Friday, October 10, 2008

All Things In Commotion, Politics, Economy... - Time for Fear and Panic?

Amid the commotion of all things, "fear" and "panic" seem to prevail at every turn, especially if you read the headlines of every major news purveyor. Even so, "fear" and "panic," albeit the common terms in the headlines today, do nothing but evoke more fear and panic, as if someone was yelling "fire" in a crowded theater as Jim Cramer (CNBC's Mad Money) did the other day. The jitters on Wall Street and Main Street born of our current economic crisis have manifest themselves with some regard to historical perspective, but give little credence to the fundamental strength and underlying principles in our domestic and global economic systems. Without doubt, the markets are in crisis and these truly are difficult times; nearly $8 trillion has been lost in the stock market in the last 12 months, credit is tight, liquidity in the market is nearly gone, the once illustrious GM is on the brink, along with its historically stellar counterparts and many of the blue chips are in the market to shore up capital. Not limited to the US, the tendrils of this crisis are well entrenched in every global economic society as well. Confidence has waned so significantly that the vultures have begun to appear on the horizon, some have proferred the world ending. The beginning of the end. Really?

I was playing golf on Tuesday with a friend from China who is a prominent economic figure in Beijing and a friend of his, one of China's leading economists. When asked the question, how long will this crisis extend, 3 or 4 years? I thought of the intervening of the G7 Central Banks, Treasuries and non G7 economies, and responded, maybe 12-18 months. As much as free markets disdain and loathe intervention, at times it is necessary. I firmly believe that the effort of so many leading economic nations seeking to impose stabilizing factors into their domestic and our global economy, and in a coordinated manner, will have a favorable impact on restoring confidence and stability. That being said, I am uncertain as to what kind of markets will emerge; only time will tell. Even so, the significant efforts of so many will bear sway to calm and perspective. It demands patience, perspective and the capacity to endure (hold on). As challenging as these markets are, the correction will bring about constructive change in the societies that are in turmoil. The markets have seriously hurt and affected many, and will continue to cause consternation, pain and consequence to more in the near term. Many will take the bitter pill, but will be better for it in the end, as will the economies in each nation. Our economy and those of the G7 are built on solid, proven and tested principles. The markets will emerge and confidence restored to a better end, it is not a matter of if, but when. This is a time to act responsibly and not react to, or become consumed by the prevailing panic and fear. These are opportunistic times that bear serious investment consideration and there are sufficient monies in the market just waiting to be deployed. Those who have been wise, with oil in their lamps, will benefit greatly. Those who are without and ill prepared will bear the consequence thereof, and hopefully through the tutoring process will be better off when it is all said and done.

If you can hold on and not jump off of the roller coaster, great; if not, and you must partake of the bitter pill, use this time as a means to a better end in the future. The days of simple reliance on FICO scores and the irresponsible lending by financial institutions without deliberative underwriting are past. For each of us to hold on to the what was, will only bring frustration and consternation. The wake up call that is upon us demands of each to re-evaluate our individual circumstance and act on sound and fundamental economic principles in the future. Unfortunately, our society has become so expecting and reliant upon principles of entitlement and excess, that we have lost our way. At the end of the day, markets and economies continue. Look around and you will see that people still work, companies still exist, people still consume and society continues in their seeming routineness. Notwithstanding, the hyped fear and panic, the sun will rise in the morning and the resilience of man will persevere! Take heart and have hope in a brighter more stable future. Take a breath and realize their is substance in our society and sound principles upon which to rely, and above all have confidence in the fundamentals of our society. Perspective in times of crisis bear greater reward than fear and panic. We have been here before, and will likely be again, so are the economic cycles and swings of markets. At the end of the day, reason and perspective will prevail.

1 comment:

steven said...

Well written and thought out. Thank you. Your thoughts seem sound as usual. I also agree with you on Jim Cramer. I consider him a dangerous pest. And you are correct about the eventual upside of the US markets. Many, many great stocks are for sale at bargain prices for the wise, long-term investor.