Will the stock market hold...or is the bubble ready to burst?

[pacfan]

It's a handy thing being Infallible, isn't it?

Though it looks like I was a little bit too optimistic.

Must be in a good mood, Kirkland.

...Ok, folks. Most of you guys seem not to be aware of it but the economic situation now looks very, very grim. So far, the 700 million rescue package failed to do what it's supposed to do - get the credit market moving. The credit market got to get rolling! Or else, the already weakend consumption, housing and other investments - the foundation of the economy - are further weakened. When that happens, businesses are also weakened, naturally leading to more lay-offs. That further leads to lesser consumption and investments in a sort of chain reaction manner, until it reaches the pit. When that happens... (I haven't got the heart to tell you what will happen.)


...but don't worry too much, you probably won't go hungry...

[Kirkland Laing]

The $700 billion is a drop in the bucket, a pebble thrown into a churning ocean. This thing is going to cost many trillions. The Fed is now buying commercial paper and the commercial debt market is showing signs of life, but banks are all still terrified to lend to anybody else. Until we find out where the bodies are buried (may take years) that'll be the case. Until then the central banks will have to do everything, from guaranteeing commercial debt to effectively nationalising the banking industry in their respective countries. I'm still fairly confident that we'll avoid Armageddon but it's still a distinct possibility. The best-case scenario right now is a year to ten of recession, sluggish growth, economic contraction etc., while the global banking system deleverages and indivisual banks write off/pay down their debt/go out of business.

[Kirkland Laing]

Just to explain, if the commercial debt market remains frozen large corporations can't roll their debt over and then they have to shut down part or all of their operations. Done on a global scale this would mean easily 20+% unemployment pretty much overnight, a new Depression in other words.

Private credit is another market that will need bailng out eventually. There aren't going to be too many interest-free offers being advertised on goods in the next decade.

[CFH]

So, as someone who is fairly ignorant of these matters and relies on someone else to invest their money for them, what is the appropriate action to take right now? Is it best to pull money out of investments before it becomes worthless or are we all pretty much fucked no matter what?

[pacfan]

The $700 billion is a drop in the bucket, a pebble thrown into a churning ocean. This thing is going to cost many trillions. The Fed is now buying commercial paper and the commercial debt market is showing signs of life, but banks are all still terrified to lend to anybody else. Until we find out where the bodies are buried (may take years) that'll be the case. Until then the central banks will have to do everything, from guaranteeing commercial debt to effectively nationalising the banking industry in their respective countries. I'm still fairly confident that we'll avoid Armageddon but it's still a distinct possibility. The best-case scenario right now is a year to ten of recession, sluggish growth, economic contraction etc., while the global banking system deleverages and indivisual banks write off/pay down their debt/go out of business.

Just to explain, if the commercial debt market remains frozen large corporations can't roll their debt over and then they have to shut down part or all of their operations. Done on a global scale this would mean easily 20+% unemployment pretty much overnight, a new Depression in other words.

Private credit is another market that will need bailng out eventually. There aren't going to be too many interest-free offers being advertised on goods in the next decade.

Now, that's more like it, Kirkland, you're sober again. Nobody can say it better - than Mr. Laing.

So, as someone who is fairly ignorant of these matters and relies on someone else to invest their money for them, what is the appropriate action to take right now? Is it best to pull money out of investments before it becomes worthless or are we all pretty much fucked no matter what?

As long as your investments are guaranteed, you can keep them where they are. But if not, think hard about it, I mean real seriously. If you are a rich guy, the traditional safe-haven investment for your millions will be gold. So invest all your money in the gold market as long as you think the crisis is there, but be ready to get out as soon as the crisis eases - precious metal market is very sensitive to market development.

[Kirkland Laing]

Now, that's more like it, Kirkland, you're sober again. Nobody can say it better - than Mr. Laing.

Are you questioning my Infallibility, Mr. Pacfan? Why would anybody do that? I'll bet you a dollar my Infallibility is right again. The party is over baby. The largest, most uncontrolled credit expansion in history is over and now the global economy is going to have to pay the price.

BTW those commercial debt markets that I was saying were showing signs of life just shut down again. The whole system is in suspended animationagain. This really is not good at all.

[Kirkland Laing]

BTW, the law prevents me from giving anybody specific financial advice of pretty much any kind, especially in the current somewhat nervous financial climate. So if you're wanting to know what to do with your money sorry.

[pacfan]

Now, that's more like it, Kirkland, you're sober again. Nobody can say it better - than Mr. Laing.

Are you questioning my Infallibility, Mr. Pacfan? Why would anybody do that? I'll bet you a dollar my Infallibility is right again. The party is over baby. The largest, most uncontrolled credit expansion in history is over and now the global economy is going to have to pay the price.

BTW those commercial debt markets that I was saying were showing signs of life just shut down again. The whole system is in suspended animationagain. This really is not good at all.

Of course not, nobody has the nerve to question that except Lyle. But then I heard a rumor that he packs a six-shooters on his waist, two of 'em in his holsters; I just carry a slingshot.
I just thought that you were being unusually tame there in your first post yesterday. I was waiting for the usual fireworks...

[pacfan]

What the heck did I say there...

Ok, CHF, let me try again. At the practical level, just keep your money where it is safe. But remember also that the time of crisis is also time of opportunity. In terms of investments, it's the time when prices will bottom out sooner or later. When it does, it's the time to invest, be it in real estate or in the stock market because there will be no other place to go but up. But you need to develop a bit of investment saviness to see and to take advantage of those opportunites. It's good time start learning though.