Take a Step Back and Look at These Growth Stocks

It's time for investors, financial commentators, politicians and consumers to take a deep breath. While the economy is clearly slowing and stocks correcting, things are by no means collapsing. The financial world as we know it is hardly experiencing the Armageddon that the perma-bears contend. And if things don't collapse, parts of the stock market are compellingly cheap, even in the context of a fairly valued equity market.

I understand the pressure on the domestic consumer from the housing correction, rising commodity costs and tightening lending standards. For far too long, consumers have overspent relative to current income levels. There is only so far the cash-out refi can go. We all need to get accustomed to living more within our means and the headwind to economic growth which that implies.

Also, we need to understand the issues with real estate and leverage in the financial system. Housing prices have at least another leg down. It can come quickly and painfully with a barrage of foreclosures and auctions. Or, home prices can taper for a few years while income levels grow and restore the ratio of housing/income more slowly. But put declining home prices into your outlook -- they are a given.

Also, another round of finance/real estate write-offs looms. As commercial real estate and leveraged loan price declines take over the headlines from subprime, expect further restructuring and capital infusions into the financial service industry. This is also a given and should not be a reason to panic on the economy or stock market. When the Wall Street Journal headlines blare about the "next subprime" financial disaster, take that column with a grain of salt. These problems are well developed, but only recently started to receive press.

No, even the most Pollyannaish financial commentator on business television must absolutely recognize that significant issues exist in the financial system and economy that could cause or exacerbate an economic/stock market decline. While material risk to the downside exits, financial Armageddon is hardly assured.

Consumer balance sheets remain reasonably healthy, even with the correction in housing.

Unemployment and layoff announcements remain low. Nonfinancial corporate profits and cash flow remain healthy. Corporate balance sheets are extremely strong. Outside of housing, inventories remain well under control, and historically much of a traditional recession relates to excess inventory reduction.