Most reasonable minds agree that we are currently in the midst of the biggest economic decline of our generation (and perhaps the one before, depending on how old you are at the moment). Things are bleak. Unemployment is high and going up. You can't open a paper these days without being met by an article about a company that's cutting jobs. Not just mom and pop companies, the big ones too: IBM, GE, Microsoft, pick a bank. Good jobs are getting scarce. The Dow is playing with 8000 and may drop by another 25% (seriously, it could happen). Foreclosures are at record highs and not just the sub-primes, prime jumbo mortgages are running at about a 7% default rate (according to Tuesday's WSJ).
What can be done? Who knows? Politicians will spend our money, people will get unemployment and go on welfare, we will scrimp and save and then, slowly, when no one is watching things will begin to turn around, little by little, and life will, over the course of a year or two, return to normal. We will all forget the bad times and people (who, as a rule, are stupid), will begin to act in the same ways they did before, over extending themselves, using too much credit, buying houses they can't afford. To put it simply, we will return to being Americans.
But, in the mean time, I'm investing in stocks . . . a lot. Prices are low. They may go lower, but right now they are low. I see one of two things happening in our country. One possibility is that history will repeat itself, and after a period of decline, we will pull out of the darkness and our economy will boom. This recovery is usually led by the markets. Stocks begin to rise before we all acknowledge that the worst is over. This is how it has happened in the past. The other alternative is that the markets go to zero and all meaningful productivity stops. We lose everything. We become Haiti. Everyone is broke and the country is irreparably broken. If this happens, no savings plan (whether in your bank or under your mattress) will help you. The dollar will be worthless because there will be no country to back it up. This second option, while possible, is very unlikely (in my opinion) and something that, unless you are going to build a compound and be able to raise your own food, is not worth preparing for. So, I'm buying stocks of good companies that are being drug down by the market in recession, and preparing for the turn around that will come and make me much, much, much better off.
