Thursday, July 28, 2011
Money in the Market? Now's the time to BAIL!
We could see the writing on the Wall Street Wall for some time as this manufactured debt crisis exploded, thanks to the nation being taken hostage by the Republican Tea Party Brigade. Now, after the Dow lost 199 points yesterday, and is at its lowest in nearly a year (and 4% below its 2011 high), the red alarms have sounded.
It is clear the radicalized Tee Pees plan to play this one right down to the wire, and have even expressed smug comfort that they're A-ok with allowing the nation's credit rating to be downgraded or, in the worse case scenario - suffer a first ever default. Many of these people are so financially and economically illiterate that they can't even tell the difference, and their expectation that "nothing will happen" discloses they're no more than know-nothings.
But the markets are already expressing their fear, with consecutive days losses now totalling 500 points. Expect today's loss to further increase, to about 295 points, assuming there is no counterbalancing "good" news to diminish the dip. By Friday, if there's still no deal reached, I predict a 450 point loss and a total of nearly 1400 points for the week. By Monday, expect a 600 point loss for the Dow and if Tuesday's dawn still sees no resolution, expect an 1100-point drop on that date, the debit ceiling deadline.
The signs are already out there for anyone paying attention. Not only in the successive Dow point drops but in the low volume and high volatility characterizing Treasurys. Meanwhile, in the event of "just" a downgrade, look for absolute chaos to erupt in the Money Market funds which currently hold some $684 billion of Treasurys. But with a downgrade, say to an 'AA' rating like Slovenia, those funds will have to dump treasurys en masse and buy enormous amounts of commercial paper to replace them, risking "breaking the buck". (As occurred with some Money Markets after the crash in the Fall of '08).
Why the move? Because in the event of a downgrade and AA rating, interest will immediately zap up on the Treasurys, from about 2.9% now to over 3.5%. This means yields will dip since yield responds inversely to interest rates. Since Money Market managers are already at minimal profit levels (thanks to Ben Bernanke's near zero interest rates, and 'quantitative easing 2') and they don't want to break the buck (i.e. end parity with $1.00 for each dollar invested) they have no choice but to drop higher interest Treasurys. This will set the stage for stock market panic and "blood in the streets", to adopt the colorful parlance of Alan Simpson describing what would occur in the debt ceiling rise back in December.
Best advice? If you don't wish to lose 40-50% of your investments, now is the time to bail from the stock market and seek out cash: money markets, or money funds. If you can take money out, put in in savings accounts at the highest interest you can get or into short term CDs.
If you remain in, accepting the "buy and hold" mantra, I hope you have enough disposable income that you can afford to lose. If you have $150 grand in stock mutual funds in a 401k, get set to lose maybe $60,000 of it, possibly more. Of course, if you stay in you can always make up the losses, but given we expect no more than 1% gains each year in the Dow (thanks to the new jobless economic environment, and even lower spending power if massive federal cuts are enacted) it may take a century or more to get to the break even point! (This is in respect to all the losses suffered in 2008, and likely this year).
Who to blame? While the corporo-media has played its usual false equivalence game, and many citizens still say "THEY" need to get their act together, in truth there is no "they". This is a mcguffin manufactured by the false balance media cult. It is ALL on the extremist Tea Party Repukes and their enablers. Even Republicans with a grain of remaining sense have come out against these fools, as John McCain did yesterday on the Senate floor, lambasting them for their unwillingness to put the nation's welfare over their own ideology.
Meanwhile, the Dems' deficit reduction plan, $2.7 trillion in harsh spending cuts (including to unemployment insurance, Medicaid matching funds to the states) is a clear giveaway and reminiscent of what one sees with a victim of kidnapping or Stockholm syndrome. The Dems have literally "given away the store" to the Repukes in the Reid Wussie Plan, since no revenue increases are found. Indeed, as some astute commentators (such as Ezra Klein) have noted, it is basically the original plan of the REPUBLICANS!
So please, don't anyone - any numbskulls - hand me any baloney there is any "they" responsible meaning both sides! Oh no! As a matter of fact, to illustrate the gangster tack of the Reeps, they were all called into a session two days ago to get pumped up by one of their Teepee honchos -who showed them clips from a Hollywood film, 'The Town'. The clips showed Ben Affleck's character telling his pal that he "needed his help" but he couldn't tell anyone. In the next scene they are baseball bat beating the holy crap out of guy as he lay on the floor. Obviously, that guy was supposed to represent the Dems and it was not lost on a number of appalled House Dems, including Debbie Wasserman-Schultz, after the clip was leaked.(Personally, Debbie, I'd hire security protection for yourself in case any of the Teepee reeps - like Alan West- lose it after seeing that flick segment!)
So this is the M.O. of today's Repukes: brutally beating the opposition to a pulp and taking no prisoners.
Or as one Denver Post columnist (Mike Littwin) described in today's column: reminiscent of the National Lampoon cover from the 1970s in which a small, cute cocker spaniel pup is shown and a guy is holding a .44 magnum to its head with the underlying text: "Buy this magazine or we blow away this pup"
Or in the case of today's Tea Bagger Repug party:
"Accept our terms on the conditions for debt ceiling increase, or we blow this country to kingdom come"
Hopefully, most citzens won't be taken down with them, if they have money in the markets.
You have all been forewarned!