How to Stay Out of Debt

I'd like to share a video with you this month. It's funny, however its simple but true solution is so obvious it is almost painful. This video is How to Stay Out of Debt brought to you by the classic Saturday Night Live cast of the 1970s. Enjoy!

Clouds of Economic Despair

In the last few days, two people, on two separate occasions, approached me with their concerns about what is happening in the markets. One of them said that he couldn't say exactly why, but it feels like a "Great Depression" might be imminent. He has never been involved in stocks, nor cares much at all about the world of finance. The other also had no money in the markets herself, but was concerned for a friend who had a significant sum in various investments. What has stood out from these encounters, is the sense of alarm from two people who normally could care less about the stock market or economic indicators.

There has been increasing talk of the possibility of a recession in the financial news. I have seen a few of them come and go in my lifetime, with little personal impact, other than a looming possibility of a job lay off which I was fortunate enough to escape. Yet, during those other recessions I don't recall anyone who I personally knew speaking of "Great Depressions" or describing a sense of large, imminent, engulfing doom. Something is different this time. Whatever is happening, is not like any of the recessions I have lived through. I can't help wondering whether people had such feeling in 1929 just before the big crash.

It is impossible to know whether we will have a one big event market crash such as that fateful October in 1929. It may not really matter. Whether we have a single big crash event, or a consistent and persistent economic contraction, the result would be the same. We may be witnessing the beginnings of a profound transformation of the lifestyles we have become used to.

The only practical advice I had for my friends is this: For the time being, and for at least a couple of years, stay away from long term investments; don't buy a house. Stay away from the stock market and money market funds, keep your debt down, and hold on to cash. And by the way, in case what is going on means that banks will be failing, and that looks likely, make sure your money is in a conservative, solidly rated bank.

This could be a long, rough ride.

Could the Market Crash of 1987 happen Now?

It seemed best this month to use excerpts of two interesting articles for this month's entry.

Could 1987 happen again?
http://www.marketwatch.com/news/story/could-1987-happen-again/story.aspx?guid=%7B9EB9B81B%2D3592%2D47C7%2DAA51%2DE79F3EC99602%7D

LONDON (MarketWatch) -- This October marks the 20th anniversary of the 1987 stock market crash, the biggest one-day post-war percentage drop for U.S. markets.

The crash came against a backdrop of inflation fears, rising oil prices, Middle East tensions and a host of other eerily familiar worry signs in Wall Street's most notorious month, and helped cement October's reputation as the toughest month for the markets, at least psychologically. So, could it happen again?

Could the world's stock markets wake up one morning this month and suddenly find there is no 'bid' for shares and start plummeting? Could someone mess up in the Middle East, where tensions are already high, and do something so completely unexpected that people suddenly just want out?

Or could an overheated market in Asia, Shanghai perhaps, suddenly roll over, sparking a cascading series of falls as complex, computer-driven derivative positions suddenly lose their footing leading to one great global belly flop?

Yes.

Uncertainty and fear are ever present agents in the markets and can overwhelm greed and optimism at any time. Unexpected geopolitical and financial events are an ever present possibility.

The Ides of October
Commentary: How 2007 is different from 1987 and how it's the same
http://www.marketwatch.com/news/story/how-2007-different-1987-how/story.aspx?guid=%7b087A4B09-AD6A-436B-98EC-FF63FB5EB4BB%7d&print=true&dist=printTop

The more we wade through the minefield that is today's credit crunch the more is written about the last time we saw such problems -- 1987. Parallels are also being drawn in politics, the dollar, war and Wall Street itself so this confluence of coincidences may not be such happenstance at all. Perhaps it is telling us what is going to happen in the very near future.

October has the reputation as being the scariest month of the year and not because it is the home to Halloween. All of the really big market plunges -- 1929, 1987 and even the mini-smashes of 1989, 2000 and 2002 -- all happened in this month so investors are understandably concerned.

Geopolitical Storms! - U.S. Markets and Mood - September 2007

This is the script for this month's U.S. socioeconomic video forecast:

Greetings, We’ve had fun these past few months making US Markets and Mood forecast videos. This month, however it didn’t seem right to make a funny video. This month, from all appearances, doesn’t look very funny. There is a combination of mood factors for September that deserves something different. So, this month is more of a heart to heart chat. I’ll tell you what it is that we are looking at—you decide for yourself what it means. We’ll start with the lighter side for the month, the stock market and the dollar:

Stock Market: Unlike last month, with the markets ruled by fear and panic at the slightest rumor, most of September should find the markets focused on data and fundamentals. This shift towards rationality should be noticeable by the end of the first week. It is short-lived however, and by the end of the month, expect a full on return to panic.

US Dollar: As for the dollar, look for confusion, as if a shell game was being played. You may pick the first shell, which does look pretty good, that the dollar is going down. You may pick the second shell, which has potential later in the month, which is that the dollar is going up. The third shell may be the best pick, but what is actually under that is a big secret, and we may never get to see what was underneath it. Now, as we continue, I’m going to ask you to piece together a puzzle with me. First let’s look at the mood factors for U.S. Society in general:

U.S. Society: American society is feeling gloomy and a bit haggard after the onslaught of bad economic news last month. One possible response is to go deeper into despair, but that is not what is showing up for this month. The likely way Americans in general will respond to this, is to shift focus to a few designated “bad guys” out in the world. There are many possibilities to choose from—China and Iran are among the recent favorites, but a burst of creativity could even bring in a new villain. This alone, is not a big deal, and nothing new. However, let’s look next at the U.S. government’s mood for this month:

U.S. Government: We all know that both the president and congress have had extremely low approval ratings for some time. Yet, for whatever reason, the indications are that the U.S. Government comes across to the American people in September as both conciliatory and protector, as benevolent and righteous; and if pushed by outside forces, as an Avenger. Another puzzle piece is the energy markets:

Energy Markets: The mood factors for the energy markets indicate extreme volatility and could be full of surprises—the biggest of which should be near the end of the month. There may be times that rationality intervenes and keeps the moves from getting out of hand, but a combination of extreme weather and looming geopolitical tensions may cause panic to win out over reason in the end.

Summary: In summary, the focus seems to shift this month from internal to external factors; and from economic to geopolitical. Whether this means more product recalls with China, more name calling between the U.S. and Iranian presidents, or something more serious we can not know. It seemed to us to be markedly different than what we have been looking at, and it seemed best to frankly share our concerns with you. Take care of you and yours this month. This is Dr. Cari with A New Story—Be well, and be safe.

From the Eye of a Hurricane -- It's Sunny in Here!

The stock market has gained substantially in the past three days (The Dow has gained 475 points or 3.4%). A member of the CNBC staff remarked today how "sunny" it feels today, and asked, "Wasn't it just a day or two ago that it was all doom and gloom?" My anxiety is growing.

It's not that I have anything invested in the stock market. I wouldn't touch it with a ten foot pole right now. It's the tension of a rubber band being pulled to a snapping point-- again.

What has not yet been realized, I suppose, is the change of the framework that the market exists in. While the configuration for years has been one to reward greed, the opposite meta-mood is now in place. Instead of a cautious, slow attempt back up, the market is zooming up at breakneck speed after recent large losses. The speculators jumped right in to scoop up the "cheap stocks" and the market is again back in overshoot. While this may have been a smart move many times in the past, at this moment of market transition it may prove far less well-advised.

As mentioned in the forecast for August (http://dr-cari.blogspot.com/2007/09/fear-ahead-us-markets-and-mood-august.html), the mood configuration for this week (and last) is "climax." Although the market movements last week were quite dramatic, it didn't have a "grand finale" type of touch to it. After a climax, there is a lowering of energy. This week so far, the energy has been extremely high. It looks like we are currently building toward a climax-- a peaking of energy. Whether this grand finale occurs tomorrow, Friday, or Monday, I'm not sure, but it is most assuredly right around the corner. It may not mean a serious market crash to new lows, but given the gains of the past few days, it could be a very large one day loss. The less cautious could get serously hurt.

Yes, it is sunny in the eye of a hurricane, even a category 5. That doesn't mean the storm is over. You lay low because the other side is about to hit.

I've got a good seat, some popcorn, and a coke. I can't wait to see how this episode ends.

Fear Ahead! - U.S. Markets and Mood - August 2007

The mood in general this month is again very gray, almost despondent. What should keep the stock market from completely crashing is the general lack of energy. The biggest danger is the lack of anchor in facts or anything that has to do with "reality." Just like being alone in the deep woods late at night, the slightest creek or crackle can cause incredible panic as the collective imagination runs wild with ferocious beasts, goblins, and monsters. The U.S. government does its best with smooth talking and placating sounds to try to veer away from fears of impending recession. The most likely response from the government to perceived pressure is secrecy, manipulation of social mood, and new constrictive regulations, especially towards the end of the month. From the U.S. perspective, the rest of the world looks pretty sinister, and like a powder keg that could explode into chaos at any moment. The dollar looks unusually strong this month. European currencies and commodities should continue their decline. Crude oil is showing extremely high ambiguity which could manifest as high volatility, but little overall progress in any particular direction.

August 1-10 - ClimaxThe most notable thing early in the month should be highs in overbought markets and lows in the oversold. This is a period of peaks and valleys; markets should be ready to do an about face. Look for "blow-offs" and other tell-tale signs of trend climax.
Week of August 13 - TranquilityThe general mood is indicative of a calming of fears, even relief. The stock market should be making a good attempt at recovery (even if slow). Crude oil should be dropping substantially as the bogeymen that have been propping up the market fail to materialize.

Week of August 20 - EnlightenmentAn epiphany this week should make ambiguities in the markets that have lacked a good sense of direction turn to clarity. It may be another week or two before society in general understands the full implications of this week's events. There is a coming together of mood factors for the U.S. government, the rest of the world, and the factors that influence the price of oil and commodities. However this manifests, it should be interesting.
Week of August 26 - AccelerationThe markets pick up speed (even if down) to end the month off with a loud thud. This may be one of those weeks where the only "market" going up is the U.S. dollar.

More Stock Market Losses

Today's losses in the market were again refreshingly in touch with the gravity of the situation the U.S. economy and quality of living is facing in general. I still have my doubts that the long time bulls will actually "get it" at this point. While the overall mood for the month continues to be somber, I would not be surprised if many see today as another buying opportunity, rather than the glaring warning that it is. Excuse my cynicism, but it has gone on way too long-- Wall Street wonders profiting while the average U.S. citizen feels an increasing sense of impending "something."

Don't get me wrong, I am not looking forward to a stock market crash. I am dreading the implications for jobs, services, and quality of life. I suppose I am highly annoyed with the fact that we have overshot "reasonable" by so long and so far that such a high price needs to be paid to balance it all out. Overspending, over-consumption, over utilization of resources-- we in the modern, industrialized world have done this to such an extent that the "correction" will not be pretty.

The beginning signs of this-- large downward movements in the global stock markets-- should be coming soon, but not immediately. Today's 200 point dip in the Dow was just a "drop in the bucket." The "big one" is not here yet. This increase in volatility, however, can be seen as pre-shocks to something far worse that is just barely coming over the horizon.

Panic in the Markets - False Alarm (again)

While there was a lot of worry in the U.S. markets this week, and talk of such things as "sub-prime meltdown" and "credit crunch" which caused jumpiness and panic selling-- it was likely not the signal of the big stock market "correction" that has been anticipated for months. The fact that the overall tone of the month was gloomy and pessimistic, had too many investors on guard for a sell-off. A big crash event, should it be a single event that sets the downturn in motion, would most likely happen at a much less expected time-- when there was more optimism. It should not take more than a few days for the market to start its tenuous climb back up again, or at least make an attempt. This is not to say the days before a good downturn are not numbered; it is just not likely imminent (i.e. the next week or so). It was actually refreshing to see the denial stripped away briefly, but unfortunately both people and their denial are resilient.

As far as the increase in noticeable paranoia this week, such as more frequent discussions of terrorism, and the perception of an increased liklihood of something bad happening due to an outsider with an agenda-- indications are that this component of U.S mood will continue for at least another two weeks (Note: I am not saying these fears are unfounded-- recall that just because one is paranoid doesn't mean someone isn't out to get them. However, just because the paranoia is up, doesn't mean that a terrorist attack is any more likely now than it was last week before this mood change occured).

Dow breaks records-- is this good news?

The collective U.S. mood for this month is melancholy, especially for last week, which is an indicator of likely "bad news." So, what about the stock market rally that broke new records? Isn't that good news?

More and more people in the U.S. are not doing well. Health care is a problem for many. Foreclosures are rapidly increasing. High oil and gas prices will insure a higher price for most other goods and services as well. The dollar is falling, further decreasing our purchasing power. Yet, the stock market keeps rising.

Stock prices rise because investors keep buying stocks, and because there are more buyers than sellers. It is that simple. If the U.S. stock market is a gauge of the collective mood of the U.S., and the collective mood has been turning down for some time already, then what gives?
The stock market's continual rise in spite of a slowing economy, and lowered general mood can be compared to the "J" curve in ecology. When a species is in sync with its food supply and the rest of the ecosystem, its population fluctuates in a sine wave shape, an "S" curve. If it gets a temporary increase in food supply, or its predators die off, for instance, the population can surge way above a balanced state until suddenly it crashes.

Every time I hear the Dow breaking new record highs, I find it highly disturbing, even chilling. The market is in such a state of overshoot, and so out of sync with its "ecosystem", that when it does finally crash it could even make 1929 look like a walk in the park. Each time records for winning streaks are broken (as they have been for 1987, then 1927 and 1929 in the last few months) and the connection is NOT made with what happened the last time such greed and mania went unchecked, I am baffled.

At some point this roller coaster ride is going to be over. And it will feel like it ended because the tracks suddenly weren't there. It won't be pretty.

Stocks surge despite rush of bad news
By Dean CalbreathUNION-TRIBUNE STAFF WRITER
July 14, 2007

"Capping a dramatic week on Wall Street, the Dow Jones industrial average came within spitting distance of the 14,000 mark yesterday and the broader Standard & Poor's index surged to its highest trading point in seven years. But for a number of observers, the big question is: Why?The record gains for the Dow and S&P came despite news of slowing retail sales, a burgeoning trade deficit and a declining housing market."
...
"Even as stock prices climbed to record highs, there were signs that some investors were jittery about the health of the economy. International investors continued to drift away from the U.S. dollar, signaling their lack of confidence in the economy. The dollar fell to a record low against the euro and a 26-year low against the British pound."
...
“All of the pundits and so-called 'experts' who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation and the price of gold,” said Peter Schiff, head of Euro Pacific Capital in Newport Beach. “The curtain has yet to close, but if you listen closely, you can hear the fat lady warming up in the wings.”
http://www.signonsandiego.com/news/business/20070714-9999-1n14stocks.html

U.S. Markets and Mood - July 2007

July video script:

In July, the economic focus is on practical matters. The mood is somber. There is some concern whether things are going in the “right direction.” The world is watching what looks to them as the demise of the U.S. economy. The response to economic stress is to run from anything suggestive of recession or depression, increasing spending, making deals, and other hypomanic efforts to insure that growth and expansion are still occurring. Another response to difficult news would be an increase in the conciliatory tone of diplomatic effort, and appeasing or comforting those at home.

The U.S. Dollar loses any appearance of strength this month. While the US government turns up efforts at diplomacy and peacemaking. There is a heightened vulnerability towards reacting to domestic stress with external conflict – picking a fight would not be out of the question to distract from problems at home.

Crude Oil: A lessening of bullish factors should lead to a price ceiling. The climb in prices is “empty” – greed chasing its own tail and is difficult to sustain. The bias for the month is for a price decline; however, the market is very sensitive. Any threats or potential threats to supply will send the market climbing.