i think she knows


Creative Commons License photo credit: Unfurled

…that we are at the end of all things, and the scary things that go bump in the night are coming. In that post six months ago I imagined that zombies would be running rampant in the streets and Drusilla would be fluttering around creeping people out with her singsong voice as the US crumbled into ruins due to the accelerating market crash. At the time, I thought we were near the bottom and that any idea to yank money out of the market was foolish.

Since then Bear Stearns, Fannie Mae, Freddie Mac, Countrywide, IndyMac and others have made me realize that zombies are running rampant in the streets, with scary names like Hank and George and Ben. Despite nominal lip service to “free markets” and “balanced budgets”, the US is certainly not above throwing the public’s money into private institutions wildly. They are stumbling over their own feet to throw money at the banks and lenders like a zombie trying to get at fresh brains. And that’s where the current situation gets a bit stickier.

As long as the market was fluctuating on its own, I was calm. I knew that the birth and death of entire industries have occurred in the US without any serious long-term repercussions. Look at the train companies – once they practically ruled America, until the automobile came along. Yahoo ruled search until Ask Jeeves came along (you thought I was going to mention Google, didn’t you)? A shake-out in the financial services industry or investment bank industry was just that – a shake-out. I was wary, but overall I was not concerned.

The stakes have become higher now. Much higher. With an expectation of public bail-outs thanks to the fiscal-conservatives-in-name-only who hand out public money faster than Lenin after a fifth of vodka, a dangerous precedent has been established in the minds of (a) Wall Street and (b) the public. Right now, the public (which includes me, to be honest) expects that the government won’t let any institutions which are “really important” fail. So what will happen if Washington Mutual fails? Or Citigroup? And more importantly, what will happen to the market when one of them fails and the government finally admits it has no more resources to prop up dying banks? Zombies in the streets, cats and dogs living together – chaos.

So how to invest, here beyond the end of all things? Well, if you have the money, keep pumping it into the market, but throw more weight into overseas equities. Unless you have a knack for real estate (and I don’t) or a business to pump your cash into, you are best off continuing to hew to your investing strategy. Don’t sit on too much cash, but don’t go cavorting around without at least some sort of cash backup. I know many people will be counting on the next president to work wonders, but it’s not going to happen. As the government continues to violate every single financial commandment (spend less than you earn, pay down debt, pay yourself first, etc.) you need to grit your teeth and forge forward to protect your financial future. It’s hard to believe that Uncle Sam’s going to have many pennies left in the jar after the next few years.

But it’s important to remember, as it always is, that your financials goals are your financial goals. Do not let apocalyptic market news worry you. That may be easier said than done, but you have to do it. Set your wealth-building strategy and stick to it. Find a supportive group of like-minded people to support you in achieving those goals. Turn off the news and attend to your family, your friends and your work. Focus on what you can control and you’ll be much happier. And buy some zombie repellent just in case.


Creative Commons License photo credit: oskay

9 comments

  • Meh, I agree that it’s not a good sign, but on the other hand I bet a whole bunch of people figured that they’re not going to let a major financial institution go under already. When the British government bailed out Northern Rock several months ago, it seemed kinda obvious to me, so it’s no suprise when it happens elsewhere.

    The best idea is still to invest sensibly – even if it’s not as great as it used to be, it still probably beats the alternatives.

  • We’ve been through this before, Steve. Anyone out there remember the 18 months after 9/11? I kept contributing the max into my 401K, and it kept right on sinking . . . until it didn’t any more. Within the next year, it tripled in value. This too shall pass, although it will likely take a while.

    Have you seen the story in The Onion? “Recession-Plagued Nation Demands New Bubble To Invest In” http://www.theonion.com/content/news/recession_plagued_nation_demands.

    And speaking of 9/11, the next day the CEO of the company that I worked for at the time sent a message to all employees asking them to show their faith and loyalty to the company by immediately buying $500 worth of company stock. I declined. We had lost two colleagues in the planes that hit the World Trade Center towers.

  • This whole financial situation really bothers me deeply, not so much for me (I’m too old to worry much about my future!!!), but I’m very worried for my grown children’s sake and for my grandchildren’s sake. What will their future be here in the U.S. at the rate we are messing up the economy, the environment, and our standing in the world? I really don’t know, which for an opinionated person like myself is quite disturbing. Anyway, to support Steve’s assertions about overseas investing, but with a caveat, here’s an interesting article:
    http://money.cnn.com/2008/07/11/magazines/fortune/gimbel_global.fortune/index.htm?postversion=2008071412

  • The signs make me nervous as well, but I think what you say is correct: what other choice do we have than to continue to follow our investment strategy? Real estate is an option I’ve considered, but not sure I am ready to jump in yet.

    Short term, bailing out private companies will avert some signficant oscilations of the market, but at what long term price? We can’t keep giving these companies a pass by putting their mistakes on the nation’s credit card. I know it is becoming a tired argument at this point, but government can’t spend more than they earn and and expect to escape consequences.

  • I had a similar post.
    http://wealthbuildinglessons.com/2008/07/14/how-does-the-fannie-mae-bail-out-affect-you/

    I recommended sticking to gold and silver and shorting financials.

  • I went to cash probably too early, but that’s where I am.

    I watch the 20/50wk moving avg of the SPX/SPY. you can roughly time the market with that simple indicator. when the 20 gets back over the 50 and holds, I’ll get back in. not til then. this is a very reliable indicator and you can back-test it as far back as 1928 if your charting tools support it (I use thinkorswim.com).

    See here: http://tunguskan.blogspot.com/2008/06/timing-market.html

    and

    http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=3&mn=0&dy=0&id=p07960142425

  • I’m actually planning to rebalance my portfolio soon which will mean buying more American. Call me a nut but I think you guys are on sale… 🙂

    Mike

  • @four pillars: I think you’re right. There may be a double whammy, too: American company stocks rise as the economy begins to turn around (stock market is a leading indicator) AND the dollar rises, giving foreign investors more of their own currency when they “cash out.”

    Could be the best deal on the planet. Provided, of course, that our government doesn’t screw it all up (that’s a big IF)

  • To share another idea, one can always move to another country if things get to be too bad at “home”. If you’ve never been to many other places you might be surprised at the high standards of living. I used to think that Canada (or North America in general) had the best standard of living. I just unknowingly accepted this unquestioned dogma. But in fact, on many points, I find that the standards for things I care about are higher in many of the European countries. Public transportation across the board is but one of them. It’s just a thought. I think staying flexible is best.