When Stocks Fall
Asian markets down. London Market plunges 200 points. Dow drops 150 points on open.
The economy has to have a correction. It must happen. This is what markets do. Every economics class I ever took explained recessions as market corrections. Dot com bubble, recession to correct. Housing bubble, recession to correct.
It must happen. People have to stop buying on credit, they must pay the bill. They must not buy a home they can't afford. It must happen.
And yet, with 300 points this morning ... my heart hates to see all that red.
There are those that agree with me (or those that I agree with?). Then there are those that want to put a band-aid stimulus package together or a stupid, stupid rate freeze to buy votes in an election year. Why is the rate freeze stupid? Because if you freeze interest rates on ARM loans and sub-prime borrowers, the banks have to make up the money they aren't making on those rates. Prime borrowers, new borrowers will see their rates sky-rocket to make up that difference. Every action has a reaction.
Why is the stimulus package a band-aid? One, because it's our money they're playing with, not some great big government bank account that just sits there. It's our tax money, and a country with a deficit the size of ours doesn't have $150B in liquid cash sitting around to give back to the tax payers. We would have to borrow that money. Which means, just like us common folk who pay bills with credit cards, we're robbing Peter to pay Paul. And eventually, that bill comes due. So the stimulus package would buy us time ... but next year we'd be in this same situation, if not worse.
The rate cut that the feds did today will probably haunt us for quite a while. Interest rates at 3.5%. What will they do on the next drop? And how badly do they want to hurt the dollar? You can't get much lower than that. But yet some economists (Cramer on Mad Money) said they should have dropped the rate back in September, to prevent this large drop from even occurring. But there were those that looked at that as a bail out to the banks who took out these risky loans. And it is. And now they've done it reactively. I don't much care for that.
So what do us normal folk due? I don't have a lot of money tied up in stocks. We have some. In 401K's and an IRA. But those are meant to go through these periods of decline. Other stocks ... well it would be stupid too sell now. That money should stay for at least until the quarter ends. When technology either reports gains or losses.
So what do us normal folk due?
I don't know. Ride it out. Mom says we've done this before. The 80s were terrible. 18% interest rates and worse. Lewis says we will go through dozens of these if we're lucky enough to live until we're 100. But I can't help but be nervous. All that red ... they will see-saw all day.
We reep what we sow. A nation that buys on credit must eventually pay the bill. The bill collector commeth.
The economy has to have a correction. It must happen. This is what markets do. Every economics class I ever took explained recessions as market corrections. Dot com bubble, recession to correct. Housing bubble, recession to correct.
It must happen. People have to stop buying on credit, they must pay the bill. They must not buy a home they can't afford. It must happen.
And yet, with 300 points this morning ... my heart hates to see all that red.
There are those that agree with me (or those that I agree with?). Then there are those that want to put a band-aid stimulus package together or a stupid, stupid rate freeze to buy votes in an election year. Why is the rate freeze stupid? Because if you freeze interest rates on ARM loans and sub-prime borrowers, the banks have to make up the money they aren't making on those rates. Prime borrowers, new borrowers will see their rates sky-rocket to make up that difference. Every action has a reaction.
Why is the stimulus package a band-aid? One, because it's our money they're playing with, not some great big government bank account that just sits there. It's our tax money, and a country with a deficit the size of ours doesn't have $150B in liquid cash sitting around to give back to the tax payers. We would have to borrow that money. Which means, just like us common folk who pay bills with credit cards, we're robbing Peter to pay Paul. And eventually, that bill comes due. So the stimulus package would buy us time ... but next year we'd be in this same situation, if not worse.
The rate cut that the feds did today will probably haunt us for quite a while. Interest rates at 3.5%. What will they do on the next drop? And how badly do they want to hurt the dollar? You can't get much lower than that. But yet some economists (Cramer on Mad Money) said they should have dropped the rate back in September, to prevent this large drop from even occurring. But there were those that looked at that as a bail out to the banks who took out these risky loans. And it is. And now they've done it reactively. I don't much care for that.
So what do us normal folk due? I don't have a lot of money tied up in stocks. We have some. In 401K's and an IRA. But those are meant to go through these periods of decline. Other stocks ... well it would be stupid too sell now. That money should stay for at least until the quarter ends. When technology either reports gains or losses.
So what do us normal folk due?
I don't know. Ride it out. Mom says we've done this before. The 80s were terrible. 18% interest rates and worse. Lewis says we will go through dozens of these if we're lucky enough to live until we're 100. But I can't help but be nervous. All that red ... they will see-saw all day.
We reep what we sow. A nation that buys on credit must eventually pay the bill. The bill collector commeth.
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