The Upside to the Down Economy

July 1, 2008 — -- There is no question the economy is struggling. Prices at the pump are way up, and stock prices are down. Every morning we wake to headlines of job cuts and declining corporate profits. But, believe it or not, there is definitely a real opportunity to turn all of these lemons into lemonade.

We have all heard so much on how the credit crunch has made it more difficult to get loans for college, but why does today mark an important day for financing that could actually make life easier for new graduates?

The college loan market has been miserable, but today there is finally some good news for current students and graduates. You can now consolidate your Stafford Loan — need-based federal student loans — at a rate of 3.625 percent. This is a huge discount from where rates are currently, between 6.625 and 8.125 percent. This is great news for more than 5.5 million students and graduates who are eligible. For these students, they are looking at a savings of more than $2,500 over the life of their loans. You have until June 30, 2009, to take advantage of these low rates.

Why is now a good time to invest in the stock market?

The DOW is down more than 20 percent since it peaked in October — the official sign we are in a bear market. I always like to remind people to buy low and sell high. Investors should be in it for the long term, and timing the market is not a savvy investment strategy. The key is to look for quality companies with strong management teams, and consistent and predictable earnings. In fact, bull markets always follow bears. After the last bear market, stocks zoomed up almost 33 percent just a year later. While we may not be at the bottom of the market now, many stocks and stock mutual funds are in the bargain basement and are worth buying. With that overlay in mind, you should focus on out-of-favor companies and sectors as they may offer the most compelling values.

Why do the lemons in the real estate market mean real lemonade for buyers?

If there is a silver lining in the otherwise dark cloud looming over the real estate market, it is that now is one of the best times in years to buy a home in almost 30 years. Single family home prices were down almost 8 percent in the first quarter — the biggest drop in one year since 1982. In many parts of the country, home prices are down as much as 30 percent. And, according to the U.S. Census Bureau, almost 3 million vacant homes — a record number — are for sale. This means big deals are lurking out there for prospective home buyers. Capitalize on this down market by negotiating and seeking out the best deal possible.

With $4 a gallon gasoline, why is now a great time to buy a car?

It is a complete and total buyer's market for consumers right now. In fact, the average new vehicle is selling at its lowest price in seven years. Overall car sales are down more than 8 percent compared with last year, which has prompted automakers to put out all the stops to clear their lots. Auto manufacturers are heavily advertising their "employee pricing" discounts to everyone and 72-hour special fire-sales, where dealerships stay open for 72 hours in one week to encourage customers to buy. I do not expect this trend to continue — GM has already announced it will raise prices on 2009 models by 3.5 percent. So, if you thinking about purchasing a car, now is the time to do it.

Why is now a potentially good time to start a business?

A down market is actually a good market to start up a business. Typically, the cost to rent office space is down; there is often less competition and a lot of talent looking for work. The unemployment rate is up to 5.5 percent compared to 4.5 percent at the same time last year.

Further proof: Microsoft opened its doors during a recession in the late 1970s and went public just a year before the stock market crash of 1987. According to Bankrate.com, more than half of the 30 companies that make up the Dow Jones Industrial Average began during an economic downturn.

What other good news comes out of the struggling economy?

The onerous and often tempting credit card offers, which typically line your mailbox, are on the decline because of the credit crunch. According to the media monitoring firm Comperemedia, credit card solicitations are down more than 14 percent over last year. On the flip side, traditional and online coupon offers are on the rise. Out of sight, out of mind is a good mantra for credit cards.