Our family has a little thing we do when, if we really want to buy something that is too expensive we say, “Imagine what it would cost if you bought it at Disneyland?” This always generates a chuckle and then makes whatever we want to buy seem cheap in comparison. I‘m pretty sure this is what lead me to feel comfortable paying $7 a pint for that delicious fresh squeezed orange juice at our local market. I have taught my kids that the Disneyland model of pricing is a false or artificial market, not a free one, because it is controlled.
From my perspective we are currently living in a false economy. It is a basic law of economics that if you tax something, you will have less of it. Conversely, if you give something away for free, a long line will form. Our government is giving free money away left and right. Some people are actually being paid more to not work than when they were working. So it should come as no surprise that unemployment numbers are artificially being pushed through the roof.
Another example of our artificial economy was the report last week that mortgage delinquencies hit the highest number on record. The report said people were included who were never late until their bank had “offered” them payment waivers. My own bank sent out letters in February offering their customers to skip four months of mortgage payments. I imagined that if they were going to send those letters to all their customers, certainly many would likely take advantage of it. There are many other aspects of our otherwise free market that have become temporarily artificial.
This current economic mess is part virus driven and part government imposed. As such, I caution about making too much out of stock prices. It is a very difficult time to find true value since many companies are not producing, and others are being artificially supported. In such a market I am certain there are great investing opportunities out there, but there are also great risks.
This sort of reminds me of 2012 when a city dam broke and flooded my home. It was listed at the time for about $600,000. As I stood on my porch a man came by, saw the for sale sign buried in mud, and offered me $250,000 cash for it. Neither one of those numbers represented its real value since the flood and all the mess had created a temporary false market, so we cleaned the place up and sold it 18 months later in a real market and at a fair price.
My advice is if you are looking to buy stock, or tracking the prices of things you already own, be aware that in our current manipulated economy, finding the real value of a company can be elusive. Try to look ahead to when this is over because stock prices today may be as false as our economy.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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