The stock markets around the globe have been absolutely battered. While the US is down over 43%, most foreign markets are off over 50-80% from their highs….just brutal…and amazingly fast. We’re looking at something like $10 trillion in global market losses in just the last couple of months. As I’ve been saying…this is once in a lifetime stuff…and it’s not nearly over yet.
However, we are about to get what could be a significant and sharp bear market rally. This move higher could even take us back to 9500-10,000 on the Dow Jones, so if you are playing the market on the short side be careful for a while.
The FED will reduce rates to 1% tomorrow, and there is a coordinated global rate cut coming along with it. In addition, the TARP is beginning to fund banks now so there will be plenty of short term positives for the talking heads on CNBC.
Here’s the medium term problem: This recession is just getting started and has at least another year to go. Once defaults begin in the corporate debt and commercial properties markets, the banks will need another bail-out package just to stay afloat. This is the big reason that they are not lending any of their newfound money from the TARP….they know that they will need this capital in the coming months just to remain solvent.
Now, here’s the longer term problem: ENTITLEMENTS (social security, medicare and medicaid)! If you have not seen the excellent movie I.O.U.S.A., make sure you do so if it’s playing in a theatre near you. Here’s the bottom line. The US has over 90 trillion in debt and just about 40 trillion in assets. In the next 10-20 years, our taxes will have to increase to 70-80% just to pay the interest on our massive debt and to pay for entitlement programs!!
This is why I have a real issue with Warren Buffets advice to buy stocks for the long term. Can you see stock prices going up in the future with taxes at 80%?? I’m struggling with this one, and with another Buffet issue as well. While the NY Times gladly ran his puff piece on the stock market, they conveniently left out the fact that he has over $3 billion in stock market “derivatives losses” tied to S&P futures, and if the market continues to drop, his derivatives losses will only increase. Somehow, I think that people should have been informed of this. I’ve even read serious articles that push for an SEC investigation into Buffet over this. Likely won’t happen, but if it were you and me….?
Final thought on social security…and it’s a real shocker in case you’ve never heard this. In 1935, when Social Security began, there were about 40 workers for every retiree.
Now? The number is just 3.5 to 1, and in 10 years or so it will be 2 to 1.
Happy Halloween huh….
CEO, Wealth Masters International