Monday, November 17, 2008

future economics watch

As anybody who reads my writings (and rants) knows, I can see the future through mathematics, but that sight is obviously not perfect. I knew there was a downturn coming from quite some time ago (there were some hints as long as three years ago), but the suddenness and severity of it caught me off guard. I though we might get down to $3.50 a gallon for gas. I thought housing prices might drop 20%. I thought it might affect others as well as us.

I never expected $2 a gallon gas or housing prices dropping 40%. But here we are, looking at a global economic melt down. Global. Meltdown. Big stuff.

Now What?

Well, looking at the bond market can give a guess how long this is going to go on. From it I see that we are near (but everyone says "not at") the bottom. It also looks like this will go on for a couple of years. That is when "recovery" will begin. Most of the forecasters are saying it will take 10 years or so for people to get back to where they were two years ago. I concur.

(note: In re-reading this post, I notice I didn't link to anything. That is because most of my "hard data" is just listening to CNBC and looking at the bond rates as the go by on the ticker.)

In the short run, if you are in the position to buy into markets, now is the time to begin doing that. It doesn't matter whether you are interested in mutual funds, bond funds or gold coins. But I would advise doing it slowly, and planning to stay wherever you put your money for at least 10 years. And diversify. Always diversify.


Another afterthought: Of course, when I saw some of this coming, I didn't realise that some in Congress and HUD actually had demanded the banks (and especially Fannie and Freddie) continue and expand the lending practices that created this fiasco. Capitolism is no better than any other "ism" without some moral underpinning to keep it in check.


Patches said...

Do you think Munis would be a safer bet to diversify? I had read that because of current conditions that they would have a higher rate.

TRex said...

While I don't want to give too specific advice (I an niether trained, educated, nor liscensed to do that), it does seem like a fairly reasonable bet.

It is now looking like the next couple of years (and it is looking like it might even go five years) you need to be in at least at partially defensive mode. Someone said "The market can stay irrational longer than you can stay solvent." and that is a good thing to remember.

Right now, while there is no hurry, is a good time to do some research. That is something the majority will NOT do, and is why those of who are willing to do it can come out on top.