Monday, October 27, 2008

There's a Chicken Running Around Saying Something About the Sky Is Falling...

Frantic Friday on the financial markets

Trading on the Dow Jones industrial futures market has been stopped after Dow futures fell 550 points, the maximum daily price change. The move is pointing towards a sell off for Bay and Wall streets today. The drop on the futures markets comes on the heels of steep losses on Asian stock exchanges. They tumbled for a third day Friday on persistent worries of a global recession.

Wow - just what you needed to read going into the weekend. Instead of worrying about finding time to carve a pumpkin, and get little Johnny and Susie the "newest coolest costumes" in time for Halloween, we are left facing financial Armageddon.

Well that's what some in the media would have you believe. The opening statement was taken from an unnamed media source website (OK it's 680 News), AFTER THE MARKETS CLOSED. For anyone out there who wasn't watching, the Toronto markets opened down 700 points, and finished down 37 points. If George Bush passes wind, it affects markets more than this. Yet we are continually subjected to the media telling you the worst thing (The Sky Is Falling?), and ignoring any good news. I'm sure if markets had opened up 700 points and then finished down 37, the media would have simply spun it in a different direction. Here is where we cross swords. Should the media be forced to report accurately, or is the era of sensationalism (where Paris Hilton is a star and TMZ is a creditable source of information) the future of media.

In the advisor world, Dan Richards works with advisors. He does not use sensationalism to sell, but rather provides honest thoughtful insight. He recently added a very interesting link to his website that really explains the "sub prime" crisis and how it came about - the real beauty lies in the fact that it is designed for pretty much anyone to read and understand.

So where do we go next. The origins of the current market situation lay predominantly in the US mortgage markets, where people spent the value of their homes and more, and where others bought homes they could not afford. Now we have moved into the "recession" stage. As stated previously, a recession is stated to be two consecutive quarters of negative gross domestic product. What it doesn't mean is that everyone will lose their jobs. With current numbers at around 6%, it is expected that unemployment may reach 8%.

While those numbers look negative, we have seen much higher unemployment rates in the past. Here's an interesting thought - WHY NOT EXPRESS THE NUMBERS AS 94% CURRENT EMPLOYMENT. When we were in school and got a 94 on a test, most of us were thrilled.

Even though we are in uncharted waters, the majority of experts believe the following will happen:

  • Markets remain unsettled though end of 2008 and into 2009
  • Interest rates expected to be further reduced this week in US (and perhaps globally)
  • Recession to "end" in second quarter of 2009
  • Growth to come in second half of 2009 and strong economy into 2010

Obviously things could (and probably will) change. Knowing what to do in the future is predicated on two simple things right now - pay your bills (think this way - what I need versus whatI want) and realize how long you have until you spend your final retirement dollar. This last point is very important. At a meeting with a client last week, they expressed concern over contributing to their RRSP's. When I showed them how markets have gone through this in the past (several times), and will in the future, they said they wanted to retire in 10-12 years (around age 60). I asked one simple question;

"When you retire, do you plan to spend all of your assets the first day or over a period of 20-30 years"?

They obviously replied with the latter. As I explained, they then had a 30-40 year investment horizon. They have only been saving money for 20 years. In other words, THEY ARE ONLY 35% THROUGH THEIR MONEY PHASE.

Please provide any constructive feedback both on content and information for future blogs.

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