Wednesday, August 03, 2011

Is the sky falling???

Since the news about the 'wonderful' budget compromise that lifted the debt ceiling, the markets are falling all over the world.  So, is the sky falling?

My take is that it depends on your immediate needs.  If you are looking to sell something this week, well, maybe you're screwed.  If you have a longer view, maybe you aren't in so much trouble actually.  I agree with commentators who suggest that there are healthier economies out there than our own.  The problem is that the U.S. is still the big dog in town.  I've got a few investments in Canada, Norway, Australia; I imagine most investors do.  (I've avoided China; I've just got a personal problem with trusting their numbers.)  So should you bail on investing in the U.S.?

Our economy is not well.  Our markets are dropping.  Sounds like leaving might be a good idea.  There are two sides to this though.  If 'everyone' were to abandon the U.S. markets: 1) share prices would drop like rocks leaving whoever was last out the door holding nothing much; 2) the huge profits of the U.S. corporations, and they are making money, would make P.E.s of 5 common; 3) the inrush of money would raise the P.E. of stocks in, say, Canada to about 50.  None of these ideas are worthy of Newton or Einstein but people who are afraid of a crash aren't really thinking calmly either. 

The U.S. and it's currency are still the world standard.  Not to say that other countries (like the three named above and several others) aren't doing better at economic control but finding a place to invest that offers safety, transparency and sufficient size is tough.  China has size; transparency might be questionable.  Norway, even Canada, is small.  Australia, well, I hope you like natural resources! 

Me?  I'm still about 85% in the U.S.  I'd like a bit more money overseas but it takes me a long time to move.  I'm also not in immediate need so if we have another downturn in view; it's ok for me.  Will I enjoy my paper losses?  Hell, no!  But paper losses like words in general don't hurt.  'Sticks and stones' and all that still holds true.  So hang in there & don't be frightened by the talking heads on tv.  (Remember that Mr. Murdock & Co. like spreading bad news even if it's invented.)

There is one final thought I'd like to share.  This is the year before the U.S. election.  The President, a third of the Senate and the entire House of Representatives will be running for re-election next year.  Do you think that will motivate them to do everything they can to make this a good year?  Just a guess, of course, but I think they will be motivated.  Whether their motivation is enough to make them worth a damn is another question.

Have a good one! 

(Disclaimer:  I know nothing about the future, the stock markets or monetary policy.  If you take my words as advice you are way dumber that a human being ought to be!  Don't do it!)


Croft said...

I was a little surprised the morning after the bill was signed to wake up to down markets in both the USA and Canada. I thought this was supposed to fix everything and it obviously did not.

Things are coming back a little today bin the Dow and TSX (Canada) and with any luck the week will finish up.

I have a fair amount in the market but we also have good pensions so we do not need to use our savings for day to day living, only for major purchases like a new(er) car one day and some home renovations. These things can wait for a recovery.

I guess we are in the ideal situation but i still get nervous when I see the markets drop like they did the last few days.

JoeinVegas said...

I think this election cycle they will be concentrating on making the other side look bad, rather than thinking of the general good overall. So no, don't think it will be a good year, looking forward to more Republican stall and scare tactics and non-negotiable demands.

Croft said...

Looking at the market today it looks like Europe (at least the part that uses the Euro) is in worse shape than the USA! Ouch!

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