CHESSNOID

We have had 7 rate cuts in the last 12 months and another one is being planned.  We have had 12 bank failures, 4 government bailouts of Bear Stearns, Fannie Mae, Freddie Mac, and AIG, and another $700 billion bailout funded by tax money to buy bad mortgage debts from banks .  All the stock markets are floundering like fish out of water.  We saw some ugly drops the last 2 weeks in the stock markets and today was another bad day.

I just read 2 articles saying this is worse than the 1987 crash and another article comparing this financial turmoil to the Great Depression.  The first article points out:

Those past episodes, while painful, were mainly Wall Street events, says the veteran hedge fund manager, blogger, and author. But the current cycle is very much a Main Street phenomenon that is hitting “real economy” companies and employees alike, as Matthews recounts with a variety of anecdotes:

• Altria having to delay its acquisition of UST because of a lack of funding.
• SAP’s warning of a “sudden drop” in orders.
• Bank of America slashing its dividend and reporting a 68% year-over-year drop in earnings.
• A car dealer whose sales fell 50% in September, even as gas prices declined.

A corporate CFO being unable to get a credit card.

The second article in Bloomberg points out it hasn’t been this bad since 1937:

Oct. 7 (Bloomberg) – U.S. stocks fell, sending the Standard & Poor’s 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.

Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession. Morgan Stanley, KeyCorp and JPMorgan Chase & Co. slid more than 10 percent as investors shrugged off signs the Federal Reserve will reduce interest rates. General Growth Properties Inc., a mall owner, plunged 42 percent on concern it won’t be able to repay debt.

The S&P 500 slid 60.66 points, or 5.7 percent, to 996.23, extending its 2008 tumble to 32 percent in the market’s worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years. The Nasdaq Composite Index lost 5.8 percent to 1,754.88.

I have read about it in many blogs about this recession becoming a depression. I couldn’t see it back then. I figured I have been in a few recessions and that this one would be no different than tightening my belt and riding it out. At this point, all the numbers are pointing down. It seems like there is no safe place to put your money since housing and stocks have dramatically corrected, and banks have been closing. I really think the best thing to do in the short term is stay out of stock and keep cash on hand. Be extra frugal and avoid luxuries until this recession has ended.