Done With Bad News, Here Are Four Reasons To Be Optimistic

« Monday Stories: Remembering Iwo Jima; Citi Nationalization Talk; Casinos Closing

Tuesday Stories: Finding Optimism; Advice For The President; Paying Customers To Leave »

February 23, 2009 11:38 PM EST by Brian Sullivan

Done With Bad News, Here Are Four Reasons To Be Optimistic

In the face of a nearly daily barrage of bad news, new lows and low spirits, perhaps it is important to smash the news cycle and find a few reasons to be more upbeat regarding the economy and markets.

With that in mind, here are four reasons to be long-term optimistic:

1. Everybody is so negative.   Right now it's practically in vogue to see who can be the most pessimistic, and that extreme negativity is a reason to be bullish for the future. Just as those who were negative on housing during the peak of the boom (and were ignored or dismissed as crazy), those investors who are able to muster capital and have the ability and guts to ride this out will likely end up the long-term winners.   It is generally the contrarian who wins in the end.   Think billionaire hedge fund manager Paul Tudor Jones in his early days in Chicago going against the conventional wisdom.   Or Warren Buffett recently.   When the panic selling hits - and we are getting close if we aren't there already - there will be solid companies thrown out with the ones who won't survive the downturn.   It may take five or more years, but eventually the overall markets will recover.   Getting back to the Dow's October 2007 highs now means investors at these prices will have doubled their money.

2. Valuations are down, down down. There will be companies who don't survive this washout. The S&P 500 may be the S&P 475 before it is all over. But most of America's biggest companies today will still be America's biggest companies in ten years.   Some names will go, some new ones will grow and deals will get done, but at least 75% of the names topping the market cap list now will be the same in 10 years.   The larger companies have have a greater ability to weather the storm, and the valuations on those companies are coming down.   We're not talking about price-to-earnings ratios, because everyone on Wall Street knows that earnings are going to be abysmal for the next few quarters and the "E" in "P/E" ratio will go down and increase that valuation metric.   However, there are many long-term indicators - such as price-sales and dividend yield - that suggest stocks are cheap on a multi-year basis and these ratios do not rely on earnings.

3. Money supply is up and interest rates are down. While it is trendy to compare this economy to the Great Depression, there are major differences in terms of economic policies: money supply is growing and the Fed is cutting, not increasing, interest rates. While there are critics of the current policies and Fed Chairman Ben Bernanke, the policy response this time is much different and we have much more practical experience dealing with sharp economic dowturns than 80 years ago. It is unlikely money will simply dry up this time.

4. Despite all the mistakes, we're still here.   As a friend of mine said recently: if the pool is 6 feet deep, it's the short who can't swim who worry when they fall in ... not the pro basketball players whose heads stay above the waterline.   Right now the United States looks like the Boston Celtics compared to the rest of the world.   There is no doubt we are facing a severe economic downturn, one that is unlikely to be solved in just a few quarters. The rest of the world is suffering mightily too, but unlike America many nations are neophyte capitalists, with governments and populations not as adept at handling the boom and bust cycle that is all too common here.   Countries such as Russia and Argentina are nearing their second debt crisis in a decade.   Tens of millions of angry young men are unemployed in China.   100,000 marched in Dublin recently to protest their once-hot economy gone ice cold (due to a real estate bubble and bust that makes ours look tame). Is Obama's stimulus plan perfect? Far from it. Are we still waiting on all the TARP details? Yes. Will some big banks probably be rolled up or rolled over? Yes. But even with all the problems, growing government, lack of regulation, dumb borrowing, and everything in between, we are still here and will be generations from now. America is one of the few countries in the world with the capability to be as insular or as global as we need.   We can feed ourselves. We are flexible.   Hell, all things being equal we simply work more and more productively than others.

This isn't meant to be jingoistic, just a reminder.   A reminder to think about what we have rather than what we don't. A reminder to think long-term.   The most common phrase in history must be "this time it's different." No one reading this was likely even alive during the Depression so for us, personally, it is different.   But not for America as a nation.    And the country will still be here when - 100 years from now - financial journalists are writing about the great water bubble of 2108 and how it really was different that time.

51 Comments

Subscribe to Comments

|««12»

Jsixco

I been saying this all along, this downturn only creates oppertunities for all of us whom have the forsight to take advantage of it. People are always saying the rich keep getting rich and the poor keep being poor. This gives us poor folks a chance to get rich. Get cash flow coming in, buy real estate, invest, invest, invest. Only the pussy's are sitting on the sidelines, if you have a pair of balls now is the time to get into the trenches and make some real money. Trust god, have faith and look to the future, it will be calm waters before you know it and again you will have missed this fantastic oppertunity. You will be another one who said if only...........

February 24, 2009 at 1:40 pm

Marc2679

Here comes the naysayer, with government controlling what types of business ventures will get operating capital (by owning the biggest banks and the controlling monetary policy) and labor unions determining how much revenue goes to employees( Employee free choice act), and successful individuals getting cut off at the knees as they emerge from the expense and travails of taking risks (taxes on the few voted on by the masses), Why would companies grow, how will they become profitable and then how does the stock market then "come back" to levels that historically out stripped price to earnings and price to value ratios? Why are we different than pre 1940 Argentina (A top tier economy that has never fully recovered, )? I REALLY WANT TO BE WRONG, please tell me why we are different and don't give me analogies to pools and basketball players until you are explaining how we survived retrospectively, we don't know how high the water will rise or if we are in a 6 foot pool or a 20 foot pool until the water recedes.

February 24, 2009 at 1:17 pm

(1 Reply)

Smacktle

What a bunch of hooey. We are headed over the cliff and people want to think positive. Get prepared, the worst is yet to come!

February 24, 2009 at 1:04 pm

(1 Reply)

Ron_Geraci

Superb article, Mr. Sullivan. It is difficult to remain positive right now, but the alternative, over-generalizing that bad things will just keep happening over-and-over, jumping to conclusions that it is going to get so bad we will never recover, doesn't help improve the situation, or our moods. So why not have hope and belief in America's ability to overcome huge crises? And you have good FACTS to support believing that we will come out of this. We have to remember a fact about life that is inarguable- "However bad or good a situation is, it will change".

February 24, 2009 at 12:48 pm

Alison

Thank you! We need more optimism like this! Keep the positive outlook coming!

February 24, 2009 at 12:45 pm

Jim Savage

Glad to hear some optimism for a change. The problem is, so many of us are not that solvent right now. I don't have investment capital laying around to buy inexpensively. Wish I did. But, the history and thoughts for the futrue have merit.

February 24, 2009 at 12:24 pm

Gretchen

With all due respect Barbara, please show us where Obama is being blamed for this economy. Can you share a quote from a newspaper, magazine or online story somewhere? You are right, he is inheriting a mess from two administrations; Clinton and Bush. There is a NY Times article dated Sept. 30th 1999 titled "Fanie Mae eases credit to aid mortgage lending" written by Steven Holmes which shows when the light turned "green" for unqualified buyers ie: not enough money, no stable job. I would be happy to forward the article to anyone who is interested and it has been declared true through snopes.com. The article quotes, "Fanie Mae, the nations biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people..." The Obama mortgage bailout plan that was rushed thru congress this month is completely unfair and simply won't work. I should not have to hand over my hard earned money to pay for someone else's mortgage they couldn't afford in the first place. This Obama bailout bill is for FanieMae, gov't controlled, mortgages under $417,000 as reported today in the Wall Street Journal. They couldn't afford the house then, they can't afford it now and they'll never be able to afford it in the future. So instead of forclosure, the taxers payer loses in two ways; we're paying the bad debt and our home values are plumeting. The gov't run agency, Fanie Mae, is the nations biggest underwriter of home mortgages, not Wall Street. You're also right that Obama is trying to create new jobs, but what kind of jobs? Rebuilding roads and state construction projects? And ironically he's funding these "jobs" in a fashion that you disagree with on principle by "living beyond his means." He is borrowing trillions of dollars he doesn't have and my young children will undeniably inherit this debt. Obamas spending is no different than the conspicuous spending Jones family. It is so bad Barbara that Hilary Clinton went to China to ask them for some help with this debt. Honestly, how do you feel about a communist country owning trillions of dollars in our American treasury bonds? Perhaps it doesn't bother you. And when the road projects are done and private companies are still not hiring, what's next? One last question, what is your definition of "heading downhill" for eight years? Is it a financial measure? Just curious. If you decide to reply, please keep it cordial as I have done so with you.

February 24, 2009 at 10:53 am

jeff saturday

O.K. Now Dodd has asked Bernanke if people can retire after their losses in housing and the stock market. My question to Sen. Dodd. Can Angelo Mozzillo retire after the tens of millions he made selling his CountryWide stock before its collapse?

February 24, 2009 at 10:49 am

Cindy

Hey Brian. Funny how I logged on to see if you had posted anything new and you actually wrote about some things I was considering earlier today. I've been angrier than hell lately; screaming at the TV sometimes (not at you, at what the new administration is doing). Today I actually found myself laughing out loud especially when Obama said he can't leave our children with debt that can't be repaid! I found it almost comical that he could say that with a straight face after all the money being handed out and more to come. But what the heck can I do about it? I didn't vote for the man. All I have control over is my own choices. In a few years (hopefully) this too shall pass and life will go on. I do worry some about the future of America (especially our 401Ks because that's all we have) but the best medicine is not to panic and stay positive, right? My husband is 58 (I'm 54) so we have a 'little' time left for recovery. I can't say I approve of anything the new administration is doing though...but alas, you are right and America will survive....somehow. Thanks for a few uplifting thoughts.

February 24, 2009 at 8:20 am

Lose $60B… So Borrow $60B More? « The Daily Debrief

[...] AIG to announce $60B quarterly loss, will seek additional $60B in taxpayer dollars and bailout restructure• Rogue Financier Linked to Fund Run by Bidens• FOXBusiness: 4 Reasons to Be Optimistic [...]

February 24, 2009 at 8:19 am

Ryan444123 dot Com » Blog Archive » AIG to Seek More Government Aid

[...] Insurance giant seeks overhaul of its $150B bailout that would further expose U.S. taxpayers to its fortunes• Rogue Financier Linked to Fund Run by Bidens• FOXBusiness: 4 Reasons to Be Optimistic [...]

February 24, 2009 at 7:36 am

Bob

Great post. With all that is in the news recently, this was a refreshing read.

February 24, 2009 at 1:22 am

|««12»

about this blog

Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.
- Contributor Profile