DENVER – “DEPRESSION.” It’s not just a state of mind. It’s the current economic reality. The World is careening through the worst economic crisis since the Great Depression of the 1930’s. Yet, only now, do a majority of economists and investment fund managers believe we are in a recession. Unfortunately, the reality is a lot worse than you think. ShadowStats.com specializes in analyzing U.S. government data. They report data based on the older and more objective measures, before the government hired the same financial wizards who messed up our banks with their fancy accounting. They report that U.S. economic growth as measured by Gross Domestic Product has been falling since the 3rd quarter of 2004. That’s 17 consecutive quarters of economic contraction!
Before you dismiss me as a pessimistic harbinger of doom, remember that just one year ago all the experts were saying that the credit crisis was “contained,” “only affected subprime,” “was limited to the U.S.,” “foreign markets have decoupled,” and, my personal favorite, “we are on target for a solid recovery in the second half of 2008.” If you followed their advice, you’ve probably lost 30% to 40% of your investments. It is going to get worse. Much worse.
The current economic collapse has happened many times before. In 1905 George Santayana wrote, “Those who cannot remember the past are condemned to repeat it.”
Fortunately, our government has made available a wonderful summary of these economic disasters at www.fdic.gov. Go there, type in “Learning Bank.” Click on “When” and read about the past “Panics” and “Depression.”
Take 2 Prozac and read on:
The current financial crisis rightfully has many American’s terrified. According to a recent CNN poll, 60% of American’s believe an economic depression is likely. What do they know that leading governmental, economic and financial experts don’t know? Is it overreaction by the average “uneducated” American? Or, could it be, that average people are feeling the effects, and seeing things go from bad, to worse.
We’ve witnessed a worldwide domino effect that led to the disintegration of major US banks and brokerage firms, followed by the Chinese and Russian stock markets collapsing by more than 65%, and now European banks and financial institutions that are failing at an accelerating rate. This is reality. Federal Reserve Chairman Ben Bernanke acknowledge on October 15, that risk was underestimated, leverage overused, and complex and murky investments were at the core of this problem. Yet, despite more than $3.2 trillion in bailouts from the governments of the U.S., Europe, and Asia, he promises more difficulties.
What can we expect? High unemployment, more bank and corporate failures, a shrinking economy, lower wages, and deflation.
How can you prepare yourself to survive and even prosper during this unfolding calamity?
1. Get debt-free, and fast. In deflationary times, debt is a killer. You pay back with dollars that are MORE valuable. Why deflation and not inflation? Demand destruction.
When people don’t have extra money, they don’t pay inflated prices for houses, cars, fancy home theatres, etc. As credit disappears, prices will have to come down to get a buyer. In some residential markets 40% of home sales are foreclosures, which are driving prices down further. It is not surprising that that real estate prices are going down. When Toyota is offering 0% interest on car loans what can GM and Ford do to sell cars? They’ll have to slash prices.
2. Cash is King! It is possible that the dollar will be worthless. I’m optimistic enough that will not happen. So invest safely. U.S. Treasuries. FDIC Insured CDs.
Money Markets, as long as they have very high quality assets. The new Federal guarantee is a nice feature too. 40% to 70% of some of the biggest hedge funds are in cash. If they’re scared, what should the average person be doing with their money?
3. Rent, don’t buy assets. See #1. The value of assets is going down. The Bloomberg Commodity Index has tumbled by 39% since July 2
4. Secure a guaranteed income stream. State regulated legal reserve insurance companies have the strongest balance sheets of any financial institutions. (While AIG was a basket case, and the parent was bailed out by the government, its wholly owned life insurance subsidiaries are rock solid, and policyholders are fully secure) In addition, they are backed up in amounts that vary from state to state, by state insurance guarantee funds.
Contracts issued since 2006 offer some of the most consumer oriented income features available today.
5. Get ready for bargains of a lifetime! The months and the years ahead will be the time to buy assets, businesses, and seize other opportunities at unheard of prices.
Alaska was purchased from Russia in a distress sale for $7.2 million. The Louisiana Purchase from France cost between $15 and $23 million. It doubled the size of the US at the time, and represents 23% of US territory.
Jeff M. Wilson, BSE, CLU, ChFC is President of Wilson Advisory Group, LLC. He received his B.S. Economics from The Wharton School of the University of Pennsylvania and was trained by one of the principal advisors to the DuPont family. Wilson Advisory Group was founded in 1987 to deliver independent wealth management services free of the conflicts of interests that prevail in most Wall Street firms.
Contact: Jeff M. Wilson , 303-759-1200 , [email protected]
By Jeff M. Wilson