The Housing Mindset: Investing in the Habits for Success and Facing a Tough Economy.

Having a wealthy mindset does not mean that you have to be living in Pollyanna. If you selectively choose to only read positive information and shelve the negative, you will fail to miss the point of a holistic and diverse investing mindset. Wise investors realize that money can be made in up and down markets. I am shocked by the mindset of some “experts” claiming that all is fine in the current marketplace. It is not. Yet they play a zero sum game that if you do not accept positive thinking, then you are simply doomed to a life of mediocrity. This is not the case. You must confront the brutal facts of the current situation. That is, we are in a recession and certain sectors will have a much harder time in the upcoming years. Let me list a few sectors that will continue to have problems well into the year:

1. Housing

2. Financials

3. Automotive

4. Retail

What we are entering into is a recession that has the potential to be as deep as the one in the early 1980s. The previous two recessions were minor and none of the global factors that we are currently facing existed at the time. This time it is truly different. Peak oil is coming online and global turmoil does not seem like it will be abating anytime soon. We are in a global housing bubble which has not been faced on this planet. And aside from all the decoupling fanatics out there, the United States carries a lot of weight on the global scale.

So how do you keep a healthy mindset in all this? There is a lot of fear out there. If you run from the current information and bury your head in the sand then of course looking at the reality is not going to be helpful. In fact, you may adopt the ignorance is bliss philosophy and pretend everything is fine. Would the government be sending practically every working adult a rebate check if everything was fine? Our economy is based on 70 percent consumption so any slight drop in consumption is enough to stall the entire system.

To benefit from this you have to invest with the understanding of the economic system we are in. This isn’t some minor snafu and people are panicking. The underlying fundamentals for many companies are horrible since they play into the overall scheme of consumption. What you need to do is invest for asset and dollar deflation.

I’ve argued before that having a percentage of your money in gold is important and key in preserving your current wealth. You need to remember that in a deflationary environment, debt is your number one enemy and capital preservation is key. So any debts you may have, start paying them off. This in fact should be approached as an investment strategy. Counter to what has been portrayed in the mainstream media, paying off your debt is not a bad strategy. You may want to consider investing in sound foreign currencies such as the Japanese Yen given the current unwinding going on between our currencies. This should be a portion of your overall portfolio.

I’ve heard many people talk about jumping into housing and financial stocks because they are so battered. But the assumption is that they have taken a beating and are severely under priced. What if they are simply reflecting the actual real value? Keep in mind that we have seen our first annual national price depreciation in housing since the Great Depression. Inventory is at record levels. Prices are still trending lower. Is it the bottom or merely a pit stop to deeper cuts?

And always remember that wealth is a state of mind. I have noticed a psychological phenomenon where people put so much of their personal worth on their housing values. As insane as this may sound, there is this low grade fear permeating throughout our economy that people are no longer “feeling” wealthy. The negative wealth effect is going to take its toll since the reality is we are not as wealthy as we have been spending. Yet this is a great time to prepare and be focused. I also hear from the other camp that some believe we are going to enter into another bubble after this one. Simply put, the buck will stop here for at least a decade or so. We went from a technology bubble to a housing bubble without skipping a beat. The mindset is now changing and it is time to prepare.
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