmm, this dress is 50% off, I think I’ll wait until it gets back to normal before I buy.” That is exactly “bass ackwards”, Marci says. Marci’s recommendation is to throw your statements away for the next 20 years! You can’t touch the money anyway, so why look at it – just stay steady, NOW is the time to double up on your 401k contributions if you can. If we’ve learned one thing its that when we’re ready to retire we can’t be fully invested in stocks anyway, we need annuities an other retirement tools. Marci had many terrific one-liners, my favorite of which I’ll share with you in a moment. With retirements though, her gem continued as “and if you’re planning to live until your 105, you can really stick it to the annuity guys, because they’re planning to see you kick off at seventy.”
Stop Drop and Roll…. remember this? If you’re clothes catch on fire, we need to stop, drop, and roll – but what is our instinct? Our instinct is to RUN. Same goes for the 401ks. Don’t run, double down if you can.
On the stimulus package and recessions…
“Is like giving a blood transfusion to yourself.” Marci says. If you’re dieing of blood loss in your right arm, and you plug your left arm in to your right in order to transfer blood….. This is not going to work.
Things look better in the fall, although she says unemployment may pass 10% during the summer. Can the economy move itself forward with 90% employment? We like to think so.
Marci was entertaining, intelligent, and had a positive message – which I think we all need to hear right now.
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