Chris Michlewicz

With violent fluctuations in global financial markets, consumer confidence declining daily and housing prices continuing to drop, things look grim for investors. But a few people are looking to the future with hope in their hearts and optimism in their eyes.

The poor outlook is enough to make the biggest newshound turn off the television set or fold up the newspaper. Comparisons to the Great Depression have been made and the dreaded topic of recession has been on the lips of every political pundit from both sides of the aisle.

It turns out the persistent negativity and pessimistic view of the next few years could be exacerbating the problem.

“Fear is our biggest problem right now,” said Dr. Edward Leamer, director of the UCLA Anderson Forecast. “As long as we don’t let panic get out of control, we will be fine.”

Investment firms and financial strategists are attempting to quell those fears by making positive and pointed predictions, but many agree that the resurrection of the American economy and its timeline depends on several factors.

Pat Kummer, owner of Kummer Financial Strategies in Highlands Ranch, handles 350 clients from all over the world, but many of them live in Douglas County. While the county is often associated with the wealth of its residents, many investors are feeling the squeeze from the economic downturn and subsequent decline in foreign and domestic markets. In particular, retirement investments and college funds are being hit hardest.

But Kummer says hope should not be abandoned and patience is the key to help things return to the status quo. And while forecasts are bleak for the upcoming quarters, there is light at the end of the tunnel.

Kummer, a 22-year veteran of the financial strategies industry, has seen the best of times and the worst of times, and the “catalyst is always slightly different,” she said.

The economic decline of the early 21st century occurred when the “tech bubble” burst. Essentially, stocks were overpriced and corrected themselves. The terrorist attacks on Sept. 11, 2001 only worsened things for the economy.

The latest twist — or “spiral” — is attributed to the overall decline in the global economy, which is larger than ever.

“We are on a global economy now and there’s no way to go back because we’re co-dependent on lending systems around the world and what happens with the central banks,” Kummer said. “Our markets wait to see what the ones overseas do, and that sets the moods for gains and losses. We’re feeding off of each other on a negative spiral.”

The rhetoric among the leadership in Washington and subsequent media coverage have only served to worsen the issue, said Leamer, who pointed out during an Oct. 13 conference call with hundreds of reporters from across the nation that most of the thresholds that define a recession have not been met. Charts and graphs detailing the unemployment rate, payroll employment and declines in industrial production show the nation has not reached the levels characteristic of past recessions, he said.

Leamer further criticized the bipartisan bailout plan passed Oct. 1 and the lack of explanation by Federal Reserve Chairman Ben Bernanke, U.S. Treasury Secretary Henry Paulson and President George W. Bush of how the plan would directly benefit the average U.S. citizen.

The burden should lie with lenders and homeowners, but the “taxpayers may end up holding the tab on the housing bailout,” he said.

In much the same way that overpriced stocks declined, home prices are following suit. Unfortunately, the problem “will not go away soon” and it could take about three years for the housing market to readjust to “more normal home prices,” Leamer said.

In more recent years, homeowners refinanced, lenders became greedier, misleading loans were offered and shaky mortgage-backed bonds were purchased by banks without diligent examination. Further feeding the crisis was reckless overspending on homes, which people began to use as investments instead of “use assets,” Kummer said.

“You don’t need a 3,000- to 4,000-square-foot home when the kids are gone. Now we have all these big houses that no one can afford to live in,” she said. “They’re expensive to maintain, expensive to heat in the winter, and a lot of people didn’t really take that into account.”

The end result is Douglas County is left with a glut of large homes, which is the “wrong kind of inventory, especially with the demographics,” Kummer said.

Newer communities with more modest floor plans will emerge and become profitable, but larger homes that have been foreclosed upon could create blight and potentially bring down the prices of surrounding homes, she said.

How to change course

Widespread fears have led to declines in equity values, and Americans now are in a defensive mode and selling equities at extremely low prices. Concerns about an impending Great Depression-like recession have prompted consumers to stash cash and stop spending at retail stores and restaurants, furthering the impacts on Main Street.

The first step is to restore the confidence of the American people, which has been shattered by persistent negative reports, said Leamer, who suggested another economic stimulus package in the form of gift cards, which should be doled out to taxpayers before the holiday shopping season to “improve the mood.”

Domestic issues in recent years have pushed many investors to foreign markets, which are now being crippled by several factors, including consumption-based societies.

Investors will likely distance themselves from volatile and unpredictable foreign assets and return to more familiar ground. Kummer believes investors will turn to steadfast blue chips, or stock in established American companies that have long been staples of a vibrant U.S. economy.

“The average investor might be coming back to something they know rather than assuming other countries will recover more quickly,” she said. “We will get back before the foreign markets. We have tremendous stocks that are undervalued for no reason and they’re paying good dividends.”

Kummer also recommends building a portfolio made up of emerging opportunities, like alternative energies or services and products related to the growing population of baby boomers, such as health care.

“No one knew the Internet would save the markets in the late ’90s,” she said. “It will probably be something new and unknown. That’s where the excitement will come from.”

Generally speaking, those who are looking for their retirement assets to rebound will have to downsize their lavish lifestyles. Frivolous spending has suddenly caught up with many households, and some are still not heeding the warning signs.

“People have not changed their behavior enough yet,” Kummer said. “They still think they can stretch a dollar and do the same things they have been doing.”