Risk becomes a four-letter word as U.S. economic recovery dims

Suddenly, it seems, we've nose-dived into one of those financial convergences when nothing's going right with your money. "Risk" — a foundation premise in our economy — for now has morphed into an obscene four-letter word as people more than ever go out of their way to eliminate as much of it as they can.

These are the days that can test the faith in capitalism.

"Investors," says Clearwater veteran financial planner Ray Ferrara, "are embracing the Will Rogers saying of 'not being concerned about the return on my money as much as the return of my money.' "

The Dow, which briefly fell back under 10,000 last week, is full of nasty chatter of a serious market drop ahead while apocalyptic-sounding (and only occasionally accurate) signals with names like "Doomsday investing" or the "Hindenburg Omen" are in the news anticipating a sharp downturn. Recent reports suggest high-speed traders with powerful computers may be fleecing the stock markets and fueling stock volatility just to make a buck at our expense.

Fleeing stocks — and many folks are doing exactly that based on the flow of assets out of mutual funds lately — means smaller investors are piling lemming-like into government bonds as experts start to warn of a U.S. Treasury bond bubble in the making.

And just when you thought it was safe to talk about a bottom in the Florida housing market, new real estate numbers show weak sales and still declining prices. Almost half of all Tampa Bay area residential properties with a mortgage — that's 319,367 homes — had a mortgage bigger than the home's value in this year's second quarter. Another 30,074 homes here, or 4.4 percent, are close to falling into the same situation even as 30-year mortgage rates hover at historic lows, below 4.5 percent.

In midsummer, Floridians' expectations about their personal finances a year from now sank to a record low in the monthly consumer confidence survey conducted by University of Florida researchers.

Even the phrase "Double Dip," once verboten to utter in polite circles amid this fragile economy, is back in vogue, reinforced Friday by new numbers that show the nation's economy grew less than expected in the past quarter to a mere 1.6 percent.

That low growth rate, economist and CNBC icon Mark Zandi said Friday, means the odds are rising that we could backtrack into a recession.

Some recovery we're in, eh?

Nor are these the only stressful events going on. Add on the Obama administration — it's driving conservatives wild but also bewildering many supporters by its sheer pace of change, from health care overhaul to financial industry reform. Don't forget growing concern over the ballooning fiscal deficit. Toss in the recent upset in Florida's race for governor with a key voter decision to be made Nov. 2 between two very different leading but still not well-known candidates, Rick Scott and Alex Sink. Don't neglect the BP gulf oil spill that appears to be plugged but whose ugly aftereffects may endure for years.

Tampa Bay has even earned a No. 4 spot in a national survey of the most stressed metro areas in the country. And our own regional economic scorecard, updated just last week, found that Tampa Bay fell from third to last place when compared to five other competing metro areas in the Sun Belt. Our 12.3 percent unemployment rate is a big contributor.

The heightened uncertainty of so many things is causing people to be more cautious than ever with their money, argues financial adviser Ferrara.

"We are calling it the 'what if … ' scenario," he says, rattling off a few. What if Congress extends the Bush tax breaks? What if it doesn't? What if the Republicans take control of one of the two houses of Congress in November? What if they don't? What if companies decide to use the cash they have to acquire other companies as opposed to hiring new people at their own firm? What if they don't? What if inflation rears its ugly head because of the money that has been created, rather than deflation, which is the story of the day. What if it doesn't?

"The list," he says, "goes on and on."

One big effect on investors is to hightail it to as-safe-as-possible assets, especially government securities. Because trillions of dollars of consumers' nest eggs have been lost to the housing and stock market busts, people are still fearful of risk, saving more and spending less, says economist Sean Snaith, who heads Orlando's University of Central Florida Institute for Economic Competitiveness.

The old economic adage "once bitten, twice shy" needs an update, Snaith says. "Because of the financial crisis and the housing bust, consumers are twice bitten, quadruple shy."

Adds Snaith: "Deceleration of the recovery will add to the anxiety."

It's a popular refrain among experts.

Investors are generally confused, "many paralyzed by indecision," says Florida senior wealth strategist Joan K. Crain at BNY Mellon. They are tired of staying in cash and earning almost nothing, yet wary of alternative investments. They are unhappy or nervous about bonds with the current low yields and potential loss of principal. And they feel betrayed by the stock market, Crain says.

Many are acting on that betrayal. Investors withdrew an astonishing $33 billion-plus from domestic stock market mutual funds in the first seven months of this year. Much of that went into bonds.

I saved the even-handed thoughts of St. Petersburg's Raymond James & Associates chief economist Scott Brown for last. It typically takes a lot more economic hand-wringing to seriously worry him.

"I think we're at the crossroads here, between lackluster-to-moderate growth in the best-case scenario, and a further contraction in the worst-case scenario," Brown says. Constraints in both fiscal and monetary policy make the outlook dicey, he admits, and limit our ability to counter a double dip should it occur.

A rising savings rate is good in a country famous for overdrawn credit cards and puny retirement funds. But, Brown says, it is troublesome when everybody decides to save at once.

"Saving more means spending less — and that foregone spending was someone else's income," he says. "An increase in the savings rate makes the economic recovery weaker."

No wonder "risk" has become a word to avoid and an economic strategy to shun. So many financial and political factors are in a whirling blender, nobody's sure what to do except hold on.

Robert Trigaux can be reached at trigaux@sptimes.com.

Risk becomes a four-letter word as U.S. economic recovery dims 08/28/10 [Last modified: Friday, August 27, 2010 10:40pm]

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