Investors, traders, hedgies, mutual funds, and your 401(k) portfolio are all bleeding from the eyeballs this morning, courtesy of a worldwide market selloff. The Dow was walloped, circa -512, and both the S&P and tech laden NASDAQ were hammered like it was autumn of 2008. This ongoing disaster was prompted by this week’s U.S. budget-ceiling nonsense, compounded yesterday by clear evidence of European policy paralysis.
This snowballing economic mess, in turn, was further aggravated by a probable speculator-instigated attack against Italian and European markets in a test of Euro-mettle. The Europeans failed round one. The result was a worldwide market selloff that continued through the Asian markets last night, engulfed European markets earlier this morning, and will tsunami-roll Wall Street at the open, roughly half an hour from this writing.
Once again, all our savings, investments, and the value of our homes is in serious jeopardy.
What’s happening?
Don’t listen to the media. They can’t face reality. Here’s the deal, and let’s get this out in the open: After two decades of genteel, creeping socialism in Europe following the Second World War, American political, academic, and journalistic elites decided to join the, beginning roughly in the mid-1960s with LBJ's "Great Society."
Western economic policies have been based on maximizing taxes and government borrowing to enable ever-greater creation and funding of “social programs” meant to buy votes and ensure the cushy lives of political elites, their public employee union masters, and their wealthy individual and corporate donors.
But there was a problem. Much of the “social spending” was predicated on a massive Ponzi scheme founded on the principle of perpetually increasing populations that would fund this massive, ever-increasing debt. But one by one, sophisticated Western populations have gradually slowed reproductive rates the better to enjoy their increasing wealth and welfare.
With essentially ZPG (zero population growth), the international Ponzi scheme began to collapse, a decline worsened by the fact that the U.S. and other governments spent all the money in these programs funding additional phony promises to their constituents. To conceal the fact, these governments continued to borrow greater and greater sums of money to fund this vast overspending.
When the massive U.S. mortgage debacle surfaced—itself the product, at least indirectly, of even more social engineering—it had an immediate cataclysmic effect, rippling throughout the world, most particularly in the industrialized Western nations, all of whom had been involved in buying pieces of the U.S. mess while creating their own versions of it as well. Markets tanked, debt markets were for a time completely destroyed, and—worst of all—a good seventy-five percent of the trust in the Western economic model collapsed.
This week, our “leaders” decided to work on destroying that last twenty-five percent. Their useless tinkering and dithering has finally been exposed for what it is: outright stupidity and likely fraud. They have no viable answer to the mess they’ve caused. The emperor has no clothes. And now this has become utterly transparent to any sentient being, right down to Joe Sixpack.
Everyone knows the system has been destroyed. Belief in government, long sacrosanct, is now near zero, made vastly worse by a foolishly-elected, theory-bound President who has no clue as to how things are supposed to work. Things are clearly falling apart and everyone is doing what they do naturally in such situations. They’re panicking.
Panic is a useless response, actually, but a rational one. The belief system has collapsed, and everybody knows it. Politicians have tried to fix things by borrowing even more money, but it no longer works because the hoax is now entirely transparent. Massive bills are due and they can’t possibly be paid without taxing populaces into oblivion resulting in a public reaction that will make the Greek riots look like kindergarten recess. Oh, yes, the government can print money and we can't. But they've tried that and obviously, this didn't work either.
This week’s activities in America and Europe have conclusively demonstrated that those in political power have no clue and no answer. This week’s market debacle is the result.
What’s the solution?
There’s none, near-term. Contrary to what you read in the media and see on TV, the Tea Partiers in Congress are not “terrorists,” but the only ones who realize that public indebtedness should be slashed now and not in ten years when it won’t happen anyway. Higher indebtedness only goes to fund more government programs and we’ve already proven that we have too many of them to pay for to begin with.
The spending has to stop and the debt must be paid down. Details of how to do this without causing a deflationary spiral have yet to be worked out, but it has to be done. Any family with too much in the way of mortgage and credit card debt already knows this. The Tea Party knows this. Nobody else does, apparently, particularly the President and the aging, useless rulers of the Senate. Paradigm shift. Hello? Anyone listening? Game over.
In the meantime, until the West and its fossilized institutions get a little regime change, the markets will likely continue to churn constantly in a kind of violent, aimless turmoil built on confusion. It’s horrendously bad for those of us who invest directly, like this writer, or for those with considerable money in 401(k)s.
What to do?
I have a few ideas, aside from weeping and gnashing of teeth. But again, keep in mind, I’m not a Nobel Prize-winning economist like, er, Paul Krugman. Nothing is a sure thing, and in this kind of irrational market, even the brightest of ideas could fail. The general principal in a downdraft is that, except for seasoned professional traders who know how to short, the rest of us are best off simply trying not to lose money in this period. It’s going to be too hard to profit, unless you’re a real gunslinger with a lot of luck. This market will whipsaw, sometimes violently. So stay safe in your bunker, and avoid gratuitous trading. Follow these hopefully useful guidelines at your own expense and risk. Here goes:
The market: Today, likely to open flat to nicely up, then plunge, then vacillate, sometimes violently, throughout the day. People at least for now will reverse their usual pattern, selling on surges and staying on the sidelines during dips rather than the reverse. The market is seriously damaged here, having violated all technical support lines yesterday on huge volume. Much of this was probably margin-induced selling. Recommendation: don’t use margin ever, particularly now.
Holders of 401(k)s: To the extent that you can, redirect most of your funds to U.S. government bonds and money market funds, with an emphasis on the former. Limit money market exposure, however, again to the extent that you can, to Federally insured limits. Money markets themselves are overexposed right now to the nonsense in Europe and have some potential to seize up like they did in 2008. You can also remain in high-quality corporate bond funds, which, ironically, might be viewed as as safe if not safer than government debt. Re: the Federal bond fund suggestion—given our remarks above, this may seem counterintuitive. But with the Euro and other currencies now under pressure, U.S. government debt is still seen, ironically, as being a safe haven. Go figure, but that’s the way it is. Above all: Don’t just sit there like you did in 2008. You saw what that got you. At the very least, get out of any speculative, energy-based, or tech-based funds at least for now.
Individual investors: Just like the above. Hiding in high-grade corporate bonds and treasuries is a good interim step although it won’t make you rich. In a decline like this, your goal is not to make money. It’s to avoid losing capital until the storm blows over. If you want to stay in the market, safest bet is conservative stocks that yield over 3-4%, which gives you considerable protection for a variety of reasons. Keep in mind that these high-yielders will probably still go down somewhat. But you’ll still get that dividend while they recover, a dividend that beats both corporate and treasury rates quite handily. Stocks in this category include stable utilities (Virginia utility Dominion [D] is a standout example); defensive large caps like Mickey D’s (MCD); and maybe a couple of REITs or MLPs (Annaly Capital [NLY] and Kinder Morgan Partners [KMP] come to mind, although with the latter, watch for volatility and put all positions on gradually).
This snowballing economic mess, in turn, was further aggravated by a probable speculator-instigated attack against Italian and European markets in a test of Euro-mettle. The Europeans failed round one. The result was a worldwide market selloff that continued through the Asian markets last night, engulfed European markets earlier this morning, and will tsunami-roll Wall Street at the open, roughly half an hour from this writing.
Once again, all our savings, investments, and the value of our homes is in serious jeopardy.
What’s happening?
Don’t listen to the media. They can’t face reality. Here’s the deal, and let’s get this out in the open: After two decades of genteel, creeping socialism in Europe following the Second World War, American political, academic, and journalistic elites decided to join the, beginning roughly in the mid-1960s with LBJ's "Great Society."
Western economic policies have been based on maximizing taxes and government borrowing to enable ever-greater creation and funding of “social programs” meant to buy votes and ensure the cushy lives of political elites, their public employee union masters, and their wealthy individual and corporate donors.
But there was a problem. Much of the “social spending” was predicated on a massive Ponzi scheme founded on the principle of perpetually increasing populations that would fund this massive, ever-increasing debt. But one by one, sophisticated Western populations have gradually slowed reproductive rates the better to enjoy their increasing wealth and welfare.
With essentially ZPG (zero population growth), the international Ponzi scheme began to collapse, a decline worsened by the fact that the U.S. and other governments spent all the money in these programs funding additional phony promises to their constituents. To conceal the fact, these governments continued to borrow greater and greater sums of money to fund this vast overspending.
When the massive U.S. mortgage debacle surfaced—itself the product, at least indirectly, of even more social engineering—it had an immediate cataclysmic effect, rippling throughout the world, most particularly in the industrialized Western nations, all of whom had been involved in buying pieces of the U.S. mess while creating their own versions of it as well. Markets tanked, debt markets were for a time completely destroyed, and—worst of all—a good seventy-five percent of the trust in the Western economic model collapsed.
This week, our “leaders” decided to work on destroying that last twenty-five percent. Their useless tinkering and dithering has finally been exposed for what it is: outright stupidity and likely fraud. They have no viable answer to the mess they’ve caused. The emperor has no clothes. And now this has become utterly transparent to any sentient being, right down to Joe Sixpack.
Everyone knows the system has been destroyed. Belief in government, long sacrosanct, is now near zero, made vastly worse by a foolishly-elected, theory-bound President who has no clue as to how things are supposed to work. Things are clearly falling apart and everyone is doing what they do naturally in such situations. They’re panicking.
Panic is a useless response, actually, but a rational one. The belief system has collapsed, and everybody knows it. Politicians have tried to fix things by borrowing even more money, but it no longer works because the hoax is now entirely transparent. Massive bills are due and they can’t possibly be paid without taxing populaces into oblivion resulting in a public reaction that will make the Greek riots look like kindergarten recess. Oh, yes, the government can print money and we can't. But they've tried that and obviously, this didn't work either.
This week’s activities in America and Europe have conclusively demonstrated that those in political power have no clue and no answer. This week’s market debacle is the result.
There’s none, near-term. Contrary to what you read in the media and see on TV, the Tea Partiers in Congress are not “terrorists,” but the only ones who realize that public indebtedness should be slashed now and not in ten years when it won’t happen anyway. Higher indebtedness only goes to fund more government programs and we’ve already proven that we have too many of them to pay for to begin with.
The spending has to stop and the debt must be paid down. Details of how to do this without causing a deflationary spiral have yet to be worked out, but it has to be done. Any family with too much in the way of mortgage and credit card debt already knows this. The Tea Party knows this. Nobody else does, apparently, particularly the President and the aging, useless rulers of the Senate. Paradigm shift. Hello? Anyone listening? Game over.
In the meantime, until the West and its fossilized institutions get a little regime change, the markets will likely continue to churn constantly in a kind of violent, aimless turmoil built on confusion. It’s horrendously bad for those of us who invest directly, like this writer, or for those with considerable money in 401(k)s.
What to do?
I have a few ideas, aside from weeping and gnashing of teeth. But again, keep in mind, I’m not a Nobel Prize-winning economist like, er, Paul Krugman. Nothing is a sure thing, and in this kind of irrational market, even the brightest of ideas could fail. The general principal in a downdraft is that, except for seasoned professional traders who know how to short, the rest of us are best off simply trying not to lose money in this period. It’s going to be too hard to profit, unless you’re a real gunslinger with a lot of luck. This market will whipsaw, sometimes violently. So stay safe in your bunker, and avoid gratuitous trading. Follow these hopefully useful guidelines at your own expense and risk. Here goes:
The market: Today, likely to open flat to nicely up, then plunge, then vacillate, sometimes violently, throughout the day. People at least for now will reverse their usual pattern, selling on surges and staying on the sidelines during dips rather than the reverse. The market is seriously damaged here, having violated all technical support lines yesterday on huge volume. Much of this was probably margin-induced selling. Recommendation: don’t use margin ever, particularly now.
Holders of 401(k)s: To the extent that you can, redirect most of your funds to U.S. government bonds and money market funds, with an emphasis on the former. Limit money market exposure, however, again to the extent that you can, to Federally insured limits. Money markets themselves are overexposed right now to the nonsense in Europe and have some potential to seize up like they did in 2008. You can also remain in high-quality corporate bond funds, which, ironically, might be viewed as as safe if not safer than government debt. Re: the Federal bond fund suggestion—given our remarks above, this may seem counterintuitive. But with the Euro and other currencies now under pressure, U.S. government debt is still seen, ironically, as being a safe haven. Go figure, but that’s the way it is. Above all: Don’t just sit there like you did in 2008. You saw what that got you. At the very least, get out of any speculative, energy-based, or tech-based funds at least for now.
Individual investors: Just like the above. Hiding in high-grade corporate bonds and treasuries is a good interim step although it won’t make you rich. In a decline like this, your goal is not to make money. It’s to avoid losing capital until the storm blows over. If you want to stay in the market, safest bet is conservative stocks that yield over 3-4%, which gives you considerable protection for a variety of reasons. Keep in mind that these high-yielders will probably still go down somewhat. But you’ll still get that dividend while they recover, a dividend that beats both corporate and treasury rates quite handily. Stocks in this category include stable utilities (Virginia utility Dominion [D] is a standout example); defensive large caps like Mickey D’s (MCD); and maybe a couple of REITs or MLPs (Annaly Capital [NLY] and Kinder Morgan Partners [KMP] come to mind, although with the latter, watch for volatility and put all positions on gradually).
