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The complete 700 page Eighth Edition is available here for a limited time AT NO CHARGE. The book is written in "plain talk" language and covers virtually all personal financial concerns. Of particular importance are the extra end-of-chapter features which explain how the economy impacts on our lives, plus how to anticipate and solve real-life financial problems, and much more. PLEASE NOTE: Give the pages a few moments to load. Some of the first few pages are blank, owing to the way the book was originally published. The "Quick Click" links and the Update Link (www.wiley...etc.)are no longer operative; they will be replaced in the website's articles. Scroll to the textbook's Table of Contents for a complete look at the subject matter.

Click below to access the book, which is viewable on your monitor but not currently downloadable. The contents of the Eighth Edition, plus the postings on this website, will constitute the Ninth Edition of Personal Finance.



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Wednesday, February 27, 2008

IT'S A GOOD NEWS--BAD NEWS SORT OF DAY


"There are three kinds of lies: Lies, Damned Lies, and Statistics." So said the wise Benjamin Disraeli, British Prime Minister in the late 1800s. We are inundated with statistics to a point of being numb to them. Politicians, government agencies, corporations and all of their P.R. people grind out the numbers relentlessly. Many are misleading. Many contradict each other. Many are taken out of context. Yet they continue to make headlines and seep their way into our brains. Here's one guideline that might help you survive the tsunami of statistics. Ask yourself, when you see the numbers: "Relative to what?" The truth might be surprising.

Enough already with the headlines shouting about the bad times in the housing market. Yes, I agree, there has been a severe downturn. Jobs lost. Investments vanished. National mood somber.

Indeed, the news becomes a self-fulfilling prophecy. Prospective home buyers read about how house prices are falling and mortages are tougher to come buy. So what do they do? Believing the statistics, they say, "Let's wait until prices fall even more, and getting a mortgage is easier." In other words, they put off buying houses. And so the statistics get worse.

WHICH STATISTICS DO YOU WANT TO BELIEVE?

But there's a bigger picture. The housing market is in a rut, but relative to what? New single family home sales in 2007 were less than 800,000. And 2008 might be worse still. But look back just a short way and, according to Department of Commerce records, there were about 1.3 million new home sales in 2005, an all time record high. In 2003, 2004 and 2006 there were over a million per year. From 1991 to 2002 the annual average was 700,000. (New home sales are particularly important because they create jobs, whereas existing home sales don't involve new construction.)

Yes, new home sales are in bad shape right now. Just a little while ago they were soaring, but we didn't see many headlines to that effect. Housing has always been cyclical. No doubt too many homes were built from 2003 to 2006, and now the market has paused to catch its breath. Everything is relative. Even pain.

Gasoline prices are another sore subject. Yesterday wholesale prices closed at over $100 a barrel, and predictions are for higher pump prices this spring. Yes, higher gas prices are a bad thing, but relative to what? In 1981, gas prices adjusted for inflation averaged $3.40 per gallon, and we survived.

The Euro today hit an all time high of $1.50. Is that good or bad? Relative to what? If you're going to Europe in the months ahead, your trip will cost a bit more than it would have last year. That bad news applies only to a small number of people---and they're mostly people who can easily afford the higher exchange rate. But if you work for a company that exports products to Europe, those American-made products will be cheaper for European buyers (since their Euros buy more U.S. dollars) and that's good news for your company and it's employees. And that covers a lot more people than travel to Europe each year.

Also today the Federal Reserve announced the possibility of further interest rate cuts to help prime the pump of our nation's flagging economy. Good news or bad news? Relative to what? It's good news for businesses, and their employess, who want to borrow to expand their output. (Don't hold your breath, though, waiting for interest rates on your credit card to come down.) But it's bad news for people whose investments are interest rate sensitive. They'll take a hit, and will have less money to spend.

We will never run out of lies. Or damned lies. Or statistics. (The correct designation depends on who is issuing the statement.) What's important to remember is that statistics do not necessary equal truth. Everything is relative. Be careful what you take to heart.


This article supplements Chapter One, pages 16-26, in Personal Finance. Access the text by clicking on the red box in the right column.

posted by Bob Rosefsky at 10:27 AM