By Denise McCosh
Devember 7, 2008
---------------------
Very few people alive today actually lived through the crash of 1929. So, it is difficult for the experts to advise us. History does tell us that really tough bear markets are froth with volatility. Which explains why the market keeps going lower and in between these new market lows are huge market rallies that give false hope to many.
So, times will be tough mentally, physically and spiritually as the roller coaster of our decade continues. Markets will drop and markets will rally, yet overall we believe over time the market will continue to collapse.
A massive correction is taking place to reprice risk and reduce debt/leverage. It is a healthy cleanse, just like a wild fire in nature. We see thousands of beautiful acres of forest destroyed in a wildfire, only to see the seeds of new growth sprout, which could only happen after the intense heat of a wildfire. In the meantime, our mission is to survive the fire.
Here is the situation:
Banks, Financial Institutions, Mortgage Guarantee companies, Insurance Companies (AIG) are getting lots of money from Uncle Sam to save their butts. Uncle Sam is telling them to lend to each other and to Joe & Jane Citizen to grease the wheels of the Global economy. Yet, these recipients of the bailout money are not willing to lend to each other, nor are they providing debtor-in-possession financing to the Auto industry (which the banks should do and not uncle sam), nor are they lending to Joe & Jane Citizen. Instead they are hoarding cash to cover minimum margins and reduce their risk of failure. It is everyman/woman for themselves in the Financial world as they get their bailouts, and try to cling to their big bonuses.
Meanwhile, the consumers (aka Joe & Jane Citizen) are losing their jobs, losing the values in their home, losing their retirement funds, losing their access to equity lines of credit in their homes, losing their access to student loans and auto loans and will soon see their credit card limits cut drastically, regardless of their credit scores.
The consumer is losing access to money/credit needed to purchase the goods & services that keep the Global economy running. Not necessarily bad, tough in the short term, (needed in the long term) but consumers need to become net savers.
So now, Uncle Sam wants to focus bailout money on the auto industry and the consumers. By throwing good money after bad business and to consumers who can not afford their mortgages, student loans, credit cards, etc. Uncle Sam wants to take on the risk the banks will not.
Yes, the bank are happy to take the Fed's money but balk at not take on more risk from industry and consumers, because they are already sitting on trillions of risk from their structured investment vehicles that is still off balance sheet.
While the government is throwing out bailout money to everyone, the US government itself continues to run up a bigger deficit. So how does our government pay for this? At some point we will not be able to service the interest expense on the debt, in addition to cost of the mandatory entitlement programs of Medicare, Medicaid and Social Security. Forget about any discretionary programs for homeland security and defense or education or infrastructure - this is a drop in the bucket compared to these entitlement programs.
The USA will not have a GDP in the future to even cover the service expense on the debt and the cost of mandatory entitlement programs. The future is not bright, we will need to pay the piper, and the day of financial reckoning will come.
We can prepare and support American innovation. America has always innovated new industries and we will again. Innovation like nanotechnology, bio tech and alternative energy.
Prepare for the worst and hope for the best.
1) Take action to ensure your investments are safe. Forget what your financial advisor says when he tells you to buy and hold. Instead hold cash and Short Term 3 Month T Bills and wait for the ultimate hold and buy opportunity.
2) Reduce your debt, sell anything that you don't need and convert it into cash the payoff debt and/or hold cash.
3) Get and hold a job, any job. Keep the cash flow coming. Here is a job opportunity for retirees....2010 Census Workers - part time jobs between $10-22/hr
4) Sell any real estate you don't need or can’t afford. Take any offer that gets you out of the mortgage debt.
5) Maintain your health in a stressful recessionary environment, eat fresh vegetables, fruit, fish and exercise regularly. Fresh air, sunshine and exercise are free.
Bottom-line: get out of debt, get into cash, park your cash safely, maintain you health - then you will have more peace of mind on the roller coaster market turmoil ride over the next few years.
When a "real" sustainable bull market returns you will be read to get on board. Remember, this is no dot.com bubble implosion, this is a full scale global financial & market implosion the likes that we have not seen since 1929. Take action, be prepared and maintain peace of mind.
|