The Market Has a Cold 'Tussin Can't Help!

I know many of you may have some jitters regarding the stock market. The government has decided to spend $850 billion to "fix" whatever is plaguing the markets. As I mentioned last week, there are a lot of things I don't like about it, but the government has decided to give it a whirl, and well, us regular folks are just going to have to sit back and watch what happens. In one year, the Dow has fallen nearly 5,000pts. Panic still continues to be prevalent in world market, and even rational investors tend to be nervous. But let me attempt to explain what you as an individual investor should be doing.

I can only speak to long-term investors at this point--those who have at least over 5 years or so until they can retire. You have to look at as if the stock market has a "cold." All these Fed Rate Cuts, nearly nationalizing companies, buying up bad debt, and propping up real estate prices are like cough suppressants--it will only prolong the process. in a common cold, the body "coughs" to try to expel that Nasty Green/Yellow Stuff from your body. A cough suppressant keeps you from coughing, and forces the body to expel it in other ways. The market has a cold and has to cough out all these bad things we've done over the past few years.

I STILL hear real estate commercials asking if you want to "Flip and Grow Rich." Some will never learn. We have a housing glut now--too many houses on the market--and prices have to fall to a reasonable point to adjust to market conditions. Yet, some still don't want to let the market "work this out of its system." Remember when computers used to go for $2000-3000 or more and this was seen as "reasonable"? Now you can find a computer with the processing speed, performance, and quality for a third of that price because the technology has become so abundant. Housing is no different. Don't get me wrong--I think housing is a great investment, but banks are getting very conservative now and not lending as freely as they used to. The era of NO MONEY DOWN!, CDOs, and Adjustable Rate Mortgages are (hopefully) on the way out.

Bottom line, if you cannot take these stick market dips, then you probably need to pull out, but you do so at your own peril. Me, I'm staying put. A good investment portfolio has you nearly 100% invsted in stock in your twenties, and probably shifting to more conservative investments (like bonds, annuities, and by 10% increments in your thirties and forties and then 15% increments in your 50s and 60s.) That way, if you are close to retirement, your investments will be less dependent on the whims of the market. My 401(k) investmetns at this point
are in 100% stocks right now. In my late thirties I'll probably go to 90-10 (stocks/bonds), then 80-20 in my forties, then 65-35 in 50s, and down to maybe 35-65 in my 60s and beyond. These short-term market jitters should not be bothering you if you have a long way to go.

Yes, I know that Wall Street has done some stupid and greedy things in the past few years and we all have to pay for it now. They are taking it on the chin right now, and should. Next week I'm thinking of covering Credit Default Swaps and how it adds even more stupidness to our current situation. I know such topics may be a bit dry, but once you know how we left our Store to be managed by irrational folks before, you'll be alert if it ever rises again.

Bailout Passes..Now What?

So the bailout package is now law, and although no one liked it, it does a few good things. However I think the immensity of this package is only the beginning. Of course, we all know that when Congress tries to save us, often we get the short end and this one is no different. The $700 billion dollar approval package ended up being about $850 billion dollars when it was passed, and will probable explode into the trillions before it's all over. I know such large numbers are very abstract to most of us, but it basically boils down to an additional $2300 in debt for every person in the country.

So what are the "good" parts? The most important thing is that it provides some money to the credit markets so that banks can lend to people and each other again. However, I think it will be very limited--banks are probably still spooked and won't be lending money out as freely as they did over the past few years. Think of all the things we do in America these days "on credit": buying large appliances, cars, and yes, homes..now imagine if no bank or business could extend credit and instead demanded full cash payments. Americans generally don't have large savings put away. Lay-a-way would probably make a full comeback, and this economy would really come to a grind. So the bill did address that situation. Secondly, people are allowed to stay in their homes--now this could be both good and bad: people who can afford the house but need a refinance can stay in their homes, but apparently, so can the guy who bought more house than they could afford.

Also, we as Americans have to become more comfortable with being saved by other countries. From an article I read this afternoon:

Even though the dollar has strengthened a bit lately, we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis — and they are going to need us to be healthy as well. In the process, we are going to become even more intertwined and dependent on the rest of the world.

So what does being a debtor nation have to do with you as an individual? Well, all I can urge you to do is to work on eliminating your debt positions as fast as you can. Are you making payments on a car? Thinking of buying a large house? Proceed very cautiously. Do not, in the rush to get everything in life, take on debt on the gamble that One Day you'll have a higher salary to afford it. Job losses these days have struck both blue collar line workers and white collar folks as well. I'm sure that some Lehman Brothers employees felt insulated walking into their building, thinking that their job was safe. Make sure that you have enough liquid funds (cash) to cover expenses for at least 3 months. Because one day, even the US Government won't be able to legislate a bailout big enough, and you'll need to depend on your self-reliance and self-determination to carry yourself through these turbeulent ups and downs.