There seems to be a big disconnect here. SO says things are going to hell in a hand basket. The stock market goes up or maybe down a little. Radio reports now include pieces about the increasing number of foreclosures and the plight of struggling real estate agents. There are some reports of layoffs in the financial sector – mostly mortgage companies or the mortgage arm of other financial institutions. Massive bailouts, big-time borrowing from the Fed, German banks in trouble…

There seems to be a lot of interest in the Fed rate and what they ought to be doing – most of the published reports seem to think that the Fed rate should be lower. And there is a recognition that “they” – some folks associated with Wall Street are getting rich at the expense of working stiffs.

On the other hand, we just visited an upscale mall near us. Mostly young moms – pregnant with small kids driving fancy strollers and luxury SUVs. All had big shopping bags from local stores. If there is trouble brewing, either these ladies are oblivious or they are buying stuff now before the credit cards max out.

New cars for zero down. All of a sudden there are lots of ads for cars. Just like in 2000. That was big right before some bright light figured out that you could write a lot more mortgages and home equity loans if you priced them right with a little creative lending – option ARMs, negative amortization, no-documentation, …

So what does it all mean to me? How should I proceed from here? My primary concern is keeping what money we have. If we can make a bunch of money by being prudent and/or resourceful, that would be great.

  • cash, Treasuries – don’t earn much but even if the financial system goes off the rails, the money should still be there – available and accessible
  • equities – too much uncertainty how any of this will play out. Energy, metals, commodities will all be important long term, but they are likely to get caught in the downward spiral of valuations – the baby with the bath water
  • real estate, income property – another loooong term good idea, but not right now. Maybe later, a nice 6-plex in a good location, like Rosedale in Toronto, Chelsea or Kensington in London.

Some folks have way too much money – the excesses for the financial sector movers and shakers seems to be totally out of line with most of the rest of us. While I understand that it is in the best interests of all to allow some folks to get rich for this encourages creativity and initiative that are the hallmarks of the American way, it doesn’t seem that the current situation rewards those exhibiting characteristics traditionally associated with hard work and honesty.

I’m reading Popular Financial Delusions: Why the crowd is almost always wrong … A great financier’s observations on what men will believe – for money! by Robert L. Smitley, written in 1933. What is really scary is so many of his comments describe the situation today! People running banks, Wall Street investments and hedge funds who claim to know more than their clients so they should be trusted to take care of the money, when in fact, they actually don’t understand very much about finance and don’t really care because they personally are making vast fortunes participating in the great wash of money being moved around. Lots of authority, no responsibility for tons of personal gain.

I also heard an interview on NPR with Stephen Mihm, author of a new book – A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. There are always crooks and fraud in the financial system and the system probably runs better because of them. He talks about debt and money being handed out too freely. This is not new. The US economy was built on shady promises, shell games and trickery. No amount of denial or lawmaking will prevent their existence.

I get the sense that there is more I should be doing, more that I need to know – just don’t know what.