What a Difference a Year Makes
Tuesday, October 7, 2008 -- still in Beaver Dam, WI
This is the week that we'll begin our trek southward for the winter. Along about Thursday or Friday we should have things wrapped up here and start the next chapter of our sabbatical.
One year ago this week, the stock markets in the USA were hitting all-time highs and everyone was feeling reasonably confident in the future. The Dow Jones Industrials Index was well over 14,000 as other broader market indices were hitting their own highs. Oil was getting expensive but gasoline was selling for about $2.70 per gallon. Housing was slowing down but the common perception was that this was only a normal, cyclical correction and was probably healthy for the economy as a whole.
This week stock markets all over the world have taken a beating. The Dow is around 10,000 -- an almost 30% drop from just one year ago. (Think of that... a 30% drop requires a 40% gain just to get back to the same place. Under normal market conditions how long does it take to grow a portfolio by 40%? These are huge numbers.) Oil has been as high as $140/barrel recently but has retreated to under $90 in the clearing visage of a looming recession. Housing continues it's historic drop in value to the sounds of gasps and moans of those holding mortgages -- debt -- worth more than the properties themselves. We're all learning about the exotic investment instruments at the heart of the crisis -- derivatives and swaps -- and how negligence of the fiduciary responsibilities on the part of financial executives, the Federal Reserve, the Treasury, and the Government as a whole have gotten us into a real pickle. We've all gone through the wall street bailout ordeal, ponying up almost a trillion dollars to bailout the very guys who've caused this credit crisis, and the markets have continued to decline. I think it's clear they're making things up as they go along. There's no instruction book on how to solve these problems. They're guessing and hoping. Any action taken could very well be wrong and cause more damage. We're all in a small leaky boat on a very rough and violent sea -- simply along for the ride. You can bail water and you can patch holes, but one overwhelming wave would make all these efforts futile. My contemporaries remember "E" tickets at Disney Land -- the tickets needed for the best, most exciting rides. The ride we're on now may be worth a whole shoe-box full of "E" tickets.
As I read and watch the news and commentary on these problems I've heard more than one "expert" in personal finance recommend that people 1) get out of debt, 2) start saving, and 3) reduce expenditures (logically follows from the first two). Even if the Fed and the Treasury is able to quickly shift enough ballast around to keep the good ship "World Economy" afloat, isn't it obvious that debt reduction and increased saving will impact consumer purchases negatively? And it's those purchases that keep our economy healthy. In my opinion, in the best of scenarios, we're in for a prolonged economic downturn. And equities, stocks, whose prices are based on future sales and earnings from those consumer purchases will almost certainly be negatively affected for a long time.
I've been a bit obsessed with the state of the economy and the crisis this past few weeks. If anyone is offended or put-off by these posts -- I'm sorry you feel that way. But comments made by those in-charge lead me to believe this could be the biggest crisis and challenge to our civilization, our American way of life, that we've ever been threatened with. I don't think we know how bad it is... how close to the edge of the cliff we've gotten. I don't think we'll have much to worry about from Islamic terrorists for a while. They've got to be relaxing and enjoying the show as we do it to ourselves.
Nothing will please me more than to start writing again about our travels and explorations, and our impressions of small-town and rural America -- something that'll happen as we begin our trek later this week.
The Best of Luck to All of US.
T
This is the week that we'll begin our trek southward for the winter. Along about Thursday or Friday we should have things wrapped up here and start the next chapter of our sabbatical.
One year ago this week, the stock markets in the USA were hitting all-time highs and everyone was feeling reasonably confident in the future. The Dow Jones Industrials Index was well over 14,000 as other broader market indices were hitting their own highs. Oil was getting expensive but gasoline was selling for about $2.70 per gallon. Housing was slowing down but the common perception was that this was only a normal, cyclical correction and was probably healthy for the economy as a whole.
This week stock markets all over the world have taken a beating. The Dow is around 10,000 -- an almost 30% drop from just one year ago. (Think of that... a 30% drop requires a 40% gain just to get back to the same place. Under normal market conditions how long does it take to grow a portfolio by 40%? These are huge numbers.) Oil has been as high as $140/barrel recently but has retreated to under $90 in the clearing visage of a looming recession. Housing continues it's historic drop in value to the sounds of gasps and moans of those holding mortgages -- debt -- worth more than the properties themselves. We're all learning about the exotic investment instruments at the heart of the crisis -- derivatives and swaps -- and how negligence of the fiduciary responsibilities on the part of financial executives, the Federal Reserve, the Treasury, and the Government as a whole have gotten us into a real pickle. We've all gone through the wall street bailout ordeal, ponying up almost a trillion dollars to bailout the very guys who've caused this credit crisis, and the markets have continued to decline. I think it's clear they're making things up as they go along. There's no instruction book on how to solve these problems. They're guessing and hoping. Any action taken could very well be wrong and cause more damage. We're all in a small leaky boat on a very rough and violent sea -- simply along for the ride. You can bail water and you can patch holes, but one overwhelming wave would make all these efforts futile. My contemporaries remember "E" tickets at Disney Land -- the tickets needed for the best, most exciting rides. The ride we're on now may be worth a whole shoe-box full of "E" tickets.
As I read and watch the news and commentary on these problems I've heard more than one "expert" in personal finance recommend that people 1) get out of debt, 2) start saving, and 3) reduce expenditures (logically follows from the first two). Even if the Fed and the Treasury is able to quickly shift enough ballast around to keep the good ship "World Economy" afloat, isn't it obvious that debt reduction and increased saving will impact consumer purchases negatively? And it's those purchases that keep our economy healthy. In my opinion, in the best of scenarios, we're in for a prolonged economic downturn. And equities, stocks, whose prices are based on future sales and earnings from those consumer purchases will almost certainly be negatively affected for a long time.
I've been a bit obsessed with the state of the economy and the crisis this past few weeks. If anyone is offended or put-off by these posts -- I'm sorry you feel that way. But comments made by those in-charge lead me to believe this could be the biggest crisis and challenge to our civilization, our American way of life, that we've ever been threatened with. I don't think we know how bad it is... how close to the edge of the cliff we've gotten. I don't think we'll have much to worry about from Islamic terrorists for a while. They've got to be relaxing and enjoying the show as we do it to ourselves.
Nothing will please me more than to start writing again about our travels and explorations, and our impressions of small-town and rural America -- something that'll happen as we begin our trek later this week.
The Best of Luck to All of US.
T
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