The Fundamentals Have Changed, NOT!
Posted by John Draper | Filed under In the News, Money Management, Take Control
“Cheer up, things could be worse. So I cheered up and sure enough, things got worse.”
This could be the mantra for the financial markets these days.
A week ago, the U.S. government seized control of mortgage finance companies Freddie Mac and Fannie Mae, two government-sponsored mortgage giants.
Then, on the weekend, 58-year-old investment bank Lehman Brothers undertook the largest bankruptcy filing in history.
Last Monday, markets around the world dived into the toilet, losing anywhere from 4% to 7% depending on the market sector.
Merrill Lynch heaved a huge sigh of relief when it was Shot-gun Wed to Bank of America.
The crisis that has put Merrill, Lehman and Bear Stearns (which was the first major house to hit the rocks back in April) in jeopardy is being likened to The Great Depression. The big fear is that continued slip-sliding by the U.S. financial giants could create a domino effect, sending world markets into a tailspin. Based on what’s been happening so far, there’s no doubt continued failures in the U.S. will not stop at it’s borders. Rich Yamarone, head of economic research at Argus Research in New York has gone so far as to say we should expect “carnage.” Ouch!
The entire time these companies were making bad decisions, which ultimately brought their downfall, they were quipping egotistically that “the fundamentals have changed.” It was their excuse to dick with their regulations, side-step the reporting mechanisms they had, and generally act like horses’ asses.
If I had a dollar for every time heard the phrase “The fundamentals have changed” I’d be a wealthy woman. Here’s a Call from the Voice of Reason: Fundamentals don’t change; that’s why they are called “fundamentals.” However, from time to time, because people want to change the rules to suit their objectives, they claim that the fundamentals of changed, the fiddle with the regulations and then we have what we have now: A MESS.
While we’ve see the crisis hit in the credit world, and then spread to the investment world, them’s not all the Financial Columns that are shaky.
Over on the Insurance Pillar, AIG Insurance watched it’s stock value plunge, bringing threats of a potential downgrade in its credit rating, making it more expensive to borrow money. On the brink, AIG was bailed out last night by the U.S. government to the tune of $85 BILLION! That’s a desperate move to stop the spread of disaster that could potentially begin a domino effect with the insurance world.
So, three of the four “pillars” are crumbling. And regulators are threatening to tighten controls. Hey, where were these guys when the companies were playing loose and fast with the rules? Asleep? Making money? Hmmm.
Everything in life runs in cycles. Get yourself a pencil and a piece of paper and draw a circle. On the left side of the circle, draw an arrow that points up to the top of the circle. That’s the Climb Side. On the right side of the circle, draw an arrow that points down to the bottom of the circle. That’s the Slip Side.
Sadly, we humans are so short-sighted that when we’re on the Climb Side of the Circle – when we’re moving up to the top of the cycle – we can’t imagine that there’s another side; the downside always comes as a HUGE shock. You only have to look at how dumb we got about house purchases to see how dumb we can really be. Sub-prime mortgages? 40-year amortizations? Zero down? Really?
Prices go up, prices come down. Inflation goes up, inflation comes down. The market goes up, the market comes down. Picking up the pattern?
We’re in a big “come down” period right now (except for inflation which is rising). And all you homeowners better hold on to your hats; this rollercoaster has rounded the peak.
Canada’s real estate market, which looked like it was holding steady in spite of the U.S. meltdown, lost 5% of it’s value from last year’s figures. So a home that was worth $365,000 last year is now worth $18,000 less.
So what does all this news, this investment-world goobledegook, mean for you and me? Well…
You better know what you’ve been investing in, and be committed to a buy-and hold strategy, because that’s what you’re going to be looking at for a while. This is NOT the time to PANIC and sell. Yes, we may see further slides. But if we’ve begun our trip down the Slide Side of the Circle, then hanging on until we’re back on the Climb Side makes sense.
You need to be alert to the potential of job losses – just ask the guys at Lehman Canada who are dusting off their resumés as we speak;
Carrying credit card debt is STUPID. Carrying line of credit debt is only slightly less dumb. And carrying any debt above 11% is moronic. Hey, are you so wealthy that you can afford pzzzzz money away?
Inflation is here, so the basics of life are getting more and more expensive. You better find cheap and cheerful ways of playing at home because it’s going to take most of what you earn to keep body and soul together.
This would be a good time to focus on building up that emergency fund. You are going to need it. Cut your spending back to the bone and ramp up your savings. Find a high-interest savings account and plunk it in there.
Use every trick at your disposal to build a safety-net. Increase your skills so you become even more valuable as an employee. Use all the gift points you’ve accumulated to provide yourself a cushion. Start a small at-home business that you can use to supplement your income.
This would be a really good time to start explaining how money works to kids. If you want a series, let me know. If you’re going to have to tighten your belts at home, you’re kids need to understand logically so they don’t go into a tailspin emotionally. Or worse, think you’re a cheap bastard that doesn’t ever want them to have any fun!
If you have family and friends who are oblivious to the crisis, now’s the time to lay down the law. Lots of people write me to tell me that they have family who are at or near crisis, and they feel an obligation to bail them out. You’re not going to able to afford it. You’re going to have enough trouble taking care of your own family. So now’s the time to have a heart-to-heart, tell your folks, your siblings, your partner even, that you’re taking the precautions to protect yourself. If they choose to be grasshoppers, so be it. That’s their choice. But don’t think for a minute that you’re going to have the ability – no matter how much you have the will – to save their sorry asses when the caca hits the fan.
This isn’t the end. And even though you may feel reassured that we’re almost through the worst of it because everyone is trying to maintain calm, it’s a lie. We aren’t anywhere near the end yet. Since Canada has never been the economic ‘leader’ when it comes to change, we probably have a year – maybe even two — or so to go before the worst hits home.
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September 17, 2008 at 7:21 am
As someone married to the military (meaning my husband is a soldier) it’s hard knowing this about the housing economy. We recently purchased a house in Nova Scotia and now I am terrified that we will end up loosing our hard earned, accumulated DP when we are asked to move again.
That being said, I suspected that this would happen. We were approved for 325K, we spent half of that and got a locked in 5 year mtg at 3.8%.
Right now we are struggling with a budget, we are using your jar system and I really need to hide my debit card, too easy to whip it out.
Love your show, watch it all the time, even re-runs!
September 17, 2008 at 8:09 am
Thank you Gail for an excellent blog – putting all the current information into an understandable form! My father always used to tell me about the cycle of things (we grew up on a farm – so you are used to it all the time), and so none of this is unfamiliar to me. I am so glad we have an affordable house to live in, my husband has a very secure pensionable job, and we have little debt to worry about (only mortgage and small credit line which is almost paid off). It feels good to know that there may be a worsening situation ahead, but that we are on solid ground financially. I would love to have you post more information to pass on to kids, or that you re-release your book on how to discuss money with kids. It is such valuable information which should be taught in schools, but since it isn’t, I want my two daughters to grow up knowing the realities – not living in a dream world like so many people do these days!
September 17, 2008 at 8:42 am
Thank you for putting it out there in plain english. It’s nice to get the facts from someone I feel I can trust.
Like Brenda & Jennifer, I’m so glad I bought a house I can afford. As much as I would love to re-locate, I just don’t think it makes financial sense. With the market as it is I would have to pay near double what I paid for my home to buy another of simular size. While my homes value has almost doubled, I would lose close to $30K just to move after realtor & lawyer fees etc. I’ll be staying put for a while.
Now to tackle the debt & emergency fund…
September 17, 2008 at 9:44 am
My husband and I are in the same boat as you Melanie (owning a house we can afford…) we feel really lucky to have the home we have with the low mortgage to go with it. We also have very little debt that will be paid off soon and emergency fund in place… We had thought of moving this past year but decided against it because of housing prices and the uncertainty in the market. I’m so glad we are sticking where we are… thanks Gail for telling it like it is…I really wish more people would just cut through the BS and tell the truth! I think it may very well get worse before getting better again so best to just watch your pennies and save everything you can!
September 17, 2008 at 11:49 am
I live in California where the housing bubble was huge. For a couple years I just looked at it think there is no way this can last and how far will the economy fall when the bubble burst. Everyone I know breathed a sigh of releif when it finally happened. I just bought a cute house, in a great neighborhood (I didn’t think I would be able to afford a house here), and I can definitely afford it. I sat down with my lender and told her what I would like my payments to be along with the term and type of loan I am interested in and then should told me what price range to look in. So I bought a house with a down payment, I am currently working on it with some of the extra money I had save (no equity line of credit) and I will still have enough money in the bank for an EF. Since I am generally a pesimist in optimists clothing I love the phrase “Expect the worst and hope for the best”.
September 17, 2008 at 12:07 pm
Thank you Gail! This I can understand.
I was panicking when I saw our RRSP investments take another major dive! I was thinking – how can our retirement be worth less than we have put in?
My panic-mode makes me want to remove it all and stuff it in the mattress (at least it won’t depreciate past inflation then), but I know in my head that I should stay put.
It is just so hard to trust the investors at this point!
You just helped sooth the panic, I will keep it where it is, I will keep my regular contributions (buying more stocks for the same money) and hope that we are near the top of the rise again when it is time for me to draw on it to live.
September 17, 2008 at 12:26 pm
I completely agree with your advice about increasing savings to get through the troubles ahead, Gail. I’m very glad I don’t have to worry about a mortgage right now. Maybe the lack of a mortgage is what makes the tone of your article seem alarmist to me.
September 17, 2008 at 12:50 pm
Wow, did that ever give me a scare reading that. For some time now I have been telling my husband that we need to buckle down and start paying our debt off (two cars, a mortgage, two lines of credit, two credit cards).
We unfortunately got ourselves in a little deep last year by thinking we wanted something bigger than we all ready had. We had a cute little house with a small mortgage and low taxes to pay, two fairly new cars and were doing well. Then we decided to jump on the selling band wagon and thought we’ll make some money on our little house and get ourselves something bigger and better. Well we did make money on our little house but we also paid more on our larger house (as well as more taxes)- used some of the money made to pay off our credit cards. We were still not so bad off at that point but somewhere along the way we built back up 20K (not including cars and mortgage) in what I like to call junk debt because there is nothing really substantial to show for it.
I have tried talking to my husband and getting him to use the budget (magic jars) with me. We usually do well for a few weeks and then something happens that sends us off budget and we say oh we’ll try better next week. I am definitely getting him to read this tonight because I think that it will knock some reality into him as it did to me.
I love watching Gail’s shows (even watch the reruns) and I read this blog everyday and take lots of ideas from everyone out there. One lesson I did learn the hard way though is that you’re not always happier with something you think is bigger and better. I really miss my little house, not just because of the money either but also because it was cozy and my family and I felt closer in it. Now I have the stress of cleaning this house and paying for it.
September 17, 2008 at 3:31 pm
Like Tracy J I looked at my RRSP investments and they’re down. I refuse to panic, however, because I’m not going to retire next year and I’m old enough to have seen this before. Anyone remember the late eighties? I’ve chosen my mutual funds well, I have an advisor I trust and the worst that can happen is I work a little longer before I decide to retire.
I share Gail’s astonishment that anyone is surprised at what has happened. No-one likes to see established companies fail, but when you look at what they’ve been doing … – well to me, this was a real “duh!!” moment. Somehow, something is wrong when the engine of the American economy is consumer spending. Now, I’m not saying that we in Canada have any moral high ground under our boots, but we do have a better system set up – our banks are sound, regulated and there are no sub-prime mortgages. Thank goodness the nothing down mortgages are gone. I’ve always thought that if you can’t save five percent of the value of what you want to buy you won’t possibly be able to pay for all the extra things that owning a house means.
September 17, 2008 at 4:07 pm
Buckle up folks, because this is just the beginning. We are going to experience, as the economy deteriorates, jobs are lost and the DOW plummets to new lows, a remake of the Great Depression. For many people, it is already too late. People that have used their home equity to finance SUVs, exotic holidays or other luxuries are in for a rude awakening. They won’t even be able to apply for Til Debt do Us Part. They will lose their houses, their cars and their possessions, even if they are lucky enough to keep their jobs.
Jobs will be lost, companies will close, government services will shrink, meaning less police officers, less food inspection officers, etc. municipalities will go bankrupt due to unpaid taxes. Add to that a surge in inflation and we will see crime soar, breakouts like the avian flu, bread lines and soup kitchens will proliferate. Nobody is going to trust anybody.
Banks, credit card companies and other creditors will call in loans. A bank in a situation of dire straits may well call in a mortgage or a line of credit. It can even seize portion of your salary to recoup their loan. Check your mortgage fine print. Declaring bankruptcy may be the only way out.
I was watching a rerun of TDDUP last night: the story of Chris and Krystal in debt up to their eyeballs. She bought a bed for her son with the $110 she had made working overtime. She felt like a loser buying something so cheap and ugly because her son deserved better.
Listen Krystal, what do you think your son will deserve once you lose your job, your husband lose his, your landlord evicts you for non-payment and your creditors keep harassing you? Deserve has nothing to do with it.
The only option for your family may well be temporary government shelter in a gymnasium, sleeping on a mat on the floor, sharing the bathroom with everybody else and using a kitchen soup coupon.
It is too late for people like them. NEVER are they going to to able to get out of debt.
September 17, 2008 at 4:23 pm
Thanks, Gail for an honest post. Finally someone tells it like it really is and where things are going. While it is true that it may not have hit full throttle in Canada yet, change is coming, so get ready.
I’m giong to share this blog with my husband and use it as momentum and motivation to continue the plan we have started. And it will be a reminder to me for everytime I think we should cash in the savings to pay down debt. We might just need the nest egg more than we think.
I would REALLY welcome a series on how to teach children about money. I have two kids under 5 and the oldest always asks about money and I never quite know how to explain it to her. Love the show, Gail–and your frank and honest approach. It seems so simple, really…
September 17, 2008 at 10:50 pm
Gail, I would absolutely be interested in a series on dealing with kids/money. I would love any advice you have on this topic. My dtr is 11 yrs old, and it doesnt seem like she understands that money is hard-earned. I am at my wits end, and would really appreciate any input you may have. LOVE your show and LOVE your blogs….keep em coming!
September 17, 2008 at 11:38 pm
Wow, Gail–thank you so much for your generosity. You give all this amazing info. and advice to us, complete strangers (and fans!!!). You have helped us onto the right track and “thank you” just doesn’t give you enough credit!! We love ya!
September 18, 2008 at 12:22 am
Gail, I would love for you to do a series on kids. I have followed your advice on allowances for my three kids and my 14 year old daughter also gets a $50.00 a month clothing budget. She planned her back to school wardrobe this year and really thought out her purchases. She also uses her weekly allowance to buy cleanser, make-up and other drug store stuff. Last weekend she brought her list to Shoppers Drug Mart along with coupons for the products she wanted! I was so shocked when she pulled out coupons, I didn’t even know she had them! It’s great for me as well because I don’t worry about going off my budget because she no longer asks me to buy anything for her. I have been doing this for about one year and it is so worth it. Now my boys on the other hand, well I could use more advice. They are ages 6 & 8 and I am finding it more difficult in helping them manage their allowance. I need to pull your book out again, I was lucky enough to find it at a used book store!
September 18, 2008 at 6:04 am
I would also be interested in a series on kids – particularly preparing them for living on their own when they go to post secondary school.
September 18, 2008 at 8:36 am
Great Post Gail! If only it didn’t take the threat (or reality) of the bottom falling out from under people’s feet to realize that these are things they should be doing on the up side as well.
September 18, 2008 at 8:51 am
@ Arma Geddon – Although your name is well chosen and probably wants to be seen as ironic, as a person with a degree in history, anyone who could compare the next fiscal year (or next few) with the Great Depression is making ridiculous exaggerations. It’s almost impossible to gauge how horrible the Great Depression was – unemployment at 30%, underemployment (if the term existed then) at 70%, no social welfare system whatsoever, little if any access to medical care whatsoever, horrific weather patterns destroying crops… comparing this period to that is insulting to my grandparents who lived it. In fact, as someone who 30+ years before retirement, I’m kinda glad the stock market is taking a tumble – one buys stocks when they’re low. Still I’d like to see some improvement and think we will sooner than most think.
September 18, 2008 at 9:58 am
Geoff: I don’t think anyone means to insult either you or your grandfather. However, there are people who are months away from retirement right now who have watched 40% of their retirement portfolio evaporate over the past few months. Sadly, they do NOT have the time to recover. Your age is on your side, but it isn’t so for everyone. As for unemployment at 30%, we’re only at the beginning of this downturn; we don’t know where the bottom is yet. And while we in Canada have a good social system (though it has been significantly eroded by government cutbacks), the take in the U.S. is that the poor are poor because they are stupid and don’t deserve to be supported. The switch from “welfare” as a way to help to “welfare” as a stamp of failure was a great communications triumph that got The People on the side of The Government’s Cost Cutting Agenda. As for horrific weather patterns destroying crops, we not only have had some of those, we have also watched as farmland has been given over to fuel creation, resulting in huge increases in the price of food staples.
September 18, 2008 at 10:05 am
Wow Gail, thank you so much for just cutting straight to the simple truth on what’s going on in the economy! So often this week when I have ventured a voyeuristic peek at the news headlines, but I’ve ended up with the “deer in the head lights” effect.
Thank you for bringing something as esoteric as the global economy down to the human scale level for us all. Okay, buy-and-hold, stay away from credit -especially over 11% interest, save for a rainy day, talk money with my kid, keep up the small home business, be prepared for more financial bad news. See, I can handle that. And maybe now I can see that the head lights go with the on coming financial Mac truck, so I think I get the heck out of the way now!!
BTW- LOVED, LOVED, LOVED your “Til Debt Do Us Part” show which aired this week regarding the single mom and teen daughter, with grand parents bailing them out. Please do MORE shows with a single parent focus!!
September 18, 2008 at 11:40 am
Gail, love you to death but there’s no comparing this to the Great Depression. Sure it might get worse, but that’s a big might (the likes of the world “might” get hit by an asteroid). The US bailout of AIG is a good move for all involved and shows that even the US government is willing to take action for its citizens – though the wealthier of its citizens will benefit the most, it’s true.
And Gail, people months away (even a few years) from retirement have no business having that kind of exposure to the equities market, even in the most bullish market. Bonds, GICs, Cash are all paying out today just like they did last month and even many dividends haven’t been cut.
September 18, 2008 at 12:00 pm
I agree with Geoff that people close to retirement shouldn’t be exposing themselves to the high risks of the stock market. We took a hit with all that’s going on right now but we still have 15 years to go and can ride out the storm. When we get to the 5 year mark we will be doing some serious work at reducing our exposure to high risk of the equities market.
September 18, 2008 at 12:14 pm
Close to retirement and equity/bond ratios:
If you expect retirement to last greater than 15 years (and many can expect that), so some advisors tell you that it is ok to put some money into equity because it could bounce back during that period. Some say to split between short-term and long-term to improve the potential of return.
I am not a financial planner, so I do not know the correct answer.
I will say that the current market situation is something to keep in mind when anyone gets close to retirement.
Pension plans with defined contributions are difficult for many because the individual is responsible for investment choices. I don’t like this much for myself (RRSPs investments are enough headache-wise).
Blue-chip dropped etc. It is VERY important to understand ‘overvaluation’ of a stock before investing. Some call the current situation a market crash, but why is it not called a market correction? If the fundamentals did not change, some stocks were overvalued and miscalculated against risk. Difficult for the average person to study all this!
September 18, 2008 at 1:28 pm
Geoff: I think what Gail is saying is to keep an open mind here. It may not get as bad as Arma_Geddon predicts but the potential is there. I work in the financial industry and I am seeing many side effects of this week’s news that most people don’t get to see. Things may not get as bad as the Great Depression, but they also have the potential to get worse. Sure the bailout of AIG might be a great thing, how many more companies can the US government afford to bail out, have you checked out their nasty balance sheet and debt levels lately? The events this week may well be the final push into a major world economic downturn. Keep in mind that the companies in distress now, as one of my colleages pointed out, are the “pillars of the American economy”.
On a historical note: I’m sure in 1919 everyone breathed a sigh of relief that war could never get worse than what everyone just went through, then along came 1939…
September 18, 2008 at 2:09 pm
Geoff, I don’t mean to insult anybody that has lived through the Great Depression, be it your grandfather or anybody else. I said this is the beginning of the end. How far will it go, how awful will it be and how long will it last? Nobody knows for sure.
My bet is that the thirties will look like a walk in the park, compared to what’s coming (to cite Ambrose Evans-Pritchard). We are going to see fortunes wiped out, jobs lost and social programs cut, as homelessness, crime and outbreaks rise. The only good sectors to invest in will be security systems and soup kitchens.
There was no welfare in the 30’s and there isn’t going to be any much of it left when this crisis is in full bloom. The difference between the thirties and now is that people then had the basic skills to survive and more work ethics. Does anybody know how to grow a garden, can food, gut a fish or sew anymore?
What we are experiencing now is history repeating itself, albeit worse. Geez I wouldn’t want to be in debt right now. Imagine if you have 50% equity in your home when the crisis hits. The real estate market plummets, your bank is in a financial difficulty and calls in the remainder of your mortgage, and you can manage to pay it back with the proceeds of the sale. You will be left with no equity at all. People don’t seem to realize how catastrophic the situation is.
I have no faith in the future of our social programs. A crisis of such a magnitude, coupled with the present demographics are the ideal recipee to make Medicare, Old Age pension plans and the likes a distant memory. Imagine the day where baby boomers will be in their 70’s and 80’s. The government won’t be able to sponsor any old age retirement homes. Unless one has the means to fork out $10,000 a month for a private institution, old people will be forced to live with family, or be put in refugee-like installations. Young people won’t be able to make it on their own. Many families will have to live under the same roof.
People have spoiled themselves rotten on credit for too long. It’s payback time now. The worst is yet to come. GET OUT OF DEBT AS FAST AS YOU POSSIBLY CAN.
September 18, 2008 at 2:50 pm
Arma, I respect your enthusiasm and agree with the message of getting out of debt, but logically, your scenario lacks finesse. It seems unlikely that the banks will demand full payment of their loans from all their customers; all this would do would cause them to foreclose on homes they can’t sell anyway, not increase the banks revenues and in fact remove a source of income from them. If in fact the scenario you are predicting comes true than actually it makes more sense to throw gail’s rules out the window. IE if my stocks will be worthless forever and I’ll be canning my own fruit in a week, and the bank will foreclose on me since I have far less than 50% equity in my (unsellable anyway) home and I’ll have to declare bankruptcy anyway, then hell I’m going to go start living it up like a rock star who cares if its on credit, I want my yacht.
I think, and take this for whatever it’s worth, that during any event like this there are those who venture too far in either direction – whether its too buy more house than they can afford because prices never ever go down or conversely become y2k believers in the end of the universe. I prefer a more grounded, keep my head down, eyes up, ear and heart open approach.
I also can’t help but detect a kind of delight in your comments about the upcoming nuclear winter scenario you’ve painted, especially the ‘its payback time’ comment. Payback for what? Not everyone who has lived on credit has been irresponsible; some have children young, go to school, have elderly parents to tend for, etc.
@ Marie – I suspect those advisors would be recommending that younger retirees can stay invested in equities if they are investing for income (dividends) in companies that are stable, secure and have a solid history of dividend payment (coke, johnson and johnson etc).
@ Elton – not suggesting that it isn’t a bad time out there now. Just saying that to compare it to the Great Depression is misleading since its difficult to actually conceive how bad that was, and that to suggest “it might get worse than that” is true but so is “and it might be get better” and that message needs to get out too.
Overall, this may just be me being foolish but I refuse to go through life believing anything other than the best is yet to come.
September 18, 2008 at 3:16 pm
I’m with you Geoff. No-one can say for sure exactly how the future is going to look. Let’s hope for the best, but prepare for the worst.
Something like this, regardless of how bad it gets, will further seperate the ants and the grasshoppers. Let’s just hope us ants have been buckling down enough (and can continue to) until this storm has passed.
September 18, 2008 at 4:02 pm
Geoff…I must give you props here!! I enjoy reading your comments/opinions on the many topics.
September 18, 2008 at 5:03 pm
Thanks Fiona!
Some good stock news: http://money.cnn.com/2008/09/18/markets/markets_newyork/index.htm?cnn=yes
September 19, 2008 at 10:07 am
Geoff, It may seem unlikely that banks will recall payments for their loans, but desperate times call for desperate measures. I wouldn’t want to be in debt up to my eyeballs on a mortgage or home equity loan when the crisis hits.
A bank is not the Department of Welfare. If they need their money, they’ll find a way to get it. As savers, your first $100,000 in any banking institution is insured. Anything beyong that is not. So, if a saver with $300,000 in one financial institution may lose $200,000, then the opposite may well occur: bank calling in loans. That may be the only option left for the bank if it has to fork out $100,000 for every saver that wants to cash out.
As to foreclosures, we will experience here what’s happening right now in the States: a backlog in the foreclosure process gives people a few more months rent-free in their homes. Some have been evicted, others are waiting for an eviction order. Banks are repossessing foreclosed homes and will take whatever they can get. There will be great bargains to be had for someone with money when that occurs. Right now, tent cities are proliferating in the US:
http://www.msnbc.msn.com/id/26776283
As to the safety of your stocks, I wouldn’t bet on it. Even the money market accounts aren’t immune to a downturn:
http://www.reportonbusiness.com/servlet/story/RTGAM.20080919.wrbankwillis19/BNStory/Business/home
We will see how long a government can keep bailing out a distressed financial institution. Prognostics don’t look good to me.
On the contrary, this is no time to throw out Gail’s rules. Whether it is now, in the past or the future, debt is not a good thing. You wouldn’t want to be in a situation where you have to file for bankruptcy. If you lose your job at the same time, might as well sell the remainder of your possessions in a garage sale and join the Tent City folks.
I am not predicting the end of the Universe as you said, just that someone with no debts will wheather the storm better.
True, there are people whose situation with debt is due to bad circumstances and I sympathise with them. But the vast majority of them like the people on TDDUS can only blame their bad behaviour. I have people like that in my family. I know how they think. They want the best of everything regardless of the price. They think that if something is for sale, then that something must be had. Then when the bills start piling up, unforeseen circumstances occur and the phone keeps ringing off the hook, they are the first one to come sucking their parents/relatives for money. The worst part of it is you can’t tell them they are irresponsible. They get upset. They believe everything is due to them. They blame the government, the wheather, their dog, anything.
Sorry, but I have neither pity nor respect for people like that. So it is very possible you detected some kind of delight in my comments.
The US is bankrupt. Canada and the rest of the world will follow. It’s just a matter of time. If I have any advice to give is get out of the stock market now, cash out what you can and put it in GIC’s or Government bonds. Some gold wouldn’t hurt. If you haven’t already done so, start stockpiling food and other non perishable necessities. That may save you and your family from starving when a loaf of bread costs $20.00, your utility bills skyrocket, you get downsized at your job and water from the tap isn’t safe to drink. I, too, prefer a more ‘grounded’ approach. But I’d rather be safe than sorry. The stockpiled food won’t go to waste even if this dire scenario doesn’t materialize. So you have nothing to lose in preparing yourself.
Cheers.
September 19, 2008 at 11:23 pm
Some good debate here! I don’t think anyone really knows how bad it’ll get in Canada. But between the chaos in the States and the emergence of the global markets, there’s bound to be some redistribution of the global standard of living. Sadly, we’re at the top of that… so we’ve nowhere to go but down.
Those of us with ’safe’ investments aren’t doing that much better… being happy with 3% guaranteed returns (hey, I’m not complaining too hard – I’m such a financial coward when it comes to risky stuff) is like being grateful for 1.135/L gas! I’m sad that I’m happy!
September 21, 2008 at 12:55 am
Wow. Very interesting, scary, necessary debate.
Seeing the trouble that’s brewing, I decided to retrain for a new career in the health care field. My husband and I are currently freelancers in an industry that isn’t all that stable during good years. I’m interested in health care and I see the need, so I decided to go for it.
Thing is, it’s going to take me at least four years to retrain. And going back to school could make things really tight. All this talk about how bad things will get, and how quickly, has me thinking, is this the stupidest time to go back to school and pick up a huge load of education debt??
September 21, 2008 at 11:09 pm
Rex Murphy had an excellent and intelligent debate on CBC cross country check-up today.
http://www.cbc.ca/checkup/this-week.html
On Cross Country Checkup …financial jitters
The spectacle of some of America’s biggest financial institutions going down has shaken many people. The uncertainty has injected fear into financial markets around the world …but what is it doing to you?
Do you worry about the economy? What effect does the news have on you?
Join Rex Murphy, Sunday on Cross Country Checkup
You can download a podcast.
September 22, 2008 at 9:22 am
Arma, you say you’re not predicting the end of the world, but then conclude the same post by suggesting our water supply won’t be safe to drink. That’s pretty end of the world to me. Just saying.
October 9, 2008 at 2:52 pm
Don’t you remember Walkerton especially if you live in Ontario?
Now, imagine the same situation, especially in the middle of an economic depression.
January 7, 2010 at 7:36 am
Keep up the fantastic work! Look forward to reading more from you in the future. I think it will be also nice if you add “send to email” tool so people can forward the articles to their friends easily.