Tuesday, March 18, 2008

A Little Bright Spot?

For those worried about their retirement plans and other investments withering away, I just received an "insider" bulletin (i.e. "for financial professional use only, not for public distribution") which had some interesting insights. Today's dramatic and aggressive rate cut (the Fed Reserve cut the federal funds rate by 75 basis points, to 2.25%, the biggest one-time short-term rate cut since the early 1990's) offers a little encouragement. The stock market is responding favorably!

While the recent cuts won't revive the economy, the bulletin reminds us of the following:
  1. The Rebate Checks are coming!
  2. U.S. Exports are booming
  3. Business investment spending is encouraged by the recent Stimulus package, in the form of accelerated depreciation expense
  4. There are some signs of the bottom in new home building (apparently housing starts have held steady for 3 months in a row, after 2 years of steady declines)

I think the biggest question I've had is whether I should be doing anything in response to the market and if so, what?? Pulling out of the market and putting it in the mattress (as my mother suggested)? Leave it alone and don't look (my current course of action)? Use whateve cash is lying around (I just received a bonus!) and buy more stock while it's "on sale?" For those of us with many work years ahead, the answer is probably "do nothing," provided your investments are well diversified. For those looking to retire in a couple of years, the answer is not nearly so easy. The current volatility must be very discouraging indeed, for those ready to retire.

Most importantly, the reminder is not to overreact, or act suddenly on partial information. Freaking out and running for the doors is probably not the answer. That's what brought the country to its knees in the Depression. One never knows where the top or the bottom of the market will be, so to do anything requires nothing less than a crystal ball. We should not stray too far from a balanced portfolio.

I am no investment advisor, so take what I say with a grain of salt and some antacid, but the reduction in rates will mean negative real rates of return on short term CD's for those tempted to invest in cash or CDs rather than the market. The general recommendation from the experts is to remain "invested broadly in long-term assets rather than huddled in short-term accounts waiting for a brighter day."

But you didn't hear any of this from me. ;-)



At 6:11 AM, March 19, 2008, Blogger Sisiggy said...

Well I'm sort of happy about the housing starts, though in our area I don't think it's the case. My husband is in a line of work that goes onto developable properties before the housing starts are reported and he and his peers aren't doing much. But, then, we didn't get the dip after 9/11 because everyone involved in Homeland Security was moving here (picture a bunch of clients in plain black suits and sunglasses who could never give out their work numbers). So the big contractors came in and build on spec -- which even I know you never do. So now we're going to pay dearly for it even though our company never got involved in the big developments precisely for that reason.

Something better happen soon or I will have to supplement the "lucrative" field of journalism with the exciting prospects in fast food restaurant maintenance.

At 9:20 PM, March 20, 2008, Blogger Gwynne said...

Sisiggy, after I give up this accounting gig (in the middle of a recession), I'll be standing in line right behind you, applying for the fast food maintenance gig. :-)

At 12:37 AM, March 22, 2008, Blogger Janie said...

"with a grain of salt and some antacid"...heh. that's classic!


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