Cancel Christmas! Crash will squeeze economy… and create opportunity for legacy wealth
Today's Financial News - Posted October 10, 2008
The worst stock market crash in three generations is about to trigger an economic meltdown. What’s an investor to do? Think of the present and secure as much cash as you can. But think of the future and spend part of it on long-term, firesale-priced stock bargains. Just listen…
by J. Christoph Amberger
Baltimore — (TFN): The worst crash since 2001… 1987… 1937. As the National Debt Meter ran out of digits on Time Square earlier this week, the comparisons of the current crash with earlier catastrophic events are on a sliding scale backward.
Tomorrow morning, they may compare today’s performance to 1929.
And yet it doesn’t quite feel like anything’s amiss. Stores are abundantly full of goods. So are the parking lots in front of them and the bags of supermarket shoppers. And as I was stopped at a red light driving my daughter to her violin lesson yesterday, I couldn’t help but marvel at the Latin American construction workers putting the last touches on a new Cheesecake Factory in a brandspanking new addition to our mall… across from a brand spanking new complex of apartments they’re finishing.
Next to me, a college girl in a $35,000 Mini Cooper was yakking it up on her cellphone, wearing $200 Jackie-O shades with lenses like saucers.
How odd, I couldn’t help thinking. We’re in a war that we’re unaware of in our daily lives… and we’re in a market crash nobody but the talking heads seem to notice.
Yet.
This is going to change today. Come Monday, companies all over America will start laying off people. It’s a reflex, and a natural one. Portfolio valuations have been destroyed by up to 20% on real estate… and 50-60% on stock portfolios. Even if the destruction of value is mostly theoretic for most people who don’t trade daily, it’s a chiller.
Come next week, we’ll see a spike in new unemployment filings. We’ll see a downturn in spending… and a collapse in company earnings across the board that will last through January… and probably well into the first quarter of 2009.
Now, my general recommendation is not to panic during market downturns like this. To the contrary, history has proven time and time again that the seeds of wealth are sown during market crises… by buying good companies at crash valuations.
This is exactly what you need to be doing over the next couple of months. Buy judiciously and in controlled quantities, mind you… maybe by investing a fixed amount in stocks every week. Set aside fifty or 100 bucks of beer money… skip the kids’ video games, don’t allow them to buy another CD or iTune… cut down on their Christmas list… take the money you’d spend on pizza or lunches until Christmas… and religiously invest it in stocks. Buy shares of Ford Motors (NYSE:F)…. refiner Alon (NYSE:ALJ)… “death services” provider Stewart Enterprises (NASDAQ:STEI)… buy General Electric (NYSE:GE) and General Motors (NYSE:GM) and General Mills (NYSE: GIS).
Buy them share by share. Instead of coffee… instead of gum… instead of your daily newspaper. WALK INSTEAD OF TAKING THE BUS. Buy $10 worth at a time… heck that buys you five shares of Ford today. Buy stocks at prices your father wishes he had bought them for back in the seventies.
But buy them gradually… and be prepared to experience some despair even then: No stock is ever cheap enough that you can’t lose another 90% of your principal!
Let’s not make any mistakes about it: Times will be tough. Your own wife will tell you you’re crazy. So compromise: Make sure you have cash on hand. Easier said than done, in many families: So cut down on expenses.
Keep the kids home for a semester rather than hand over tens of thousands of dollars to some college next term. Think their degree in Chicano Poetry or “International Relations” is important? Not if nobody’s hiring! Nobody cares!
Instead, take 10% of the tuition you saved and buy stocks in their names.
*******DID YOU WATCH THIS?*****
“The only way to make money in this market is to know what’s going on on the floor,” says Xcelerated Profits Report’s Karim Rahemtulla. Please don’t miss this Smart Trading Action Alert with Laura Cadden…
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Did I say it often enough? Stop buying useless things: Start buying stocks! Start buying — and don’t stop! — NOW!
If you stay employed, keep paying into those 401(k)s and 403(b)s. In fact, max out your contributions. Invest for the long term.
And for crying out loud… don’t start buying gold now. Buy a gun instead!
The markets are wreaking havoc not only with your retirement nest egg, but with the balance sheets of hedge funds and the billionaires who’re propping them up. In the weeks ahead, dozens of funds will close. There will be a run on on principal. Funds will sell off everything they’ve hoarded over the past six years. Oil. Molybdenum. Copper. Indium. And gold.
Today is the turning point in global economic expansion. Be prepared to suffer. But think ahead: Over the next three months, the seeds of great fortunes will be sown. Cash is king in the coming weeks. But part of that cash needs to be converted into capital.
And please, make sure I can reach you with breaking news alerts to point out just what you need to look into. I urge you to sign up to our free email letter — you can do so right here…
Next Article: Credit Default Swaps: A blind date goes wild
Posted by J. Christoph Amberger · Filed Under Featured Video, US Stocks and Markets, Videos
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October 10th, 2008 at 10:44 am
Very good advice, what should I do with my SUV?
October 10th, 2008 at 11:51 am
Rent it out for office space to your unemployed neighbor.
October 10th, 2008 at 2:47 pm
Where do I get all this money for all this buying you recommend?
October 11th, 2008 at 7:28 am
If you can keep your job and keep paying for your house, well that's all that really counts. You and your family can bounce back from almost anything if you have a home base. Unfortunately this global financial situation is coming at a time when married couples who have never been married before are in the minority and getting rarer.
How much of the misery of the Great Depression was due to foreclosures and split up families? That marked all of those that lived through it, oddly enough, probably for the better. That Great Depression working generation had to learn how to work and that got them through a war, but by managing the blood of those of the youngest of the 30’s. They appreciated the benefits of family ties and went to great lengths to just hang on. Unfortunately most of the generation that had to try and work through the Great Depression are rolling in their graves. Anyone born after 1935 could only have the vaguest childhood memories of the Depression and can not image just how much damage collective greed and over extension can do.
Unfortunately, when we finally come out this time around, there will not be as much raw stuff lying around to be discovered or improved upon to stimulate us out as far as the first post-war generation got catapulted, with the senior management of those who worked through the depression. Ever see any of the future-looking movies or pre-infomercials from those 2-3 post war decades… nothing was impossible in the World Of Tomorrow. Who is writing the really brilliant sci-fi these days… like the stuff that came out in reams in the Hugo Awards? Where is that optimism about the future, fanciful as it was, now? Gone! Why? No one can dream up enough undiscovered laws of the universe to make anything even remotely feasible whose pre-cursors can not already be found all around us.
Sure, some isolated neat stuff will happen in the future, but not for most of us. There is no more uncharted territory that we can get to. Rather than making continental-type leaps forward we will be just turning over every rock in the garden to see if there isn't something unfamiliar underneath it. Those born after 1990 or so are going to come out of university in a few years or so and look around at all of the accumulate mess and not have a clue how to go about cleaning it up and nothing to clean it up with and no chance of any new gadgets coming along to solve their problems.
My advice to every able-bodied person : learn a second trade that will be useful when it all hits the fan. No I'm not talking about the survivalists of the cold war era. We are unlikely to nearly sterilize the planet but it will get bad and a great many people will be rotting 20-40 years from now. My guess is that those who are better prepared and more flexible will fare better than those who are not. Teach your kids to work, hard enough so that they really ache for about 2-3 days afterwards so that when they stop aching they realise that they can survive discomfort. We are not significantly different from neo-lithic peoples after the initial dispersion out of Africa. We just compounded efficiencies for buying and spending.
Speaking of sci-fi, have a read of John Brunner’s Shockwave Rider (1975 set in early 21st century) or Stand On Zanzibar (1968 set in US 2010).
October 11th, 2008 at 7:33 am
sorry have to differ on you here i bought gold now 'm basking in my envy..everyone to his own pont of view of course but alas not all minds think alike..and wealth is created yes but advice is just that ADVICE and gold will always be king…
October 11th, 2008 at 7:42 am
Oh, and when Christmas is cancelled and the world governments don't have the cash to buy it back, that's when things will start to get tough, even for those who have not heard of it.
October 11th, 2008 at 7:57 am
But what will you turn your gold into that will feed clothe or house you and yours? A significant part of the problem now is that captial is in flight but is having trouble finding a safe place to land. Food is good, only if you can eat it or sell it to some one who can, there are only some many sweaters that you can wear but no good in the tropics and land is only good if some one wants it badly enough. In the early 80's gold was much higher, after adjusting for inflation, than it is now but still dropped 50% within a year or so.
November 17th, 2008 at 8:50 pm
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November 23rd, 2008 at 4:06 pm
It's really a sad time of year. My family is going to try to give away some Christmas wreaths to the poor to make it a happier time, but there's not a lot any of us can do right now.
November 24th, 2008 at 8:56 pm
We have the tree, we have the lights, and we have the very sentimental Christmas tree ornaments passed down from generations and made by young family members. So for our family, Christmas is complete.