Wednesday, December 16, 2009, 10:49AM ET - U.S. Markets close in 5 hours and 11 minutes.

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

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Very Good (451 Ratings)
3.65853/5
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.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Very Good (451 Ratings)
3.5/5
Sign-in to rate!

85 Comments

Showing comments 1-5 of 85Next >>
Sort: last to first

  • tim - Monday, July 9, 2007, 3:19AM ET  Report Abuse

    • Overall: 5/5

    Ben - I think you might be taking the subprime situation to placidly. The actual subprime problems you describe do not take into account the massive amount of leverage that has magnified the extent of the losses. Plus, if you tighten up the subprime market you lose many buyers on the margin (not to mix metaphors). This will have the effect of lowering sales and then prices. Once prices are lowered, there is less home equity for everyone. Home equity withdrawal has served a substantial role in propping up consumer spending. If consumer spending falls (as it should so that at least we are not at a negative savings rate) the whole economy could suffer because consumer expenditures account for an historically high 72% of the economy. I do think you are correct on the EFA exposure. I have upped mine recently on your sound and repeated advise. I'm playing the emerging markets through the oil companies. PetroChina in particular, but PetroBrasil as well. Also, ConocoPhillips owns 20% of LukOil, so acquiring COP gives you some Russian exposure as well without taking on the risks of directly investing in Russia.

  • New World Investor - Michael Murphy - Monday, July 9, 2007, 5:03AM ET  Report Abuse

    • Overall: 3/5

    Glad to hear "the economy is booming on a record scale." March quarter GDP under 1% led me to think otherwise. I guess the June quarter could approach 3%. Wahoo.

  • Yahoo! Finance User - Monday, July 9, 2007, 5:32AM ET  Report Abuse

    • Overall: 4/5

    A values based approach to measuring economic development - Gross National Character. Read about this beautiful article at http://www.globaldharma.org/Files - Adobe Acrobat/SBW/SBL 3.16 Increasing Our Gross National Character.pdf

  • jakdaw - Monday, July 9, 2007, 6:47AM ET  Report Abuse

    • Overall: 2/5

    Shaky sentiments - the fact that ads for investing in Angola and Russia are so prominent just show how the market is at the top - South Sea Bubble mentality? The sub-prime problems in the US (and major property price problems in Spain and Ireland) and potential problems in the UK (sub-prime and buy-to-let) point to a market which has not much further to go. This is a risky time and piling into developing countries equity is a major risk - only to be done if you have money to burn. Taking a twenty year view is OK (maybe) for pension funds. For most, it is the next year or five that counts. If you lose all your money in developing countries equity.....

  • CareyA - Monday, July 9, 2007, 7:42AM ET  Report Abuse

    • Overall: 4/5

    One objection to the dressing down bit - If you're meeting with clients or customers, by all means, look your best, and keep it professional. And if you're going to an interview, even at a "casual" company, you should be dressed professionally. But those of us working in an office with no face-to-face customer or client contact get a lot more work done in jeans!

Showing comments 1-5 of 85Next >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

More From Ben Stein

The Baby-Boom Retirement Crisis And How to Beat It

Let Ben Stein show you how! Stein outlines the steps you can take today to assure your future tomorrow.

Don't leave middle age without it!
Only $16.77 plus S&H

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.