Sushi Money

Very strange markets lately, especially the credit markets.  Now that the bailout has passed, will it actually help do anything over the short-term?  That’s the question many are asking, and yet the credit markets imply that the bailout isn’t enough.

“Overall, market participants have begun regarding the rescue plan as a medicine for what’s ailing the financial system, but not a cure-all. At best, we can hope that it stems some of the more intense risk from the credit crisis. It prevents things from spiraling out of hand here,” said JPMorgan Chase economist Michael Feroli.”

“Some are worried, though, that the plan will not work at all.   “Nobody knows how it’s going to succeed,” said Howard Simons, strategist with Bianco Research in Chicago. “It seems the American public had better sense than Wall Street and Washington — the American public said, don’t throw good money after bad.”

“The Treasury will buy banks’ risky mortgage-backed assets in an effort to alleviate investors’ worries about the institutions’ solvency and free them up to do more lending. Even if those efforts succeed, the effects will be far from instantaneous, and borrowing could remain very expensive for some time. With the economy in such a weak state, lending to consumers and businesses will still appear risky until certain factors — particularly employment and the housing market — improve.”

But it’s a start, even though most of us don’t like it.  I’m in the camp of those who believe the alternative would be worse.  As bad as things could get, I think they would have become a lot worse a lot faster without government intervention. 

In the interim lots of folks are very concerned about their investments and retirement accounts.  Looking at 20% to 30% losses on stocks and mutual funds is quite upsetting.  And it certainly makes you wonder what the future will hold.   Some of us are fortunate in that we have quite a few years before we need our retirement funds.  Based on 10-20 year horizon, I’m not changing much about my investment allocations.  

In hindsight, it would be nice to have the ability to move money within an IRA from growth and balanced funds to a more conservative allocation, and then very soon to move it back into growth.  Admittedly I don’t watch my retirement investments that closely or believe that timing the market is a prescription for long-term success.  I might have preserved a good chunk of my investements… for a while.  I may also have missed out on moving the money back again.  Instead it’s going to stay where it is, and I’ll increase investments where I can over time.  My IRA contributions are already maxed out for the year, so I’m planning to move money to the IRA in January ‘09. 

Some folks are throwing in the towel however and going straight to CD’s and bank savings accounts.  That is an understandable reaction, and some of the CD’s or high-yield on-line accounts will pay as much as 4% or more for a 5-year CD.  That’s on par or slightly ahead of inflation at least, but it doesn’t grow your money over time.  It may help preserve it however, and if your investment horizon is shorter than 3-5 years, then that’s probably a good place to put your money.  As many have learned the hard way, short-term money has no place in long-term growth stocks or funds. 

The important thing is not to give in to the sense of panic that you see in some people’s faces.  The world is not ending for most of us, and with a little reflection we need to remember what’s really important in our lives.  Most of us will still have a job, food and shelter and will continue to save and invest over time.  Others are not so fortunate, and we need to help create an environment where they can get back on their feet once again.  

But just about everybody is cutting back spending in one way or another, and like it or not it looks like the recession is finally here, and may be here a while.   The Federal Reserve is even thinking about lowering interest rates again.  

So I’ll continue my personal mantra of “cut spending, pay down debt and increase savings.”   I wish a few of our larger financial institutions had adopted a similar strategy instead of binging on leverage.   Now that I think about it, that’s not such a bad recipe for business either.  Unfortunately, as many of us adopt similar strategies of reducing spending, that will just exacerbate the recessionary climate within the economy.  At least for a while.  Eventually the business cycles will swing up again, and consumer spending will help lead the way.  That may be a year or two out from now.

For now it’s time to make the most of where we are… and time to get outside and enjoy some cool fall air. 

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