Common Sense Economics With A Solution For Consumers
Here’s a little ditty about what every investor needs to know right now and one simple thing the government can do to help the consumer.
History Repeats Itself
This is important for two reasons. First, if you look at the market crash of 1929 and the symptoms of the great depression and compare it to today there are some scary similarities. What most people don’t realize is that the big blow to the stock market didn’t come in October of 1929, but rather took place in September of 1930…ironically after a 50% run up from the market low in 1929. Sound familiar? Furthermore, the market rally of 1929 was created by excessive government spending. And what was the result? The worst economic crisis America and the world have ever seen.
The second important part of this lesson is that cash is king. Whether history replays itself in the coming months or not, if you think you are going to need money from your investments / retirement account(s) within the next three years, make sure you have the amount of money in some form of cash equivalent… like a certificate of deposit, guaranteed money fund, or money market account.
The Stock Market Has Taught Us One Thing In The Last Couple Of Years:
Record highs mean get out and Record lows mean get in. So take a lesson from Goldman Sachs and their philosophy of “Long-term Greed” and stop thinking you’re going to regain all your investment losses within a six month market rally. Buy and hold (should be buy and hope) and diversification both produced the same results in the last couple of years… Steep losses! Take your gains, get your cash position in-line with your near-term needs, and position your portfolio for a downturn. After all, which do you think is more likely after a 50% run up in the market? Dow 10,000 or Dow 9,000?
When Will The Economy Turn Around?
Don’t worry about learning how to interpret leading and lagging economic indicators. Simply go to your favorite retailer on Saturday at 12pm. When you can pull into Target or Best Buy and not get a parking spot in the row closest to the door, you know things are turning around.
70% of how we measure economic growth is based on consumer spending. So the economy will turn around when your family, friends, and co-workers start talking about nice vacations, big screen TV’s, and buying a larger or second home. The missing link in all this bail-out money is the consumer. If people don’t have money or access to money they can’t buy things, start businesses, and hire people to do projects. So until they figure out a way to fix that, hold on tight.
The Candy Dish
If you want to know when things are going to turn around and how the consumer is feeling about the economy, place a candy dish with chocolate in an area of your workplace. Then simply track how many times you fill the dish everyday. When times are bad, you’ll be filling the dish three to four times a day with lots of negative (this sucks or stinks) kind of conversations and when times are improving you’ll see the candy last longer and the conversations turn positive. So forget durable goods orders and new housing starts, and focus on what people do when they are stressed…Eat
What’s Your Solution?
Eliminate the penalty and taxes on retirement plan distributions for a year. The unfortunate reality is that the only savings most Americans have is their retirement plan. Yet they can’t get to them because the rules don’t allow in-service distributions (the ability for people to take money out while they are still working for that company) they have to pay a 10% penalty if they are under age 59 ½, and they would have to pay income taxes on the distribution. In a sense, reducing any distribution by 30 to 40% of it’s value. Since everyone has already lost 30% to 40% and can’t get a loan if they needed it, eliminate the penalty and taxes and give them some short-term breathing room.
Critics would ask ” if people take their retirement money out now what will that mean for their future?” Well if consumers don’t have jobs or credit, they will pull the money anyway, and frankly they are already doing it. So let’s just make it easier for them and less profitable for the government since they are already loaning our money without our consent. Plus it’s no different than what the government is doing, since they don’t appear to care about future generations with their record deficits and looming problems with social security.
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More Poor People, Less Income
In its annual report on incomes, poverty and health insurance the Census Bureau said today, the median household income fell 3.6 percent to $50,303. The poverty rate climbed to 13.2 percent from 12.5 percent. The number of people living in poverty rose to 39.8 million last year, an increase of 2.6 million from 2007.
Plunging home values and stock prices have fueled a record $13.9 trillion loss in household wealth in the U.S. since the middle of 2007.
The number of people without health insurance coverage rose to 46.3 million last year from 45.7 million in 2007, the report also said.
Source: Bloomberg
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