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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

The Economic Slump: What We've Learned

by Ben Stein

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Posted on Thursday, May 14, 2009, 12:00AM

Are we at the bottom of the recession? The stores I see are empty, except for grocery stores. The car dealers are disaster areas. But the airports are mobbed and hotels are jammed where I travel, which is pretty much everywhere.

But more important than my anecdotes are statistical data. Inventories are shrinking rapidly, usually a good sign in a recession because they then have to be filled up again. Real estate sales are moving up sharply in some highly distressed areas, and prices have stopped falling in some of the same areas. The new unemployment numbers are still extremely distressing but nowhere near as bad as they were expected to be just a few weeks ago. They show a definite moderation in the rate of new layoffs.

There is some firmness in prices of minerals, and growth has resumed for several of our largest trading partners, including Canada and China.

Recovery Could Be Near

So while predicting the future is impossible, to put it mildly, and while false dawns abound in economic life, the era of nonstop disastrous economic news seems to be over, at least for now. That often portends a recovery.

So as we survey the wreckage -- the stock market still, even after the stunning recent rally, down close to 40 percent from its October 2007 peak; jobs nearly impossible to come by for many college and grad school graduates; entire regions of the nation laid waste; retirement plans for an entire generation simply demolished -- what have we learned in the personal-finance realm?

One, we must plan for not just a poor outcome but for the possibility of outright disaster. Whatever the Monte Carlo simulators told us about outcomes was wildly optimistic. Even when we were in stunning prosperity, as we seemed to be in the spring of 2007, events were moving toward true calamity. Very few of us were prepared. We were like the passengers on the Poseidon, partying hearty as a murderous wave was about to capsize our hopes and dreams.

We have to own enough federally insured cash, short-term Treasury instruments, and NCUA-insured credit union accounts to tide us over during truly horrific periods that can last for years. This recession has already gone on for close to 18 months. Even if we have hit bottom, we have no signs yet of a robust recovery (except for fantastic growth in the money supply, which will eventually mean either recovery or inflation or both). That means we could be in the muck and mire for years. This means we must have liquidity -- safe liquidity -- to get us through bad days.

A Winning Strategy

This, as I have said before, is the premise of my pal Raymond J. Lucia's "buckets of money" strategy. This very sensible plan has the investor "bucketized" so his or her liquidity can keep them going until growth in stocks resumes. It has been the only strategy I have seen that works in true disasters like this one. It makes sense, but you have to look into it and decide for yourself.

Second, we have to apologize to the insurance companies. For years they have been offering us spectacularly good deals on variable annuities with guaranteed floors to protect us against collapses such as the one we have had recently. They have been offering us not only floors but actual guarantees of minimum growth of the portfolio. Too many of us turned up our noses at the offers. Now the offers are not quite as good as they were, but we still know that we need -- desperately need -- guaranteed income in our declining years. The insurance companies can sell it to us. If we do not have it yet, we should get it.

Be Diversified

Third, we have to be even more diversified than we thought -- once we have enough cash to make us sleep at night. Some investments have performed far better than others, although everything but cash has basically been murdered.

Fourth, we have to live sensibly (here, as I have noted, I do not practice what I preach). "There is no calamity worse than lavish desires," as the saying goes.

Fifth, we have to know when to sell and when to buy. Real estate has gone through an agonizing correction. It cannot go on forever. The times when there is total pessimism about houses are often the best times to buy. If you are highly liquid and have a secure job, now may be the moment to do so. In every housing crash of my lifetime, those who bought when there was blood in the real estate agents' offices have come out happy years down the road. No real estate crash lasts forever, and this one won't either. Are we at the very bottom? We don't know. We do know we are a long way from the top.

No one can tell the future. But we can tell a bit about the past. Security has now shown itself to be a rare and beautiful thing. Very, very safe assets are how we get there economically. This has been a terrifying ride, and we can hope it's almost over -- but we can also hope we have learned something about the past and the future.

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166 Comments

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  • Yahoo! Finance User - Tuesday, May 26, 2009, 7:29AM ET  Report Abuse

    • Overall: 3/5

    It must be hard being a financial advise columnist in a deep depression. You can't invest money if you don't have any. With unemployment running 10-20% people have no earthly idea what to do. And Mr Stein appears to be clueless on how to council the desperate and falling.

  • shandrew - Monday, May 25, 2009, 10:50PM ET  Report Abuse

    • Overall: 1/5

    As with many financial writers, Stein mistakes housing prices for wealth. High housing prices make us poorer, leaving less to spend on useful goods, and put us in more debt. High housing prices have been the downfall of our economy.

  • GOTGOLD - Monday, May 25, 2009, 9:34PM ET  Report Abuse

    • Overall: 1/5

    BEN IS TALKING ABOUT SUPER-SAFE INVESTMENTS AND DOESN'T EVEN MENTION SILVER OR GOLD? WHAT A MORON. PRECIOUS METALS IS ABOUT THE ONLY ASSET CLASS UP DURING THE PAST 10 YEARS! GET A LIFE,, BEN AND QUIT TOWING THE CONFORMIST PARTY LINE.

  • Lukitos - Monday, May 25, 2009, 2:28PM ET  Report Abuse

    • Overall: 2/5

    The stock market has historically done better under a Democratic administration. Vote your pocketbook (what's left of it).

  • Yahoo! Finance User - Monday, May 25, 2009, 2:02PM ET  Report Abuse

    • Overall: 2/5

    All true, but nothing new...

  • sslloren - Monday, May 25, 2009, 1:01PM ET  Report Abuse

    • Overall: 1/5

    Im yawning......

  • GoodWalkSpoilt - Monday, May 25, 2009, 11:56AM ET  Report Abuse

    • Overall: 4/5

    Mr. Stein describes the situation well. I agree the U.S. is somewhere near bottom on residential real estate. The big danger looming in the economic malaise is inflation. Once that genie is out of the bottle, the U.S. will have real hardships. Regardless of what the 24/7 cable media said, I never believed a real depression was in the cards. Recession, yes. Depression - hardly. The stock market was way ahead of itself from 2003 through 2007, a bubble like the late 1990's. So the bust was inevitable. Greed caused it. And greed will be back. There's no changing human nature.

  • jimsmename - Saturday, May 23, 2009, 8:57PM ET  Report Abuse

    • Overall: 1/5

    Coincidence that his initials are BS? I don't think so.

  • Love2Fly - Saturday, May 23, 2009, 7:02PM ET  Report Abuse

    • Overall: 5/5

    There is nothing I embrace more dearly than good night sleeps, and I had plenty during the recession, even with one income less than $80,000/yr for the last 1.5 years. Why? Ben said it. 1) My wife and I saved cash like crazy from 2002 to 2007 when she worked, and we still have a 12 month cushion in FIDC (which did protect 1/3 of our savings) and NCUA insured accounts. 2) I stay employed and always outperformed my duties. In fact, I once showed the company what'd happen if I left, they spent more on "support on demand" in the three months I left than a year of my salary; I'm fortunate to excel in an unique process that is complex and with little outside resources. 3) Believe it or not, Ben is right about the insurance companies. I have a Metlife annuity for my IRA and it guarantees the amount of money I put in, even when it took a dump during the recession. My wife is starting a job next month and our income will double i.e. my REM sleep will now be even deeper, AHHHHH!!!

  • PaulD - Saturday, May 23, 2009, 6:35AM ET  Report Abuse

    • Overall: 2/5

    Ok, lets think about this for a minute. Ben Stein is saying "live frugally and hold cash". Let me check outside, I think the sky might be falling. Gee Ben, does this mean you've given up on Reaganomics? To be serious about the future for a minute, ignore indicators and look at fundamentals. They are all bad. Nothing (save market prices) are above levels they could reach ten years ago, and that's with the US fighting 2 wars. Good grief, look up Silverblatt's spreadsheet on the S&P 500, that's the chief analyst for S&P talking there. I suppose PE ratios (based on actual earnings, not "no charge offs, no bankruptcies" allowed so called operating earnings) of over 1000 to 1 are acceptable in this "new world order". Or maybe not. Shipping is up from the monster lows of a few months ago, but again, China is selling US bonds and building internally, and that won't last forever. It probably won't last three years, but so it goes. War is imminent everywhere, the finances that everyone thought would prevent war are gone, and the market is up. I do not know what's going on, but I do know it doesn't make any sense whatsoever.

  • Yahoo! Finance User - Friday, May 22, 2009, 9:52AM ET  Report Abuse

    • Overall: 1/5

    Re apologize to insurance companies, whose annuities might become the next bailout fiasco: "why didn't we buy any of that smartly packaged subprime paper and take advantage of the high yields" Yahoo needs to fire this insurance company endorser and publicly reveal his remuneration from the industry, including any obligations to tout their products online.

  • Yahoo! Finance User - Thursday, May 21, 2009, 7:37PM ET  Report Abuse

    • Overall: 1/5

    Hildebrandt - Your housing comment makes no sense. Even if you live in an area where prices are on the upswing, they haven't gone up astronomically to where your friends can no longer afford. Sounds like a BS (that's bull, not ben stein) story.

  • Andy - Thursday, May 21, 2009, 6:33PM ET  Report Abuse

    • Overall: 5/5

    The stores are close to empty. There are people, but everywhere I go there is almost no inventory. I try to buy 5 of anything and they don't have it. Whether it is RadioShack or a sporting goods store or a furniture store, etc, -- they don't have 5 of anything in stock. They are losing business when there are lots of shoppers. There is a lot of pent-up demand. 4 of my 5 best friends have been holding off on purchasing a house and now they have missed the bottom. You can't even get an appointment with a real estate agent. Too many left the business. I feel so sad for the people who let the banks trick them into giving up their homes. Insurance companies miss-priced their own risk due to this overcorrection. Opportunities are making out well on the overreaction. People also overreacted to the global Level5 pandemic we just had last month. Everyone overreacts nowadays, enjoy it. Get out of the stock market now near the bottome and you will miss out on the best market of the past 80 years. Loving it!

  • James - Thursday, May 21, 2009, 4:52PM ET  Report Abuse

    • Overall: 1/5

    Apologize to insurance companies??? I am amazed that this paid schill for the insurance industry is allowed to write on Yahoo as an "expert". Please, Yahoo, put Ben (and the rest of us) out of our misery. Reading this dufus is like watching a train wreck, I just can't turn away. For comedy, he's fine, but there are some people who are so clueless, they actually think that he's trying to help them and not himself. The man just parrots Larry Kudrow (who just said that the Dow is going to 12,000 soon - Ben's next article?), and promotes anything as long as he gets paid for it. Yahoo, seriously, having this paid shill on your site as an "expert", without having him disclose who he receives endorsements from and what he is invested in is not in anyone's best long-term interests - except Ben's.

  • toby - Thursday, May 21, 2009, 12:01PM ET  Report Abuse

    • Overall: 2/5

    Recovery could be near - near is a relative concept. For those of us over 60, involuntarily 'retired' near is quite different from a 30 year old in the full flush of a career. However, what have I learned? Don't chase growth, go for yield over asset value. You must put money to work or it eventually becomes worth much less. Cash is indeed part of a diversified portfolio so preserve your means of cash flow at all costs. When age and salary conspire to render you non-competitive in the profession you have followed for 40 years, be prepared to compete for the most menial job that you can imagine and count yourself lucky if you can obtain work.

  • paul - Thursday, May 21, 2009, 11:50AM ET  Report Abuse

    • Overall: 5/5

    One, we must plan for not just a poor outcome but for the possibility of outright disaster. Whatever the Monte Carlo simulators told us about outcomes was wildly optimistic. Even when we were in stunning prosperity, as we seemed to be in the spring of 2007, events were moving toward true calamity. Very few of us were prepared. We were like the passengers on the Poseidon, partying hearty as a murderous wave was about to capsize our hopes and dreams. exactly...true what Ben is saying is always have a large cash stream backup or guarenteed income stream like an annuity to handle the really bad times.. anyone who had gaurenteed annunity over the past several years has not lost a dime while those invested in the stock market have lost upwards of close to 40% or more of their money.. guarenteed annunites have all kinda of things built in to protect them..the insurance companies must have a set amount available cash set aside to cover all obligations,and the state has it's own seperate guarentee fund in addition to cover all obligations.. you can say what want about Ben..but while most of you in equities/stocks have been devastated and your retirements devasted..anyone who held any annuity has been riding smooth on this recession..

  • Yahoo! Finance User - Thursday, May 21, 2009, 11:23AM ET  Report Abuse

    • Overall: 1/5

    Apologize to the insurance companies? That's a good one...

  • Yahoo! Finance User - Thursday, May 21, 2009, 9:24AM ET  Report Abuse

    • Overall: 1/5

    Stein is pretty much a 'tard.

  • Yahoo! Finance User - Monday, May 18, 2009, 6:15PM ET  Report Abuse

    • Overall: 1/5

    Recovery might be near? For who? The DC cronies who receive the printed fiat currency? There might be a temporary pseudo-lift to the economy, but the economy is still a house of cards. You can't build an economy on printed money, debt, taxes, discriminant subsidizing of unproductive pockets of society & reckless spending. The only thing a working taxpayer is going to get is an inflation tax and the middle finger from the government they fund. Free Market Capitalism (which we have not had since shortly after 1913) is about capital. Capital happens through savings and production. America is the largest debtor nation. So economic recovery comes from more debt via the printing press & backed by taxes on our unborn? I have to disagree with Mr. Stein. I think this will be a protracted recession. Every economic policy set in place for a long time has been steering us down a road to a weakened dollar, over regulated markets, wealth-destroying taxes, and an overall poor environment for business and entrepreneurship. I think our immigration problem will be an emigration problem if we don't identify the real issues. The government and the Federal Reserve Bank are the major problem with America. Vote for HR 1207 - The Federal Reserve Transparency Act of 2009. The Federal Reserve has NEVER been audited even though they are the institution that issues currency and controls interest rates. Nobody in congress (who the Constitution says should be issuing money) has ever seen the Fed's books. I think it's time to take a peek, I think. I apologize about the soapbox. But I just disagree with Mr. Stein in a big way.

  • John - Monday, May 18, 2009, 1:16AM ET  Report Abuse

    • Overall: 1/5

    I think a much more adequate measure of where we are in the deflationary cycle is trading days...not hours a bank is open. As my grandfather would always say, "Use your head for something other than a hat rack." Here is some help... http://www.bearmarketcomparison.com/Bear-Market-Comparison-Dow-Jones-Industrial-Average.htm

  • Siu Hoi - Sunday, May 17, 2009, 11:45PM ET  Report Abuse

    • Overall: 5/5

    If we have learnt anything in the 80 years between 1930 and 2009, that should speed up things a little bit. Banks open at 10am and close at 2:30pm in the 1930s. Banks do business 24hours a day today. Hence I believe Ben --- the same number of elapsed working hours have taken today as in the 1930s for the economy to recovery, except we have a faster clock this time.

  • William - Sunday, May 17, 2009, 11:10PM ET  Report Abuse

    • Overall: 1/5

    "The Economic Slump: What We've Learned" We have learned not to listen to you Ben. One star... as usual.

  • Susan H - Sunday, May 17, 2009, 10:55PM ET  Report Abuse

    • Overall: 1/5

    "Some investments have performed far better than others, although everything but cash has basically been murdered." ????So what good did diversifying do? There was no where to hide during this debacle except CASH. We still have a very long way to go before we dig ourselves out of this hole.

  • Philipn - Sunday, May 17, 2009, 10:30PM ET  Report Abuse

    • Overall: 1/5

    Yet again, more tripe. Instead of articles from financial "celebrities" why not get weekly articles from academics and true experts. Most of the articles you find on Yahoo Financial are selling something.

  • Yahoo! Finance User - Sunday, May 17, 2009, 9:12PM ET  Report Abuse

    • Overall: 1/5

    This man has no credibility. He's a creationist ideologue. Does he pray about this stuff before writing it? It reflects poorly on yahoo to have him offerring ANY opinion about something factual.

  • Gary - Sunday, May 17, 2009, 8:55PM ET  Report Abuse

    • Overall: 1/5

    The so called "expert" is still here. Still talking about economy. Still giving advises. It is sad to realize how primitive and naive the audience is. Sorry guys. Keep hallusionating.

  • TL - Sunday, May 17, 2009, 6:38PM ET  Report Abuse

    • Overall: 1/5

    What will take for Yahoo to remove some of their op-ed writers like Ben S. He's not a economist and he's not a professor. Why is his opinion about annuities, CD's or stocks worth our time? Because he was on TV? Because he can send his kid to Princeton? Give us some info from people who make money investing not from just blowing hot air.

  • justin - Sunday, May 17, 2009, 6:14PM ET  Report Abuse

    • Overall: 1/5

    I read this and laughed. Did Fidelity pay you to write this? Live within our means and buy annuities, is that all you have learned in your life time? Tell us about your annuities Ben Stein?

  • Yahoo! Finance User - Sunday, May 17, 2009, 6:13PM ET  Report Abuse

    • Overall: 1/5

    Ben Stein is as useless as he is useless. I hate that new commercial of him where he's like "I'm good with money". No you're not, and you know that you're not. Merrill Lynch at 70 a share being a good buy? You are to money what M.C. Hammer is to money.

  • Mr_Big_Oil - Sunday, May 17, 2009, 4:00PM ET  Report Abuse

    • Overall: 1/5

    Be very careful buying annuities from insurance companies. Run the proposal by an attorney that is knowledgeable about annuities. Better yet, stay the heck away.

Showing comments 6-35 of 166<< PreviousNext >>
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