Tuesday, January 5, 2010

Startling Economic Downturn In Savannah Since My Last Visit

I purchased a a condo in Savannah, GA last March. At that time, I saved approximately 15% vs. what I would have paid one year earlier. At that same time, markets such as California, Florida and Las Vegas had seen 30-50% drops in value. What I was told by locals is that Savannah is more recession resistant due to the following diversified aspects of its economy:

1) Hunter Air Force base with several thousand military families
2) Very strong tourism business
3) The Savannah College of Art and Design (SCAD)
4) Savannah is a port city

Each time I have come back since last March, a few more "For Sale" signs have been popping up. Other than that, the "Savannah Resistance" to recession argument seemed solid.

As readers of my blog know, I do not believe that this was/is a normal recession, and I expect the U.S. economy to struggle to recover as we move forward. Of particular concern is what will happen when the government stimulus is withdrawn. My most recent shock was the U.S. government extending what appears to be an unlimited credit line to Freddie and Fannie Mae. This will add billions more to the deficit.

Back to the Savannah economy. The following has been observed this trip that is a clear indicator that the recession in the U.S is not over and may actually be worsening:

1) The downtown heath club and spa that I use each trip closed its doors abruptly three weeks ago.
2) Three stores on the vibrant street I live on have emptied since my visit less than two months ago.
3) Several store windows have "Going Out of Business" signs on the windows.
4) My favorite restaurant is rumored to be closing in several weeks.
5) Ruth's Chris Steakhouse, open for less than two years, is rumored to be closing its doors.
6) I frequent Savannah pawn shops looking for guitar deals. I collect quality guitars. I have been waiting for some high quality guitars to start showing up as a sign that struggling consumers are willing to part with quality guitars, on the cheap. This week's visit found two Fender Stratocasters for sale, of which I had not seen in all my visits in the past year.

The point I am making is that if a city like Savannah is just now experiencing the impact of the poor U.S. economy, how many other cities across the country are experiencing the same sickness? How many other businesses have yet to close their doors? How many more people will be losing their jobs?

In summary, the shock of what I am seeing in Savannah this trip has provided further confidence that my contrarian view vs. those of the mainstream press and Wall Street is still correct.

As the saying goes, "It ain't over 'til it's over," rings true with the U.S. economy. The patient is still sick and may not return to prior financial health for years to come.

After the final top we are reaching in the markets at this time has been reached, I believe we will experience a recovery that eventually looks like a caterpillar, with lots of movement, but not upward sloping. Not a "V" but a "VVVVVV" instead.
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during the portion of market cycles where stocks are rising based upon the momentum of the herd vs. fundamental valuations.