The market is never wrong. The equity markets have been sending a strong message lately, and its seems to get louder every day: the U.S. economy is in grave danger. The wolf is at the door, and it is time for us to prepare to save ourselves. You and I had nothing to do with how the wolf got here. Recklessness in mortgage securities and, more generally, in the credit markets, is entirely responsible. But now, we must prepare ourselves to ensure the wolf does not get through the door.
The entire economy is in the process of deleveraging. That is simply a fancy term for reducing debt. We all need to review our expenses and do whatever possible to reduce those expenses. It would be great to increase our income as well, but the purpose of reducing debt is both so we can save more and also for protection in the event our income is reduced as well. There is no reason to believe that we are entering another Great Depression, but there is no reason to fail to prepare for hard times ahead. If you prepare well, then you will have money to invest once the economy stabilizes and corporate earnings become “visible” again.
I mentioned in another post that the consumer credit numbers came in. Outstanding consumer credit decreased by $7.9 billion in August to $2.577 trillion, according to a report released by the Federal Reserve. The experts had expected an increase of $6 billion. This was the first decrease in consumer credit since January 1998. I suspect that some of it had to do with consumers tightening their spending. However, the drop can also be attributed to banks and other creditors reducing their lending activities. Regardless of the reason, this is hard evidence that the economy is slowing.
The wolf is at the door – don’t let him in.
Gregg D. Killoren
victoria1014
