March 1st, 2009

In January, 2008 I wrote an entry in my blog about the failure of the White Star Line to add enough lifeboats to the Titianic because they believed it unsinkable.  It's worth re-reading today as the Titanic of the US economy is compromised by the arrogance and greed of the financial Behemoths and the gluttonous appetite for power by the Dolts in DC - the US Congress, the US Presidents of the past 16 years and the misguided ambition of the current US President for a "change" to the unknown...at least to you and me it's unknown.

The problem for the typical American is the possible failure of the good ship Economy - especially the financial structure that supports it.  The media is not trumpeting the nature and outcome of such a failure, nor is the faltering financial community keeping us honestly informed.  Instead they feed us the pabulum advice... 

•  
  • don't make decisions now, 
  • stay the course,
  • wait for the market to settle,
  • buy now when the market is down so you can capture the gain on the upswing
  • and on, and on, and on...

BUNK, BUNK, BUNK, BUNK, AND MORE BUNK!

You were told the same thing when the market was at 12,000, 11,000, 10,000, 9,000, 8,000, and today.  That advice has created immense losses for Americans - TRILLIONS OF DOLLARS OF LOSSES.

What if, on the other hand, you had done what common sense, and a few advisors that are not controlled by the Behemoths, recommended as early as July of 2007?  What if you had moved your money into a lifeboat when all the signs pointed at the sinking of the good ship Economy?  You would have lost nothing.  Of course, if the market had surged at that time you might be disappointed that you didn't hang on for the gain.  However, that is like folding a losing Texas Hold'em blind only to discover that the next three cards would have made it a winner.

In the current situation, had you opted to move your money from "the market" to the lifeboat of a credit union, money market account, CDs, whole life insurance [my choice], or any other financial product with guarantees, you would not have lost a penny - not one single penny - and would have earned fair market interest rates the entire time.  Want proof?

$100,000.00 left in the "market" in July of 2007 is worth less than $50,000.00 today.

$100,000.00 moved into a lifeboat in July of 2007 at 3% is worth over $105,000.00 today.

That difference of over $55,000.00.  3% doesn't look so bad from this perspective.

The advice of the Behemoths and their Minions aims to bolster the balance sheets and income statements of, believe it, the Behemoths and their Minions, not yours.  Their advice aims to keep their ship afloat at your expense.  It is bad advice for you and me and for 99.9% of Americans.

Hell, Warren Buffett - America's iconic investment guru - lost money last year.  So did T. Boone Pickens and many other notable investors.  The Wonks on Wall Street [I now call it Dull Street] - the same folks the Behemoths quote to entice you to "invest" [aka gamble] with them - have failed across the board.

It gets worse.  The Dolts in DC have spent over a trillion dollars in the last six months in a disorganized and undisciplined attempt to right the good ship Economy.  They have committed almost two trillion dollars more of our money since January 20th.  They have failed so far.  Their failure to actually assist Americans save their homes and afford new mortgages is especially blatant since that's what got the greed up in DC.

We all want success in this regard.  However, the plenitude of pork that permeates the spending plans of these failed programs indicates discomfort for "We the people" and contentment for the cronies of the Dolts in DC.

If you haven't taken refuge in a lifeboat yet, it's time.  If the market grows dramatically and rapidly you may miss a part of the upsurge.  That's very unlikely.  If there's hope to repair the massive breach in the hull of the good ship Economy, it will likely have to be put in dry-dock for a period of time.  In the short-term it is better to have a small guaranteed gain than the possibility of no gain or significant losses.  For all practical purposes there is no long-term until the good ship Economy returns to full functioning capability.

"Relying on the long run for investment decisions is essentially relying on trend lines. But how certain can we be that trends are destiny? Trends bend. Trends break. Today, in fact, we have no idea where any trend lines might begin or end, or even whether any trend lines still exist."

Posted Feb 27 2009, 10:16 PM
by John Mauldin
Investors Insight

If your advisor continues to encourage you to keep bailing while the ship is sinking and sturdy lifeboats are waiting, fire him or her.  S/he is obviously not looking out for you.

The common sense approach to creating wealth and managing your personal economy does not depend on the success or failure of other people and self-serving financial institutions.  It relies on you and other like-minded Americans taking control of the money that flows into your life to assure your success, not the success of some Behemoth, banker or politician.

Remember, America was built on the foundation of saving money in local banks and credit unions, whole life insurance policies, and home ownership.  There is little or no place in the personal economy of American families for speculative investments - including and especially the overhyped and oversold "retirement accounts" such as IRA's, 401(k)s and their clones.

The best economic advice for centuries has been to have a lot of money in ready cash accounts and to pay off the mortgage.  We may be a bit more sophisticated today as regards how to manage those processes, but the principles remain the same.  People with a stash of cash [I recommend three to five years of gross income], and thity to forty percent equity in their homes are relatively comfortable in today's economy.

by Jeffrey Reeves,  www.YouBEthebank.com