I've recently been very lax in keeping up with the news. Last I heard, Dubai caused a minor stir in the already-screwed up credit markets, sending markets into a tizzy.
I saw on today's newspaper the big headline, "Mortgage Rates at All-Time Lows." Sheesh. Haven't we seen this TV show before?
Must we go down the same stupid road that got us here? I know, the credit standards are supposedly much higher now than they were in 2006-2007, where anybody with a pulse (and some even without) could get a loan for a piece of property. But I have heard random radio spots that hint that things really haven't changed much. Stuff like "no money down," "seller financing," and "no doc" loans…
I'm afraid we haven't learned a thing from our very recent past. I can't say I'm surprised.
The fundamentals of the market psychology hasn't changed: It still seeks short-term profits over long-term prosperity. Slow and steady hasn't kept the market happy for decades. It likes the hare, not the tortoise.
I also saw that gold hit $1200.
So how does one protect himself during these times? I'd suggest that you stick with the same old, same old:
Depending on where you are in your life, you would do best to keep the bullk of your investable assets in stocks, some in cash, a little in bonds, very little in gold, and a bit in real estate. Note that I am not including your home in this assessment. If I did, most of us would have more than 50 percent of our assets in real estate (which might be a big part of the problem, right).
I still think the US is the place to be for innovation: IT, bio tech, medicine. But I think you may want to invest a considerable portion in foreign markets. China will not stop growing for some time. India is still going to improve. Latin America still has lots left, as does Canada, Russia, and Europe.
The world, as they say, is your oyster. Choose wisely, or else you may get one that's toxic.
To the creator of PennyJobs, Curtis, the answer — clearly — is an emphatic YES!!!
What About Greedy Bankers?
Some like to point out that Wall Street creating the easy home securities like ARM and sub-prime loans, but realize that Wall Street would not have been able to create these things if Alan wouldn’t have allowed interest rates to drop well below market rates.
Not sure I agree with the statement (it seems like a circular argument), but I, too, place a lot of blame on Greenspan and the Federal Reserve. And my opinion isn’t influenced, in this case, by the fact that I think the Fed does too much. It’s based on the idea that one of the, if not THE, central functions of the Federal Reserve is to regulate banks and other financial institutions.
The Fed failed in its oversight of the banks; in fact, they encouraged risky behavior. I think they were of the mind that all of these “derivatives” were reducing — if not eliminating — the risk naturally inherent in risk-based securities. After all, mortgages, for example, have inherent risks and their priced almost solely according to this risk (in the form of the interest rate).
A simple economic lesson: Higher interest rate = Higher perceived risk
As interest rates dropped to historically low numbers, the market clearly perceived lower risk. But people still lose jobs, hurricanes still happen, blight still occurs.
As the bubble inflated, more and more people pumped more and more air into it. As a bubble expands, it becomes more likely to burst.
And BURST it did.
It would be interesting to know what the money multiplier was during the early 2000s versus other 5- or 10-year periods. I would guess that it was rather high.