Dow Jones Index Drops to 6800 For The First Time In 12 Years
March 2, 2009 by Erik Folgate
Filed under Banking, Credit and Debt, Economy
I don’t know what to tell you. Even Warren Buffet has lost confidence in our economy. Much of the country is not paying attention to the fact that we are 10 percentage points away from nationalizing a bank, the government pledging about $1.5 trillion dollars in 6 weeks, and the largest insurance company and auto maker dwindling to nothing.
Here are my thoughts on why the stock market continues to go south:
- Investors are reacting negatively to the massive amounts of spending in the Obama economic recovery agenda.
- Investors started out requesting bailouts of large companies, but now they think it’s a bad idea to keep pumping money into a lost cause. AIG is looking like a lost cause. I have no idea what they got themselves into, but for a company like that to fall as hard as they have in one year is insane. What did they do, back every subprime mortgage in the country?
- Continuing to invest in the stock market will either backfire or make you look like a genius in a few years. It will backfire if the recession runs deeper and takes a decade to recover from. It will make you look like a genius if you buy stock shares at a 50% discount, and the stock market surges back to 14,000. You’ll double your money and have a ton of shares at a discounted price that continue to grow. What will happen? I have no idea. If you are in your 20’s or 30’s, you might want to bet on our economy recovering in the next 5 years.
What Can We Do?
I am going to start building up a large emergency fund. If the worst happens, it will be magnified three fold in this economic climate. Consider piling up a large amount of cash in an online savings account, and continue paying off debt. Reducing debt will reduce the amount of risk in your life. Ask yourself this question: Do I want added risk in your life during these times?
I know I am writing in retrospect, but it would appear that nationalization was one of the hot button concerns that caused the large slide. It took but one comment from Vikram Pandit of Citigroup being profitable for the market to surge back up. I mean, it doesn’t help that there was a parade of other economic good news to support the market.
Personally, I bought in during the slide, and made a small profit out of it…. But I have to wonder if this is “sustainable”. I am hearing some talking heads saying it is, but I have my doubts in that the fundamental issues that besetting our economy will not be so easy to resolve as Pandit simply saying they’ve been profitable.
We’ll see I guess.