When your investments have been falling since the 2nd half of 2007 and the markets are declining from one phase to another, you need strong faith to keep investing. But we must face reality and move on the basis of objective data and reliable information. The fundamental issue is when will the financial and housing problems be solved? When will we see a turnaround or an end to these crises?
While I tend to be less optimistic than the great bulls, I feel we still have to wait for another 6 or 9 or even 12 months to see how things go. You see the housing collapse and financial problems are like a kind of disease that is spreading its viruses everywhere in the world. The disease has an incubation period and after catching its preys, the patients may die or mutate into something else. The process takes quite a long period of time and won't end until the preys are completely eaten up.
At the beginning of the process, you will continue to see more and more cases like Bear Stearns, Freddie & Fannie, etc., and housing will turn worse and worse. When the virus has fully grown inside you, the incubation period is ended and then the prey may be terminated or transformed into something very horrible. Yes, the "survivors" will become soulless bodies walking on our streets looking for nutrients to sustain their physical bodies. They will cry out for food, fuel, shelters, social benefits and other resources and those that have not been caught by the virus must bear the burden and risks of maintaining our society and civilization in face of these newly mutated humans on our planet.
Does this remind you of what happened in the movie "I am Legend"? God knows when we can develop an effective vaccine to destroy the virus. The financial and housing crises have broken out for more than a year and we must now wake up to the reality that there is no cure. All we can do is to defer further contamination and spread of the virus until one day we can find a cure. In the meantime, I want to share some thoughts on the measures that we should take to help ourselves:
1. Keep enough cash in your own pockets. You can't even trust your banks.
2. Reduce non-cash holdings and investments. Some say only 10% or at most 20% in non-cash. I think that really depends; if you are not relying on loans, your non-cash % may go higher. You know interest rates may unfortunately rise despite slowdown and stagflation.
3. Housing and financial problems must be put under quarantine. This is what the Fed has not actively done. Why? By cutting interest rates, increasing liquidity and bailing out the virus carriers and patients, they are actually breeding more and more viruses and diseases. The problems of the crises have been spreading continuously without any pause ever since Sep 2007 when the Fed started to dramatically cut rates and take steps to bail out the patients. The viruses will only grow more rapidly and become stronger everyday when the Fed is taking such actions. You may say we should save the patients but when you have not found any cure, trying to save the patients will only release more diseases and viruses, contaminate more people and cause more misfortunes. This is what is happening and another deadly disease called "INFLATION" is now killing those who are not yet contaminated by the virus.
4. It is time to build a new safe region protected from the virus. I mean we must find a new world on earth to shelter those not contaminated by the virus so that the human race can continue. But this is a very challenging task because it is almost impossible to find any place immune to the virus. Well, I am optimistic and I hope all of us will go on exploring this new world. Just don't give up! God is on our side.
5. Before we can find a cure, remember there will be traps everywhere. You may fall down easily and be contaminated by the virus. So be careful with false rally!
We must give the deadly virus a good name. How about "Bear Flu"?
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