Thursday, November 13, 2008

So How Bad Will It Get?

This item caught my attention this morning and made me do a little thinking:
The Chancellor [Alistair Darling, Britain's Chancellor of the Exchequer] signalled that Britain will suffer a short, sharp recession, claiming that it would bounce back into growth in 2010.
OK, make the jokes now. I'll wait....
I've been asked a lot lately what would I do with spare cash I might have lying around or investments I might want to swap out of stocks. Needless to say, none of this should be construed as professional investment advice, as your mileage may vary and your levels of acceptable risk may differ from mine.
For now, I tell friends, if you have time, then buy a CD. Don't even think about putting your money in anything until one of two things happens:
  1.  The market bottoms out.
  2.  January 21, 2009.
I believe the market bottom is approaching. My personal target is somewhere between 7,500 and 7,000. That's when I will begin buying stocks again, broad-based recession resistant stocks, like say food or healthcare, and probably index fund shares. I think it will bottom out next month.
OK, moving on, back to the article. I agree with Chancellor Darling and disagree. I believe things will be very tough into next year, and possibly beyond, but that by 2010, things will begin an uptick.
The nature of that uptick is in doubt, however, and here is where the chancellor and I disagree. Well, likely. Keep in mind that he is forced to operate in an environment that I am not. He speaks for a government, and has to base his statements on the available evidence. I'm free to make allowances that things will be different.
For example, I'm convinced that some form of stagflation will occur: stagflation is a moment in time when prices go up, but GDP fizzles for whatever reason.
We suffered stagflation in the late 70s because of the oil crunches. There, OPEC kept the screws on oil supply tightly, thus draining our economy of money. This meant that inflation went through the roof, but also, there was less money available here to lend which forced interest rates higher, which meant little economic activity for the increase in prices.
The question becomes, how bad will it be? New York City will be ground zero for the Bush Depression. That's two calamities he's been directly responsible for in eight years. You begin to think he doesn't like us very much.
Yesterday, in New York City, held a job fair. On a Wednesday in the middle of the day, two thousand lined up to interview with two dozen companies. Each had an average of two jobs available. Most had only one. You have better odds reading the want ads.
The New Jersey Nets are offering free tickets to the unemployed. Just send in your resume. Maybe you'll get a job.
Landmark restaurants, open for decades, close without warning in Harlem.
And as I mentioned yesterday, the state and city have both announced harsh cutbacks in services in anticipation of the twin blows of a busted stock market and bonuses being withheld for brokers and other securities company employees.
As New York City goes, in this crisis, so goes the nation, since this crisis is based in the very industry that makes New York the money capital of the country, if not the world. The ripples will spread far and wide, up and down the coasts and eventually into the heartland.
And even into other nations that depends on us.
It will be harsh, make no mistake about it. And with the current administration diddling their dicks over how best to bail us out in the short time left to them (miracles do happen, but I won't hold my breath), it will clearly be left to the Obama administration to clean things up. They can stop the bleeding.
My worry is, that may be the easy part.