Let me start with a link to this CNN article "Pensions Lose 2 Trillion Dollars".
Unless you are an absolute brilliant trader, you've probably lost a good sum in the past 2 months or stayed in cash (which makes you equally as brilliant). I've seen conservative portfolios with high dividend stocks, municipal bond funds and energy trusts get blasted. A moderate growth portfolio with tech stocks, financials, and energy stocks have done even worse. There are hedge funds run by so called geniuses who short and long...who are down by 50% in a month.
The government and everyone is so worried about stopping housing prices from declining, what they really need to focus on is the stock market. These two are NOT joined at the hip although they are related. In 2007 we did fine with declining home prices and a subprime blowout going on. The problems in 2008 are two things...decimation of commodities which are leading to the death of emerging markets and the blowup of the credit default swaps (which contrary to what everyone is saying, has more to do with leverage rather than home prices).
So the real estate markets are collapsing. Home prices have been decimated. Starting this week we've seen signs of the commercial real estate markets being crushed (take a look at the IYR). That's fine, we've lived through bubbles in real estate markets over and over again. We'll get over that. Lots and lots of people will get foreclosed on...it's unfortunate but reality and it's not something we can really fight. The best thing we can do is keep people employed and hope for the best.
Now within the next 5 years, more people will retire at the same time than any other time in the history of the United States. Pensions across the country (private and municipal) have been chronically underfunded. During the boom times of 1998-2000 and 2003-2006 the local, state and federal governments have been promising more and more in defined benefit pensions and private sector has been steering more and more to defined contribution 401k.
Oops.
Both private and public sectors have been depending on annual 10-20% gains in the stock market as part of their projections. Let's take all the gains from 1998 and 2008 and wipe them out. Most of the gains from 2003 and 2008 are now all gone in less than 1 year of time. How in the world will people be able to retire now? This is the absolute worst time for the stock markets will melt down.
My State...the State of California is the home the most mismanaged budget in the country. Everyone knows about the budget taking 4 extra months and the 7 billion dollar shortfall that we are seeking help from the feds for. We pay our prison guards 80-120k a year, clerical workers make 50-70k a year and our state police officers make an average of 80k a year. On top of that, after 30 years of employment the unionized workers are guaranteed a pension of approximately 90% of their highest salary over the last 5 years of employment. It just sounds too good to be true and it will be too good to be true. I am all happy about workers get paid a lot, but where is the money coming from?
Unfortunately, the only way this problem can be solved is one of three ways (1) raise taxes tremendously (2) cut benefits although guaranteed by law (3) pump the stock market up (4) retirees mysteriously dying early.
Remember that 401k and IRA accounts are a relatively new phenomenon. During the 80s and 90s they've struck gold...but during the 2000s they've been extremely lousy. We're not used to people living to 80 and 90. Retirement plans were alway designed for people living around 10 years past retirement. And social security? Let's not go there, we are adding nearly a trillion of dollars every year to our deficit. We can have faith, but faith isn't reality. A 3rd grader can tell us the numbers don't add up. You promise 100 apples, the tree currently has 50 and the tree dies, how can you live up to the promise?
I know the TradeKing community includes hyper gamblers, conservative investors, brilliant traders and fixed income hoarding investors. This kind of market is not good for any of us.
I was opposed to the 700 billion dollar bailout, because I predicted all it would do is give money to rich (and many failing) banks. And what has that done? The markets have fallen 1200 points since its passage. We need to save the stock market, and have to consider throwing everything including the kitchen sink at the problem. Our retirements, our parent's retirements and the functioning of our government depends on it.
1) We must take steps to revive the B-R-I-C countries in growing again. We must take steps for commodities to stabilize, the dollar to weaken and get demand up. We cannot ignore them, their PAIN, is killing us.
2) We must stablize our exchanges. Bringing back curbs and the uptick rule will help far more than stopping short selling completely on financial stocks. Selling is fine, but it must be done in an way that reduces volatility.
3) Employment, Employment, Employment! The government is too focused on propping housing prices that they are ignoring the fact that so many people are losing jobs. What do we need to do? Take a page from the great depression and Build Build Build. We need to build nuclear power plants, more freeways, replace our bridges, create low cost efficient housing, create a slew of natural gas/disel/electric cars, and the government needs to hire lots of people on fairly paid jobs (40k a year, rather than 80k) and corporations need to redistribute payroll from the top (execs will be perfectly happy making 1 mil per year rather than 30 mil) and create as many as 40-50k jobs that we can. Call it socialism, but it's much less socialism than bailing out bank.
This is the only way we can get our stock market growing again. Commodity prices are at multi year lows, dollar is at a 1 year high...we have a small of window of opportunity to sell massive amounts of t-bills and bonds without triggering hyperinflation. If the stock market is lower in 2 years than it is today...we can stick a fork in our future.
