A Global Slump Approaches – What Should You Do?
After global stock exchanges swooned yesterday following the Fed’s perceived weak response to the global economic crisis, red ink continued flowing today as stock investors sought the exits.
At 2.45pm today the Dow had fallen by about 414 points to 10,2711 (3.72%) and markets in Europe and Asia had similarly cratered to the tune of 3-5%.
Despair seems to have set in with regard to Europe and near-certainty of Greece’s default. Now that it is clear that European countries are set against throwing good money after bad, Greece is certain to default.
Following Greece’s default, next in line for scrutiny will be Italy, whose President Sylvio Berlusconi self-admittedly views governance to be a part-time activity and “bunga-bunga” to be his major priority.
Once the matter of Greece is settled, Berlusconi will need to utilize all his time and energy to avoid default. Spain, Portugal and Ireland will also come under pressure, with some or all likely to be forced out of the Eurozone.
Who are All the Actors?
The key question is what to do as a stock investor in these extremely trying times. It is not sunny times in the U.S. right now, with open political warfare between the President and the House GOP.
The President has presented a jobs bill, which the House will not support, meaning that we will enter these perilous times without a major weapon of a stimulus package.
It will be left to the Fed, who’s quiver is running short of arrows and ammunition to address the impending recession. As we see from yesterday, global stock markets were not impressed by their latest volley.
So it was that a few days ago, the President -spurred by Warren Buffet’s call for higher taxes on the very wealthy – urged Congress to pass legislation to that effect to reduce the deficit. He threatened to veto the year-end deficit reduction bill if this did not happen.
Predictably, Republicans heaped scorn on the President, accusing him of beginning his campaign early and of trying to start “class warfare”.
The truth is that while repeating the canard that “higher taxes on the rich kills jobs“, House Republicans realize that to win the Presidential election, it would be better for the economy to tank.
One can hardly blame them. Long-term, demographics are against the Republican Party. Losing the next Presidential election might shut them out of power for a generation or more. Winning now is really a matter of some desperation.
The ‘browning’ of America’s population and the decimation of the middle class make it imperative for GOP victory next year, in order to perhaps change the rules of the game while they hold the levers of power e.g., slowing down immigration, raising the bar for voter registration and so on.
In the meantime therefore, it will be gridlock until the election is over. Sadly though, my suspicion is that we are still likely to have divided government and gridlock.
America’s two personalities (Liberal/Progressive vs. Conservative) will continue to struggle until one gains the ascendancy politically.
Your Responsibility
In this political morass and deepening economic crisis, your responsibility is to yourself. The stock market is likely in for hard times, at least until the next election.
Europe has deep problems that will take major pain to solve and will likely drag the world down into another recession. China – the rumored global economic savior – now officially has a slowing economy.
America does not have its house in order. Fractious politics, excessive debt and the continuing pain of the Great Recession may be enough to drag us down into another recession.
Many that I speak to are now keeping the minimum in stocks and the bulk of their assets in cash, fixed interest securities and carefully-selected property. Gold is also a popular safe haven these days.
They are also making sure that their emergency funds are in place and that expenses are reduced and savings upped until there is a sustained economic upturn.
This is a good time to speak with your financial adviser about what you should be doing. Share with us how your personal finances may have changed in recent times.
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