Friday, August 10, 2007

Is it time to panic and kiss your behind goodbye?

So. The stock markets are taking a dump. The direction of real estate values ranges from softening somewhat to plummeting rather dramatically, depending on where you live. There is a lot of hysteria out there in the media, but realistically the declines in North American markets, so far at least, simply mean that long term investors are giving up some of the gains accumulated over the past few years. Long term investors who bought their stocks or their homes or their investment properties paid much lower prices, so they can be pretty smug at the moment.

But what about the others, the investors who piled on towards the end, who thought that the party will never end, that low interest rates, high returns and strong demand would continue forever? Things don't look quite as good for them.

I have puzzled for years about why it is that humans are herd animals, consistently doing the wrong thing at the wrong time, simply because everyone else is doing the same. If everyone is doing it, it must be OK, right? It may be OK for a while, but if you join the lemmings just as they are about to head over the cliff, you're screwed. If you join the herd long before they reach the edge, at least you might have a chance to come to your senses before you dash out your brains on the rocks below the cliff. Or not. Most individuals simply don't get the fact that the majority is seldom right for long. It may be right for a while, but not for the long haul. The fact that a group is ever correct about anything is merely coincidental.

Is this the big apocalyptic stock market crash that some of us expect to come soon? Is the U.S. dollar going to melt down at an accelerated rate against other currencies? Are the Chinese going to dump their U.S dollar holdings and move into Euros or gold or simply hoard chopsticks?

I don't think this is the big one yet. But I think this is a serious warning. The problem is that warnings often go unheeded and people simply go on with their lives and activities as usual. It is too difficult to change direction. It is too hard to think. It is too taxing to admit errors of judgement. Then, it becomes too late to do anything except kiss your ass goodbye and watch your assets disappear.

I think there is still some time left for anyone who wants to take the trouble to clean up their financial affairs a bit, to blunt the effects of a larger and certain collapse some time in the foreseeable future. How? Stop spending money. Pay off debt. Reduce expectations. Delay gratification.

And what if a big collapse doesn't happen? Well, you will have more money, less debt, more financial security, and most importantly, peace of mind.

Won't that be worth it?


  1. Fascinating. I should keep a news window open at all times so I catch this stuff sooner! Lately I've been busy with a lot of other things (including work *gasp*). However, I've been buying the National Post a few times a week and actually reading through the Financial section. I figure it would be worth my time to find out what is going on in the financial world to better make decisions for myself.

    I am not the least surprised about this, however. My instincts have been telling me that things are "too good to be true". Had I bought the condo I was looking at a few months ago, I would probably be okay, but right now I'm pretty happy that I'm not tied into a fat mortgage on a shaky market.

    Thanks for your insights. It's always nice to hear ideas and opinions from business minded people that I know.

  2. It's "sell" time, which means pretty soon, it'll be "buy" time.
    I'm actually doing both: Getting rid of OLD mutuals and investing across the board...Only I'm doing the choosing, not the guy that gets part of my divvies!
    All that DJIA stuff is manufactured for mass consumption by the fear-salesmen on the evening news...Somewhere out there, someone's making money, even when most are losing it. The key is finding out where, and getting in early!

  3. Atavist, don't you know that home prices always go up? I read it in the business section of my newpaper. Well, prices do continue to rise until they don't anymore. I guess people don't remember the late 1980s/early 1990s housing market.

    This panic/meltdown/correction (or whatever you want to call it) has been building for quite some time. Only recently has it been reported in the media, but lots of people have been bloging about it over the past couple of years. My favorite is

    I always enjoy reading your posts. You exhibit something a lot of people don't have.... common sense.

  4. Trooper: Your time will come. When real estate moves through its inevitable cycle and bottoms out, you will have cash to invest in a home at that time.

    Galt: As long as you are risking funds no greater than your comfort level, there are definitely some investments that can still make sense. I am out of general stocks almost completely now, except for precious metals stocks and some funds and some energy-based income trusts. When gold and silver take their next big run, there will be kaboodles of cash to be made -- if the stocks you are holding don't peter out to zero first, always a danger in resource-based stocks.

    Geoff: Nice to hear from you. I remember the collapse in 1989-1990 well. There was a pronouncement from some (I think) Royal LePage guy saying that the housing market was healthy and had a lot of potential left in it, then a few weeks later, people were walking away from $50,000 deposits on condos in Toronto.

    Sounds familiar, doesn't it. I know people who are trying to unload property in Florida right now. They're not having much luck.

    Thanks for dropping in, it's always nice to hear from readers.

  5. It makes sense why people stuck their money in their mattresses sometimes, doesn't it? Plus, do I have to kiss my own behind? Can't I kiss someone else's?

  6. Hi, bellezza... nice to hear from you again. Yep, mattresses may be back in style for those who are nervous about the security of banks. The problem is simply hiding cash might protect the capital but generates no income -- and the sum is diminished by inflation year after year. If you are going to put anything in the mattress, physical gold and/or silver would be better.

    And, I agree, kissing one's own behind is certainly way down on the list of things I would like to do.

  7. I conquer. I think we've had many warnings on the homefront about many more things than simply our economy. I also don't think this is the big one, but I don't think it's that far off or far fetched to expect a serious economical collapse in the near future.
    Makes me sort of happy now that I've always been a bit too poor to play the stock market :D

  8. Just when I'm making jokes about whose ass to kiss the mail comes. Apparently, we've lost thousands from our savings in stocks. Now I have a new question: Can I do something to someone's behind that involves no kissing whatsoever?

  9. Cher: One problem is that a lot of people play the market on borrowed money or 'margin' and risk the livelihood of themeslves and their family. There is nothing inherantly wrong with the market, it's just that people get greedy and short-sighted and lose all reason sometimes.

    Bellezza: Wow. Sorry to hear that. How about darts instead of kisses?

    Many of today's stockbrokers and money managers have never seen a real downturn and have the opinion that things always go up, all historical evidence and economic reality notwithstanding. Hope things work out for you.

  10. To elaborate, I've pulled most of my investments out of stocks, am dribbling a little into mutual funds, and waiting for a big down-swing so as to catch some of the more durable shares at bargain-basement rates for the next up-cycle.
    The best way to avoid the worst is to be prepared for it as possible, in the assurance that if you're ready for the worst, it seldom happens to you.

  11. The Boy Scouts say it best: "Be prepared."