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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

A View of the Economy from Abroad

by Ben Stein

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Posted on Thursday, July 5, 2007, 12:00AM

I'm writing this from Frankfurt, Germany. The perspective from my perch here in the financial district at the lush Villa Kennedy Hotel allows me to offer a few bullet-point thoughts on the economy.

Subordinate Subprime

First, I'm not at all worried about the stock market despite the recurrent panic about subprime mortgage problems and resistance to some loans by lenders in private equity deals (which used to be called, appropriately, leveraged buyouts, or LBOs).

Subprime is a small sector of the mortgage market, as I've said before. It might be 15 percent at most. The defaults and delinquencies in this sector might be roughly 15 percent, which makes for a total problem rate of about 2.25 percent of the whole mortgage market.

If all this goes into foreclosure (which is unlikely), it will realize about 60 percent upon liquidation at the very least. That means the real loss might be about .9 percent, or less than 1 percent. That's a large number, but tiny in the context of the economy.

How the Economy Rates

As to the resistance of lenders to lend at low rates on some LBOs, this shows that the loan market is not completely insane. That's a good sign, not a bad one. It would be much more worrisome for the future if lenders wanted to sign up for every deal.

Besides, again, the effect is tiny in the context of the whole economy. It's a misuse of time and energy for individual investors to worry about private equity players having to pay a small amount more for loans.

The rise in interest rates is a real worry, if it continues in a big way. If interest rates go up by another two percentage points, the net present value of stock market earnings and dividends would be cruelly cut, and would dent the market seriously.

But there's no sign of that happening. Domestic interest rates are rising to equilibrate U.S. rates with European rates, and they reflect a strong economy. So these aren't worrisome signs at this point.

Don't Hit the Panic Button

The fact is that the economy is booming on a record scale, and profits are superb. There's no reason to panic.

The market is moved by traders who sell on a dime to make a short-term profit. That's their job. When they do sell and drive prices down, they're not hurting the underlying companies or the future prospects for the economy. In effect, they're putting stocks on sale. That represents an opportunity, not a reason to run.

I still like the 10- and 20-year prospects for the U.S. economy. There are many threats -- nuclear terrorism, harm to oil supplies, and so on -- but for the next 20 years, we'll probably be able to keep these under control.

I have no clue whether the market will be higher or lower in a week or a month or a year. But in 10 years, you'll regret it if you didn't buy in July 2007.

International Involvement

I've also observed that Europe is booming. The prosperity here in Germany is amazing -- this is a country that's happy and peaceful despite its terrifying past. And the same goes for most of Europe.

Television advertising here is amazing, too. Commercials encourage you to invest in Angola (yes, Angola); call for the 2014 Winter Olympics to be in South Korea -- with cooperation from North Korea (yes, North Korea); and encourage investment in Russia (yes, Russia). This indicates a world economy that's on fire.

For you, that means it's time to step up investment in the iShares MSCI EAFE (EFA), the index fund for large companies in Europe, Australasia, and the Far East. Their currencies -- except for the Japanese yen -- are strong, and their profits are good, if not great.

It's also wise to keep buying iShares' MSCI Emerging Markets index fund (EEM) and the BLDRS Emerging Markets 50 ADR index fund (ADRE). The developing nations are racing ahead based on minerals or -- an even better source of prosperity -- a hardworking labor force. These are, as I keep saying, plays on the falling dollar and on the future of these countries. Over long periods, it's also money in the bank.

A Dressing Down on Dressing Down

Finally, to change the subject, I'm impressed at how badly most Americans dress for work. Even at major banks and law firms I see Americans dressed like small children. How can a client have confidence in people who show up dressed as if they're going to a rock concert? If you were a client, who would you like -- the guy in jeans and sandals or the guy in a nicely tailored suit and well-chosen necktie?

I was at the US Airways Club at LaGuardia airport a few days ago, and almost all the men there were in suits and ties. Almost all the women were in suits or dresses. They projected a sense of confidence and capability. You can have the same thing after just one visit to Brooks Brothers or J.Press. Don't let the opportunity pass you by -- human beings make decisions with their eyes. Be on the right side of it.

So, in a word, things are good -- and they can be even better if you dress better. Go for it.

Ben Stein has no financial interest in the index funds mentioned in this column.

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85 Comments

Showing comments 6-35 of 85<< PreviousNext >>
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  • Yahoo! Finance User - Friday, July 20, 2007, 11:39AM ET  Report Abuse

    • Overall: 5/5

    In total agreement with all you comments!

  • Yahoo! Finance User - Tuesday, July 17, 2007, 3:55AM ET  Report Abuse

    • Overall: 5/5

    Good job, Ben. I'm sick and tired of the doom and gloom forecasts.

  • Yahoo! Finance User - Monday, July 16, 2007, 11:32AM ET  Report Abuse

    • Overall: 4/5

    Mr Stein has always been one of my favorite speakers, with his quirky style and oddly droning voice. In this particular article, it's nice to hear a little less "doom and gloom" and a little more "springtime and flowers". But I take this point away, and draw another conclusions: the "doom and gloom" noise creates opportunities for the rest of us to invest in great opportunities for the long term investor, NOW.

  • Yahoo! Finance User - Monday, July 16, 2007, 2:28AM ET  Report Abuse

    • Overall: 1/5

    This article is simply more cheerleading by the so called "experts" in order to carry out their real agenda - to keep the American investor's head buried in the sand. Subprime mortgages and the housing market aside (which has a lot more potential exposure than Ben cares to articulate), the average U.S. investor is being duped by the media and the Fed to believe they're winning when they are actually getting their tail kicked. Why? The consistently falling dollar which is directly tied to our growing funded and unfunded national debt. The Dow hit 13,900 last week and everyone is roaring. News flash - adjusted for the fall in the dollar the market is no higher now than it was in 1999. The 10% move up in the Dow since October is no more than the 10% loss in value of the dollar over the same time. Meanwhile, almost every exchange in the world has enjoyed greater returns over the same time while enjoying the additional return against our currency. Ben at least gives the correct advice to invest abroad, but he fails to comment that those funds are based in falling U.S. dollars that are decreasing your actual return. The true play is to invest your money directly with an international broker so that your investment is denominated in the foreign currency - so I guess Ben is not such an "expert" after all. Over the last 5 years foreign markets (India, China, Brazil, several other Asian markets) are up 700%, oil is up 700% since 1998 and gold is up 250% in the last 5 years. The Dow is up 20% in nominal terms and 0% against the falling dollar. I guess its easier to sleep listening to the media hype rather than facing the facts, educating yourself and doing something about it, but it will cost you dearly in the long run. Why does the media do its spin? Because they know that if the average investor did their homework and new everything I've just told you they'd be pulling their money out of the market in droves. Given the precarious state of the economy they cannot let this happen. I agree with Ben and have no doubt that the Dow will be higher, possibly significantly higher in 10 years. However, I'd be willing to bet my last falling dollar that most of that rise will be the direct result of our falling currency, and the media will be cheering all the way. P.S. to Yahoo Finance - it's disgraceful individual posters can present more facts than your opinionated so called "experts". Send one of us an email the next time there's an opening and maybe you'll improve the quality of this forum.

  • Yahoo! Finance User - Monday, July 16, 2007, 12:26AM ET  Report Abuse

    • Overall: 1/5

    Is this article for real? This guy is telling us about the German mood from his one day "perch at the lush Villa Kennedy Hotel"? Who is paying this elitist for his insipid finiancial commentary and bizarre moralizing about personal appearance?

  • Yahoo! Finance User - Sunday, July 15, 2007, 10:03PM ET  Report Abuse

    • Overall: 4/5

    good article

  • Yahoo! Finance User - Sunday, July 15, 2007, 10:03AM ET  Report Abuse

    • Overall: 4/5

    Ben Stein usually provides insightful commentary. Remember ... as bad as the news sounds, life on Earth is about as peaceful as it gets ... right now! The past? UGH!

  • Yahoo! Finance User - Sunday, July 15, 2007, 6:57AM ET  Report Abuse

    • Overall: 4/5

    Not sure about the dress code thing, but good points about the state of our economy overall. The negative news is usually not news; it's just noise.

  • Yahoo! Finance User - Saturday, July 14, 2007, 5:36PM ET  Report Abuse

    • Overall: 5/5

    Ben Stein is amazing. He is right on with every statement and he has a great (and I do mean Great) sense of humor. I have read almost evrything this guy has written and I will continue to do so, He is down to earth with a no "b--- s---" approach to his teachings. Love this man.

  • Yahoo! Finance User - Saturday, July 14, 2007, 1:40PM ET  Report Abuse

    • Overall: 2/5

    I believe the housing market is going to be worse than most expect. If you consider that home ownership hit an all time high, interest rates have increased, inflation is going to increase due to the war and throw in high energy prices the value of homes will drop.The larger the house the larger the percentage drop. It may take numerous years for the down cycle to end.

  • Yahoo! Finance User - Saturday, July 14, 2007, 9:56AM ET  Report Abuse

    • Overall: 1/5

    The writer should come back to the states and see what condition the economy is in. You can`t be a judge of this countries economy perched on top of a hotel in GERMANY!

  • Yahoo! Finance User - Monday, July 9, 2007, 11:29PM ET  Report Abuse

    • Overall: 5/5

    i love to see the peak oil/falling dollar/doom and gloom crowd posting in force. as long as you guys keep it up i know everything is right in the market. if you guys ever disappear and jump on the bandwagon i'll actually be worried things really are about to turn south ;) keep up the good work Ben, and the same to his followers. Over the long term 'stay the course' has always won, and 'doom and gloom' has always lost.

  • Yahoo! Finance User - Monday, July 9, 2007, 10:53PM ET  Report Abuse

    • Overall: 4/5

    Ben gets it.

  • Yahoo! Finance User - Monday, July 9, 2007, 10:35PM ET  Report Abuse

    • Overall: 1/5

    Obviously has no understanding of the fact that infinite economic growth is not possible with finite and rapidly depleting energy resources. Oil is at $70/barrel for a reason, and it's not because the oil majors are price gouging, since they produce less than 3% of world oil production. It's called market demand (increasing) supply (decreasing) = higher prices. Prepare for inflation, higher interest rates, and recession - all coinciding with previous oil shocks, but with the present situation being a more permanent one.

  • Yahoo! Finance User - Monday, July 9, 2007, 10:27PM ET  Report Abuse

    • Overall: 5/5

    Good level headed advice as usual. Ben doesn't predict the near term because he nor anyone else can. On appropiate dress he is absolutely correct. I recently met with 2 men who were soliticiting my business. Neither wore a suit, both wore causul shirts and one had the "2 day growth look" beard. I thought if these guys can't shave and dress themselves I don't want them handleing client money.

  • Yahoo! Finance User - Monday, July 9, 2007, 10:15PM ET  Report Abuse

    • Overall: 5/5

    Well articulated and thought out article after article. Don't let this fellow go anywhere anytime soon.

  • Yahoo! Finance User - Monday, July 9, 2007, 10:04PM ET  Report Abuse

    • Overall: 5/5

    Great article Ben! Nice job.

  • Yahoo! Finance User - Monday, July 9, 2007, 9:08PM ET  Report Abuse

    • Overall: 4/5

    Ben gives solid advice without the baloney we see from other columnists.

  • Yahoo! Finance User - Monday, July 9, 2007, 8:41PM ET  Report Abuse

    • Overall: 1/5

    More vanilla type analysis. Essentially useless.

  • Yahoo! Finance User - Monday, July 9, 2007, 8:35PM ET  Report Abuse

    • Overall: 2/5

    The topics were catchy and the opinion was interesting but there was very little substance or figures to support his points. Who's to say that the U.S. economy is going to be so great in 20 years? I'd like to believe it myself but Europe, Russia and China and beginning to hit their stride. If we're going to pre-suppose things about the future, I'm guessing that we're all going to be speaking Chinese or Russian in the U.S. because of bone head writers leaders that throw stuff out there like, everything is going to be great in 20 years! Don't worry about anything

  • Yahoo! Finance User - Monday, July 9, 2007, 8:08PM ET  Report Abuse

    • Overall: 5/5

    Ben is smart, and he is right, and intelligent. He is observant and his books are low-key and make sense, and they will make astute investors more money. Listen and heed his advice. I really do believe anyone who gives his article a one star must have a net worth of less than $500,000. (just my way of saying that the followers of doom and gloom are POOR).

  • Yahoo! Finance User - Monday, July 9, 2007, 8:05PM ET  Report Abuse

    • Overall: 5/5

    Great work as usual! Keep it up! Just ignore the jealous losers who wish they were as rich and as smart as you!

  • Yahoo! Finance User - Monday, July 9, 2007, 7:54PM ET  Report Abuse

    • Overall: 5/5

    Ben, As always you give great advice. Your comments about the dollar are right on the $$$$ !!!!!!!!!!!!!!!

  • Yahoo! Finance User - Monday, July 9, 2007, 7:20PM ET  Report Abuse

    • Overall: 1/5

    Ben's writing has zero, zip, nada, predictive value. He doesn't understand how the system works. Can you find any of Ben's writings in the top ten links returned by google searches of recent events? stock market bubble housing bubble correction Not even in the top ten pages, never mind links. I figure he's missing the risk in the credit markets, too. financial markets risk pollution And he never talks about why... the sheeple shall be shorn

  • Yahoo! Finance User - Monday, July 9, 2007, 7:07PM ET  Report Abuse

    • Overall: 1/5

    Ben, want to bet that we are heading for recession? I guess either you are paid to write this garbage or old age is catching on your sight and thoughts. Have you checked the price of milk in your local shop? $ 4 for a gallon! Check the price of other groceries. Gas prices are going up everyday. Where is the money to save and invest for future?

  • Yahoo! Finance User - Monday, July 9, 2007, 6:37PM ET  Report Abuse

    • Overall: 4/5

    Thanks again, Ben. You're my favorite Jewish uncle. Your advice helps me sleep at night despite the risks that are unavoidable if I want to make a reasonable, real return on my life savings. I've been poor before, and I never want to be poor again.

  • Yahoo! Finance User - Monday, July 9, 2007, 6:05PM ET  Report Abuse

    • Overall: 1/5

    Of course the foreign markets are booming in terms of the dollar. 300 Euros could not buy $250 when the present administration took office, today that will buy over $400. And his tossing around unsubstantiated numbers and guesses as facts merely reinforces that old bromides "Lies, damn lies and statistics."

  • Yahoo! Finance User - Monday, July 9, 2007, 5:07PM ET  Report Abuse

    • Overall: 2/5

    The worldwide debt bubble is more serious than you think, Ben. I do agree with you on the dress code. In the 1920's, people used to dress in suits to go to the movies. In the 1960's, members of the audience on the Ed Sullivan Show were in suits when The Beatles were introduced to America on that program. It wasn't so many years ago when people would dress up to go to a decent restaurant. Today, you'll find men in baseball caps turned backwards in such places. I like people making an attempt to look good. It demonstrates some self-discipline and a sense of decorum.

  • Yahoo! Finance User - Monday, July 9, 2007, 4:48PM ET  Report Abuse

    • Overall: 3/5

    I bet if you put in your bow tie and you will look more like a pre-schooler. I remember when I was a pre-schooler in Asia, I have a bow tie. When all consider, wear appropriately for the suitation. Customer facing will have to look better, but if you are not going to face anyone other than your boss that dress like you, who cares. I know in US, people are more formal than us Canadians.

  • Yahoo! Finance User - Monday, July 9, 2007, 4:39PM ET  Report Abuse

    • Overall: 5/5

    Displaying his keen intellect once again, Ben dose a superb job evaluating our current macro economic view. For those overly concerned about the falling dollar, please remember that it will most likely spur U.S. exports (which it has) which is great for the economy. If you really want to learn more, study the J curve effect. Thanks Ben, I've been in VEIEX for a few years now. I'm up 43% year/year.

Showing comments 6-35 of 85<< PreviousNext >>
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