September Market Commentary

History is repeating itself!

Lehman was the largest bankruptcy in our country's history. It was larger than the previous nine largest combined; it was just a few weeks ago, now it's a passing thought.

The news keeps coming out faster than Wall Street can digest it. Wall Street doesn't like uncertainty. We are feeling the effects of that now.

Back in the late 80s and early 90s there was plenty of scandalous news. You might remember some of these stories.

• The crisis of the Savings and Loans (S&L) industry.
• Ivan Boesky-prosecuted for insider trading.
• Salomon Brothers-caught submitting false bids to the U.S. Treasury. Their story is documented in Michael Lewis' book-Liar's Poker.
• Drexel Burnham Lambert-driven into bankruptcy in the 1980s by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken.
• Michel Milken a.k.a. "Junk Bond King"-Drexel employee who was sent to prison on finance-related charges.

These stories dominated the crisis of that day. This current mess is a re-occurring nightmare from the past. The names might have changed, but the greed hasn't.

From 1986 to 1995, the number of US federally insured S&L in the United States declined from 3,234 to 1,645-a 50% decline. Ironically, it was due to unsound real estate lending. Many other banks failed for other reasons.

Between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance.

During the S&L crisis, the government created the Resolution Trust Corp. Now, they want to form the "Resolution Trust Bank". A structure that will buy illiquid assets, mainly mortgage related, to create liquidity within the system.

We are fortunate to have Ben Bernanke, a scholar of the 1930s and the Great Depression, as well as Henry Paulson, one of Wall Street's most respected leaders, at the helm of this crisis. Even though the politics of the day voted down yesterday's plan, we'll eventually see a workable plan.

Even through all of this, our nation, economy and capital markets have survived. Even thrived!

We have seen a breakdown of this magnitude before. We will get through this one.

Tips to Thrive During Economic Turmoil

Tips to Thrive During Economic Turmoil

Now would be a good time to use your yoga breathing.

We are in the middle of turmoil in the financial market. It’s not fun.

At times like these it’s important to have some perspective.

The stock market is still over 10,000.  In 2002, it was at 7,500.  In the early 80s, it was at 750.

Nationally, unemployment is at 6.1% today.  In the early 80s, it was 11%.  During the Great Depression of the 1930s, it was over 20%.

Core inflation has been ranging between 2-3%.  In the 70s, it was double-digit inflation.  It was dramatic, and it was dubbed "hyperinflation".

Depending upon where you live, home prices have declined by 10-20+%.  They are 50% higher than they were at the start of the decade. Plus, the 30-year mortgage rate today is about 7% in the early 80s it was as high as 18%.

Okay, here are some ways to take positive action.

·      Turn off the TV! It’s not healthy to watch channels like CNBC 24/7. Journalists, like markets, suffer from the herd mentality.  They very rarely report on the good things but rather the news that increases their ratings or sells more papers.

·      Check that your bank accounts are federally insured. The Federal Deposit Insurance Corporation insures $100,000 per account holder at one institution.

·      The National Credit Union Administration (NCUA) is the federal agency that administers the National Credit Union Share Insurance Fund (NCUSIF). Which, is a federal insurance fund backed by the U.S. Government. They insure $100,000 per account holder at one institution.

·      Make sure your brokerage account is SIPC guaranteed. Securities Investor Protection Corp. protects up to $500,000, including $100,000 in cash. Most brokerage houses offer additional supplemental insurance as well.

·      Tighten your belt. Remember, it’s not what you make but what you keep. Now is the time to examine your budget and cut out any non-essential expenses. Stop worrying about the Jones! They are not doing as well as you might think.

·      Create a rainy day fund. It’s important to have a savings account that is equivalent to three to six months of living expenses.  This money should never be invested in the stock market. It should be kept in a place where you can have immediate access to it.

·      If you need your money in the next 1-2 years—it should be in a bank product like a CD that’s insured, not in the market. This is a rule to follow all the time.

·      If you are a long-term investor, stocks are on sale. It’s not a time to speculate however it might be time to dollar cross average into the market or purchase some high quality individual stocks.

·      Take some losses and put then in the bank. If you own really good companies it may makes sense to hold on to them; however if you own stocks or mutual funds where the underlying fundamentals are not longer strong or a match for your investment plan. Sell. Do not wait for them to recover. That money will work for you better in another investment opportunity.

Making money decisions under panic is never smart. The key is to remain calm.

It is likely we will continue to experience a bumpy ride for the foreseeable future. Make sure to stay vigilant about your own personal situation.