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It could be a short drop much like the one in Jan/Feb 2010, but even I get no sense of optimism. Really, Europe bonds are all over the headline, Germany is upset with Greece, Iceland went belly up, France is complaining about the EU, Spain is pleading that they are fine, and England has taken a kidney punch from the EU. Across the "pond" here in the US, congress, the Securities and Exchange Commission, and now countless agencies within the government are declaring war on the free market, the stock market, bankers, and anyone else that is not miserable. And if you are not in the US and snickering, England has proposed a 50% tax on capital gains (it is not passed yet). Want to watch a stock market drop, watch that one if that tax gets passed.
Most of these posts have presented data trying to convince people that trouble is coming. This one will take a different slant, what I think you should be doing. It is obviously my opinion, and thus worthless, but if at least it gets you thinking then mission accomplished.
A quick overview, which you can get details in any of the quarterly updates on the blog, but a deflationary crash is underway. I will guess that it will take about 5 years before hitting the bottom (stock market-wise) and rebounding. So, we are not talking 2 quarters, we are talking years. Why? One simple word, DEBT. It must all be destroyed. Currently the consumer is shunning it, and soon the government will be forced to (that thing called "will of the people").
Ok, enough setup. First thing, KEEP YOUR JOB! I have said this over and over, however if you take a wrong turn at every intersection, this one will very likely save you. Taking a 5% pay cut sounds awful, but compare that to a 100% pay cut, and it is not so bad. Unemployment is not going to go back to the 5% range for probably 8-10 years I would guess, if ever (they will need to alter the method of calculation).
Enough on the job stuff. #2, and again I say this over and over, find a couple of safe banks. Here is a free site, but pay for it if you feel you must. The FDIC closes banks now every Friday, and the FDIC also has collected dues for future years already, and even with all of that, is just about out of money. They still have a line of credit with the government, but really, do you trust the government with your money now that they have a $13 Trillion debt? Take the little hit in interest and know that it will be there tomorrow.
Investing gets difficult, as everyone is at different places in life, has different risk tolerances, and differing goals. I can hear the first comment now, but in my case it is different. Fine, so be it. This is about generalities.
Stocks: will be extremely dangerous for like 5 years (including your 401k). Dow 1,000 is a crazy possibility. I know, it is nuts, but I am thinking system wide collapse, and that includes civil unrest, frozen credit markets, and lots and lots of very unhappy people.
Stocks (shorting): risky and not for the faint of heart. 1-2 years of this should be ok, then it will get very dodgy.
Real estate: pure suicide. Credit is freezing up, and government involvement is just about over. Say 4 years before that is able to be considered (you will need to pay cash however).
Collectibles: No one will be in the mood to shell out money for trinkets. Food yes, trinkets... no. Say 15-20 years before this is back in vogue.
Metals: Gold and silver are over priced, and should fall. That said, it is impossible to argue that having some is a bad idea. You will likely lose money, but it will be very hard to lose everything. In 4 years I suspect this will be a very good idea (it still will not make you money).
Municipal bonds: Not a good idea. How many governments (city, town, state) are reporting positive tax growth? Not many. Nations do not default often, but smaller governments are more likely to toss in the towel leaving you with nothing, like Central Falls, RI which gave up today. 6 years before you can consider it (bit of a guess, inflation could make this a bad idea in 6 years)
US Treasuries: Good idea, for now. There is a caveat, short term treasuries only (90 days to maybe 1 year if you are brave). As much as I rail on the US government, they will not go broke immediately. In about 2-3 years I suspect this will be a very bad idea (even short term notes) but for now it is good.
Those are all I can think if right now, except the Euro, but you should be able to guess that one yourself. Feel free to comment with other investments and I can give my opinion if I have one. Again, this is not investment advice. Just trying to paint a picture so that if it happens, you may have a better idea of what is next.
And speaking of the FDIC, we are well on our way to surpassing last years numbers.
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