Sunday, March 9, 2008

Mostly Cloudy, and It Looks Like Rain

"But let's not be too gloomy here.

Other than overleverage, bad debts, sinking home prices, no jobs, shrinking wages, cash strapped US consumers, rising oil prices, a sinking US dollar, $500 trillion in derivatives not marked to market, rampant overcapacity, underfunded pension plans, looming boomer retirements, no funding for Medicaid, no funding for Medicare, and no Social Security trust fund, everything is just fine.

And even though the Fed, central bankers in general, and governments combined to create this problem, the irony is nearly everyone is begging for them to fix the problem by encouraging still more speculation in housing, commercial real estate, and the markets.

Sorry folks, it's the end of the line and payback time for the world's most reckless financial experiment in history. The deflation genie can't be put back in the bottle until leverage everywhere is unwound."

Mike "Mish' Shedlock
paints a dreary picture here. But if you are reading the financial press, you know that this stuff well known. For heavens sake, if you have money in stocks or mutual funds think about getting out of it and put it in SHV (basically 3 month Treasury bills) or a nice money market. The value of each of your dollars will be going down through devaluation. But at least you will have the dollars. You won't be missing a rally for some time.

Say you started out in the fall of 2005 with a really great mutual fund like CWGIX. Say you had 25,000 dollars worth to start, by the time November of 2007 rolled around, the value would be up to about 37,000 or so. CWGIX peaked at $50.49 and has since fallen back to $40.73 as of last Friday. That drops the value to just a little over $30K. Thats a drop of about $7K in a little over three months. I don't know what the future will bring, but I think the odds are heavily to downside losses, rather than upside rallies.

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