Are you personally helping to slow the economy?

With SA annual nominal house price growth for 2011 at a paltry 1.78% year to date and looking like ending the year at the lowest annual growth since 1986 (with the exception of the 2009) and with CPI inflation at 4.5% year to date meaning that real house prices are falling, have you stopped to consider the role you are personally playing to embed this downward trajectory?

Do any of these apply to you?
1. Are you shopping less?
2. Are you buying cheaper groceries?
3. Are you buying more “own label” products or switching brands you were formerly have been loyal to because another brand is on promotion or cheaper at the supermarket shelf?
4. Are you putting off purchases that aren’t essential?
5. Are you not feeling under pressure to spend quite so much on birthday presents/wedding gifts etc? Are you planning to spend less on Christmas presents this year?
6. Are you actively saving more than what you have generally done in the past?
7. Are you suddenly worried about your pension pot and paying more than normal into your mortgage bond?
8. Did you skip your usual holiday this year, or go somewhere cheaper or for less time than usual?
9. Are you eating out less than normal, preferring home-cooked meals?
10. Are you suddenly using Tupperware more than normal, or buying foil more often for pack-lunches? Do you take water and food with you on day trips out rather than risking have to buy over-priced on the go food?
11. Does having a picnic suddenly sound a lot more appealing as a “day out” than it used to?
12. Has your opinion of housing changed from a way to make money fast to being a place to live in?

All of these changes indicate how times have changed and how people’s mind-sets are adjusting to the new conditions. Inadvertently, by carrying out the above everyday little adjustments we are all voting tacitly for a slower economy and a chance to catch up once again.

These tiny individual daily changes when multiplied by 50m people become mass actions and are the actions that lead to a “resetting of the base”. By this I mean property prices falling, debts getting paid off and families gradually deleveraging. However because of massive household debt levels and very slow wage growth this resetting of the base takes time and requires patience and discipline. It is hard when we have got used to a certain way of living over the last 10 years…

Your job being the bridging finance for numerous negative cash-flow properties is over. Now it is a fear of the unknown that focuses the mind on creating true value. The age of making money off wildly rising asset prices is over. The days that the longer you waited to buy a house meant the more you actually lost out are firmly over.

The theory is that US and European stock markets are in for a slow and inevitable decline as aging baby boomers retire and sell shares, flooding the market with shares that the smaller Y-generation does not have the will or the numbers to buy.

If you are in equities in SA though, then things are actually quite good still. Resources are keeping the country ticking along with gold at record levels. SA’s lack of a large baby boomer generation may be a blessing in disguise with share prices kept up by a differently structured demography.

Aging is certainly not a problem that SA is faced with. HIV/AIDS is expected to ensure that the population remains stable at around the 50m-55m mark until 2050. The future appears to be one of a young-biased population. Provided employment opportunities remain stronger than in the past, then with all these formally employed people contributing to pension schemes and then not drawing from them in the way they are set to in the West, then that might well keep shares in demand and prices up.

So if you are a boomer in SA right now heavily invested in things like minerals then chances are you are asking: What is this recession all about?

But will sovereign defaults and a panicking Western World upset the SA applecart causing interest rates to rise in SA and abroad?

When that happens, those who bought at the right time and most actively managed their leverage will have a healthy war chest and rich pickings to choose from.