Don’t Open Your Statements!
Dec 5, 2008
Posted by Jody Eisenman | Filed under Uncategorized
No, this isn’t my advice. This is the recommendation of 2 investment advisors as quoted in Investment News, a local trade publication. Now I understand the fact that so many investment pros are devastated by their clients’ losses right now. However, this is a new low. How can you possibly tell your clients to ignore reality! We cannot change the reality of our financial situation. However, we can certainly react to it. Hiding your head in the sand and ignoring the crisis doesn’t cut it for me.
The market has now seemed to end its’ one week rally and resume the slide. The jobs data this morning was, well, horrible. The Labor Department’s report that employers slashed 533,000 jobs in November came in much higher than the 320,000 that economists forecast. The job losses were severe enough to add to expectations that Washington will have to take even bigger steps to boost the economy. The official unemployment rate is now 6.7%, a 15 year high. The 553,000 jobs lost were the most in 34 years.
The automakers continue to beg the government for money, but its’ been a very tough sell. Public opinion is running against it, and much of congress is questioning as to whether a bailout will just postpone the inevitable. In other words, is a bailout just keeping the patient on life support with little hope of recovery? We shall see.
Finally, one of the funniest and most troubling statements I read came from Neel Kashkari, the hand picked choice of Paulson to oversee TARP. According to Bloomberg.com, Kashkari feels that the system is working. What’s his proof? The fact that credit default swaps (i.e. insurance policies on corporate debt) for the nations’ eight largest banks have declined. Are you kidding me? The reason the swaps have declined is because the Fed has sent them billions of dollars. As long as big daddy USA is willing to send lots and lots of cash to these banks, the risk of failure drops. However, there is nothing in TARP that forces the banks to lend. In fact, lending has not really increased. The credit crisis is probably worse now than it was three months ago. As I have stated, if this crisis does not ease relatively soon, we are going to see a rash of corporate bankruptcies across Main Street USA. We are dealing with a massive problem of credit tightening, combined with a severe slowdown in business. In other words, at the very time when businesses and individuals need money to survive, that money is being cut back substantially. Although the government is attempting to address these issues, I do not see the actions taken so far making a discernible difference. We need to solve this problem quickly before we face a potential disaster of enormous proportions.
