September 10 2009|01.59 PM UTC

Samantha Eckles

7 Overlooked Benefits of the Recession

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Nothing is easier than identifying problems during recessions. In fact, one might argue that what is truly difficult is avoiding mention of these problems, which are shouted from the rooftops daily by politicians and journalists. (Many of whom harp on problems even during prosperous times.) Still harder is calling attention to the overlooked benefits that economic downturns can bring. In this recession as in others past, opportunities have opened up for consumers, investors and businesses positioned to capitalize on them. Typically, these opportunities require seeing the recession as it specifically relates to you, rather than the all-encompassing malaise often seen by others. Here are 7 of the most appealing recessionary opportunities.

Undervalued Securities

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Former Federal Reserve chairman Alan Greenspan famously coined the phrase “irrational exuberance” to describe what happens during stock market bubbles. The phrase refers, of course, to how investors irrationally assume stock prices will continue rising forever, thereby triggering an eventual bust. However, there is a flip side to this that occurs during recessions: irrational despair. Very simply, this involves investors irrationally dumping (essentially) perfectly good stocks based on little more than generalized fear about “the economy” taking a dive. This creates opportunities for shrewd investors with longer time horizons – especially younger people – to scoop up these wrongly dumped stocks and make a killing. In their article “Buying on Bad News”, StockBreakthroughs.com states:

“Even the best companies, industries, and sectors fall out of favour from time to time. A well-informed investor, with some cash and a firm understanding of the situation, can calmly get into a turbulent market and buy up shares of these underdogs at a fraction of their value. Or, you can buy put options and profit from a market that’s in a downtrend.”

Generally speaking, investors with time to burn and some risk tolerance can buy stocks for far lower than their true market value and profit in the future when they will most likely return to normal levels. Fundamentally, this remains a sound strategy because there has never been a time in recorded history when the U.S. stock market failed to rebound.

Lower Home Prices for First-Time Buyers

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The housing bust has made life miserable for many current and long-time home owners, but the subsequent fall in home prices has been nothing short of delightful for first-time buyers. The best bargains of all are found in foreclosures, which topped 300,000 in August for the third straight month according to Bloomberg. Banks across America are finding that they are simply overloaded with foreclosed or soon to be foreclosed properties – so many, in fact, that some banks are having a difficult time putting all of them on the market and fielding offers simultaneously. Nevertheless, persistent buyers are scooping up unheard of deals on many of these properties. Another contributing factor to this opportunity are lower mortgage rates – as low as 5% for thirty year fixed mortgages. According to Hartford’s Examiner:

“Mortgage applications were up 17% last week, led by loan refinances, but purchases were up the most in 7 months. Purchasers were predominantly first time buyers.”

The newly enacted $8,000 first time home buyers tax credit offers still more incentive for young people to purchase their first home.. All in all, the recession has created a perfect storm of opportunity for first time home buyers.

Consumer Bargains

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Retailers know that consumers are holding on tight to their wallets, and this produced serious bargains for those willing to ferret them out. Automakers serve as one example, with many offering low and even zero percent financing on new or used cars since the recession began. Furniture stores and appliance retailers, too, are offering low or zero percent financing in efforts to resurrect lackluster consumer spending. Manufacturers are also making a bold return to the coupon strategy, having produced 317 million in the last year alone according to Walletpop.com. Consumer Reports describes how consumers can pursue bargains across another half dozen product categories, from luxury items to travel (certain air fares are at record lows) to credit cards. Regarding the latter, CR advises negotiating for lower rates because credit card issuers are working harder now than ever before to retain their long-term customers. This will be discussed in more detail later on.

Lower Interest Rates

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We already touched on the lower mortgage loan rates that are available for home buyers. However, more broadly, interest rates in general are lower than they have been in a long time. If you have been meaning to take out student loans to go to college, buy a new car or start a business, now may be the most cost-effective time to shop around at various banks for a loan. Furthermore, financial experts anticipate that this could represent a long-term trend, rather than a fleeting window of opportunity. According to Bloomberg:

The Federal Reserve may keep interest rates low for “many years” to help U.S. consumers and companies as they pare back debt, according to economists at Goldman Sachs Group Inc.

“It is hard to escape the conclusion that the Fed may need to maintain fairly low interest rates over a period of many years,” wrote Berezin and Kelston. “If you want to bring down leverage, you should keep monetary policy sufficiently accommodative to forestall a collapse in spending and a deflationary spiral.”

Particularly attractive are the loan opportunities being made available to small business owners. Reuters, for example, reported in September 2009 that Florida First Capital was announcing its “lowest interest rate ever” for Small Business Association 504 loans covering commercial real estate development – 5.14 percent for twenty year fixed rate loans. Fees and paperwork costs associated with these loans have also been reduced, making now perhaps a better time than ever to open that new store or franchise.

Stimulus Opportunities

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One thing all recessions have in common is political pressure for government leaders to “do something” about the problem. And while it is questionable how many of these initiatives produce net benefits for society as a whole, many of them create very lucrative opportunities for certain individuals. The aforementioned $8,000 first time home buyer tax credit is one example. With today’s depressed prices, that represents a huge chunk of the price effectively paid by the federal government. The recently ended Cash For Clunkers program is another, having offered anywhere from $3,500-$4,500 to people willing to junk their old cars and buy a newer, more fuel-efficient one instead. Clearly, anyone who had already needed or wanted a new car received a tremendous boost from this giveaway. The principle here is that certain groups or industries will always be deemed politically important during recessions, with great pains taken to assist them financially in some way. If you belong to one or more of these groups, take advantage!

Debt Forgiveness or Reduction

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The recession has been a major boon to people with serious consumer debt. The Los Angeles Times reported in late 2008 that the Financial Services Roundtable, an industry trade group of banks and financial institutions, was preparing to erase as much as 40% of consumer debt for consumers who agreed to certain conditions and criteria.

“To qualify, a cardholder would first have to see a credit counselor, who would use criteria provided by lenders to determine how much of the consumer’s balance could be waived — anywhere from 10% to 40%, depending on income, assets and other financial considerations. No interest would be charged on the remaining amount of credit card debt. The banks want to test the program with 50,000 consumers and, if the feds approve, then expand it to potentially millions of others.”

Whether you apply for this specific program or not, experts agree that it pays to negotiate with your credit card issuers. They are getting more calls now than ever from people who simply cannot afford to pay anything, so a call from you offering to pay something (albeit much less than you fully owe) might be welcomed with open arms. Help has also been provided by recently enacted credit card legislation. In signing “the most sweeping changes to the credit card industry in 40 years”, President Barack Obama enacted several protections for consumers, including prohibiting raising interest rates on existing credit card debt unless consumers are more than 60 days late and prohibiting issuers from charging over-limit fees unless consumers have asked for the additional credit, according to USA Today. Again – whether these practices ultimately prove beneficial for society or not, they are certainly advantageous for current debtors to utilize. This could be the chance to escape the recession minus thousands or even tens of thousands in debt!

Firing/layoffs of incompetents (better promotion prospects)

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Conventional wisdom says that the recession is the worst time to seek promotions. With unemployment in double digits and new waves of layoffs occurring seemingly every day, asking for a raise seems tantamount to career suicide – or is it? If you are a hard working difference maker at your company, the recession has probably done you a favor by clearing out all of the lazy, incompetent, or unmotivated employees. Presumably, only the best and most productive remain. According to SmartMoney.com, this is your green light to go in for the kill on that big promotion or raise you’ve been lusting after:

“Companies are so thinly staffed right now that any surge in their business puts pressure on them,” says John Challenger, the chief executive officer of outplacement firm Challenger, Gray & Christmas. “They need to keep their key people and that gives you more bargaining room than you had before.”

Ken Abosch, a benefits consultant at Hewitt Associates, concurs by noting “companies are going to work harder to take care of who they think are their outstanding employees.” Of course, standard negotiating rules apply. Wait until after the completion of a project you ran that delivered big-time results for the company. Have a list of your recent results-oriented (ie, sales or cost cutting, not committee appointments or awards) accomplishments handy. Be realistic in your requests. But above all, ask!

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{ 4 comments… read them below or add one }

chemgal September 11, 2009 at 6:17 pm

The only thing that “stimulus opportunities” achieve in the long run is beggaring, by theft (i.e., more taxes), the more productive elements of society, which automatically lowers the capability of the overall economy to recover and expand enough to produce more jobs. What “stimulus” produces in the short run is typically negative; in a downturn, especially in one as severe as this, it simply borrows from future earnings periods to temporarily inflate the current earnings period, which depresses the following period accordingly, if no further stimulus is applied.

In severe situations such as this, the government is unlikely to be able to “stimulate” the economy enough to cope with the extraordinary wealth destruction, which is ongoing. We have only seen $14 trillion so far in this country in terms of wealth destruction, but much more is to come once the entire effects of the downgrading of value of commercial debt markets are realized. It ain’t over yet, baby, not by a long shot, and .gov is already feeling the voters’ heat. The market is ridiculously overheated, and more than likely by multiple government entities, at least in part. This will not end well. My prediction is deflation for at least three more years, and perhaps more. At the end of that inflection point, I suspect that we will have a very unpleasant surprise to the upside in terms of inflation, and very rapidly.

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J Ashley Neal September 11, 2009 at 7:56 pm

I’m 70 yrs old………NEVER IN MY LIFTIME HAVE i EVER READ
SUCH UNEQUALED, UNBRIDLED, OVERBEARING, DISHONEST PILES BOF
BULLFEASTHERS !

YOU SHOULD HAVE (WHATEVER LICESSE-YOU HAVE) FOR PUBLISHING
SUCH ABSOLUTELY UNABASHED LIES, MIS/DIS CONSTRAINTS,
FABRICATIOS AND BULL-FEATHERS……

i PITY YOU IF THIS IS WHAT YOU BELIEVE….IF YOU DO-NOT BELIEVE-IT……THEN ROAST WHERE IT’S HOTTEST !!

YOU REALLY MAKE ME WANT TO EDUCATE FOLX WHO DECIDE WHAT’S BEST “FOR EVERY-ONE-ELSE”

Reply

John Gray, CA September 24, 2009 at 4:53 am

Excellent Article!! Attitude plays an important part in how we see life. There will always be the killjoys, the pessimists, the doomsayers, even in boom times – there is no pleasing some people no matter what others do or don’t do.

I totally agree – there are real estate, consumer goods, etc. at price levels never seen before since the last decade!!

As for the comments above:-
You’re 70? Really? Well, judging from your spelling and typing etc. etc. .. who would’ve guess? And as for educating others … good luck! Perhaps they might have better luck at deciphering what you’re on about!!

Reply

BJ Nash September 26, 2009 at 3:14 pm

I’m 70 too and can tell you I’ve learned something in my life and it’s “there ain’t no free lunch”. Better study the Great Depression and see if there’s a way to head it off. Judging from the incompetence of our political leaders, there isn’t.

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