I took a work related flight from Orlando to Newark back in January of 2008 on my way to Ft. Monmouth for a conference. While I won't go into any
details about what went on during the trip something amazing happened on the flight home.
If you think back to January of 2008 the DOW was sitting around 12,500, gas cost about $3 Gallon and the housing market was just beginning to show signs
of slowing down. I sat next to a friendly man on his way back home to Longwood having gone to New Jersey to meet with his financial advisor, something
he did every quarter. Turns out he was a very successful business man in his mid 50s who had been retired but had been pulled back in by a friend to
get a business venture off the ground. After talking about my trip and the work I do our conversation turned to current events. What he told me
amazed me at the time and taught me a valuable lesson.
If you looked at what the talking heads on TV were saying oil was around $100 a barrel and the experts were predicting $200 or more. The housing market
was slowing down but the experts were calling for a minor correction before prices continued higher. The same was true of the stock market. The DOW was down from its high of 14,000 but at 12,500 most experts were predicting a return to new highs. There was some talk of mortgage defaults but the government
was taking care of it with lower interest rates and a little 800 billion program called TARP.
He told me a few things. One, oil would peak around $150 a barrel and once that happened the price would drop drastically as the economy would slow
decreasing demand for oil. Two, while most people were talking about the 800 billion in bad assets the banks were holding the real number was closer to
5 trillion and over the next few months the banks would begin declaring these liabilities. The stock market was being held up by energy company profits due to high oil prices and bank profits due to ever increasing home prices. What would occur later in the year is both energy and housing would crash as
the high cost of energy would hurt businesses which would be forced to layoff workers. Those layoffs would cause mortgage defaults to rise, home
prices to fall and consumer spending to slow. He was completely out of the market until at least sometime in 2009.
The man may as well of had a crystal ball. Oil peaked at $147 a barrel in July of 2008 and was down to $32 a barrel by January of 2009. The
DOW plunged to 8,500 by October of 2008 and eventually to 6,600 by March of 2009. I think you know what happened to the housing market or
should I say what is still happening in the housing market.
Based on what he said I switched up my 401K in May of 2008 going from 80% stocks to less than 20% stocks. As a result of doing that I've
actually made a small gain in the last few years instead of losing half the value in my account. It didn't cost him anything but he gave me
one of the greatest gifts of my entire life.
In addition to avoiding a terrible financial loss I learned an incredibly valuable lesson. There are people out there who know what's going on
and have a pretty good idea about what the future holds but you won't find them on your TV news cast or writing in your local paper. The signs
were there, the problems were obvious if you were paying attention. What you get on TV and in the papers is assurances with a smile that everything
is fine, no need to worry. I learned to trust my gut. That if things don't feel right, if they don't make sense then trust your instincts and do
what you think is right.
What I see right now gives me the same feeling I had in early 2008. Every day their is new news about the recovery of our economy. The gains in
the stock market continue to pile up. Housing prices and home sales numbers keep getting a bit better.
But the nagging feeling that something is wrong won't go away. Maybe its because oil prices keep rising back towards the $100 a barrel mark.
Maybe its because taxes are set to go up on the wealthy and businesses starting in January of 2011. Maybe its because the massive amounts of
money the government has been spending to hold up the real estate market will soon come to an end. Maybe its because we have doubled the
size of government without any way to pay for it.
Who knows, maybe I'm wrong and the smiling guy on TV telling you everything is getting better is right. Maybe.