CHESSNOID

One of the issues now becoming the focus of the coming election is the state of our economy. No one wants to hear the R word, but you can’t deny it now. We are in a recession regardless of what you read. If you have been in a recession before, the same characteristics are here again. The housing market is in a free fall, the U.S. stock market is more volatile, the global stock markets even crazier, prices of all commodities are skyrocketing. I believe these are signs of where we are in our economy today. I think we are actually in a global recession, and will just have to get through it with time.  It’s not a big deal and I think everyone just needs to adjust their priorities and spending habits.

The federal reserve will be tested again this week when they meet. All investors are making bets to how much of another rate cut they will make on top of the emergency rate cut done last week. Investors want 1/2 a point but that was before the 3/4 point cut. In previous times this may have worked to help stimulate the economy, but I think this is just smoke and mirrors to show the government is trying to do something. When the President does his last State of the Union, I don’t think it will be fighting the rebels in Iraq. You know the main focus of his speech will be the economy and possible recession that we are in. The signs were there over a year ago and now that we are in it, I think it would actually be better to admit it than to deny it.

I think CNN.Money has a great article that summarizes the main problem of our economy:

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. “By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance,” said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 – a historic low.

That seems like a big drop but it is just the market going through a business cycle making things balanced. No one wants to hear it but do you think the house or condo you bought for $100,000 6 years ago really worth $500,000. With the internet you can see these houses in California and know they are overpriced from the pictures. Check out Dr Housing Bubble and Irvine Housing Blog for prime examples with their excellent analysis and witty humor.

If you don’t like the roller coaster stock market, I recommend you get off the ride.  All the technical indicators are still pointing down.   I know it is impossible to time the market, but it is not impossible to minimize your losses and lock in your gains.  Just like the housing market that has gone up for the last 6-7 years, the stock market will come back down to reasonable prices.  Remember the dotcom crash before, the housing debacle currently unfolding before our eyes, and now the stock market moving 1-3 percent up and down everyday so far this year.  This just means investors are worried and getting ready to go into panic mode.  They are either going to panic buy or panic sell.  Your guess is as good as mine.  You can dollar cost average which will work.  It has worked for me in the past.   There is always a chance the stock market will double by the end of the year with the right reasons.  The question is what reasons will give investors confidence to believe that.  Of course, there is always a chance the stock market value could drop in half.  The same question applies to what investors believe in.