JJ Astor on Business
Winning in the future, with a nod to the past.

Why Recession is Needed: A Bentley in Every Driveway

Over the holiday weekend, I spent time at a nearby beach resort. Over the years I’ve seen this resort turn from a family oriented spot for working class multi-generational families to vacation, to just one more over priced, over developed beach front community for people to show off their cars, boats, and other flashy assets to one another.

But this Memorial Day Weekend was truly something special. With all the talk of recession, real estate busts, and bubbles bursting, I was surprised to find that six of my eight neighbors were all sporting the new $300,000+ Bentley Azure Convertible. For an area that has experienced an 800% increase in real estate values in the last 15 years, maybe this isn’t surprising. But I have to defer to my time tested theory of “The same skill sets required to make money are needed to manage/retain it.” So, if simply buying and holding was the real estate “investment” strategy for the last 15 years, you have a large percentage of the population who really never learned the lessons of proper wealth acquisition, and therefore spend their money on Bentley Azures and other flamboyant extravagances that would make even Donald Trump blush.

This is one of the several reasons why I think a national recession is a very positive thing for our country. It’s a very natural part of a capitalist economy, but lately, the public/media have acted as though we can financially manipulate our economy to completely avoid them. This, however, is impossible, and is not in the best interest of our long term economic viability. Americans need to learn the lessons of being financially undisciplined, and the impact of recession needs to touch them personally in some way that leaves emotional residue for the rest of their lifetime. This is how our economy becomes more efficient, and how we less frequently repeat the mistakes of the past.

Now let me be clear – this recession is very different from the recessions of recent decades. I’ve heard many people remarking about the buying opportunities available one the market “bottoms out.” In reality, this is highly unlikely. Unlike the recession of 2001, as well as the recessions in the eighties and mid-nineties, the big/smart money was on the sidelines for most of it. That’s right, every rich person ($50M+) and rich person’s money manager that I know saw this coming from a mile away, and switched to more conservative asset classes. What that means is that there are hundreds of billions of dollars of capital waiting on the sidelines to pick up underpriced assets at fire sales. And because most of these wealthy individuals/funds made their original fortunes in these now underpriced domains/asset classes, they not only have the funds but have the experience to buy troubled assets and turn them around.

In fact, almost none of the Forbes 400 list billionaires dropped off the list or lost considerable amounts of money during this most recent recession. This concerns me. In my opinion, there are definitely people on that list whose money would be better off in someone else’s hands. But it’s tough to knock the $50M+ crowd off their horses. Though, I sure as hell wouldn’t mind seeing the $1M to $20M crowd (my nuevo riche neighbors) get their asses kicked by these markets. That would at least allow some financially disciplined Americans without huge checkbooks to make some money by investing wisely. Americans just have to be willing to stomach this down turn until it gets to that point, and let the natural “shake out” of bad money occur.

So next time you hear someone say the “Recession word” like it’s a profanity, recognize that it’s the other “R Word” that we should be concerned about – Regulation. One of the nations best poker players once said that short term volatility is normal, but over the long run, the smartest, most disciplined poker players always win. And the primary reason that this happens is because the casino doesn’t handicap the game – they just let the players play. And that’s all I’m asking from our regulators.


One Response to “Why Recession is Needed: A Bentley in Every Driveway”

  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

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