Hey, please listen to me. I want to tell you something. Its serious. It’s is so serious that even me, the crippler yid, (almost) doesn’t feel like joking. I’m really scared. I think that the U.S. is heading into an unprecedented (for our generation) financial meltdown. I feel like its September 1929. Everyday, I hear about more house foreclosures, more banks or financial companies that are in trouble. I’m scared that this U.S. financial turmoil will drag down that entire world economy, causing massive unemployment. I’m scared that one result of this is that the stock market will go down by 50% or more. I’m scared that people that I love will loose their retirement money or their kid’s college money.I’m scared that we don’t know half of it.I’m scared that I may be right. That’s why I’m trying to talk to you now. .
But ok, there’s the funny part to this. I was also nervous in the late 80’s and late 90’as. I was so nervous, that I lost $250,000 betting against the biggest bull market in history. Funny, eh? But here’s the even funnier part. I haven’t really given up. I think I can really call the market.
Funnier still more, now I feel I have such a beat on the market, that I actually have the testicular temerity to tell you what you should with your money.
Ok, Still with me? Indulge me. It’s a mitzvah to indulge a paranoid, compulsive gambler cripple. Ready for my 5 page pre-crash rant?
No? Fine. Here, first I’ll give it to you in 8 short and not so sweet bullet points.
1.THE PARTY IS OVER!
The 25 year old money party is over. The stock market, bonds, the dollar, real estate are all going into the crapper.
1. WHO MADE THE MESS?
The mess was 58%(?) caused by the fed who kept interest rates far too low for far too long. This easy money encouraged rampant speculation. This resulted in a series of bubbles. From dot-com to junk bonds, to houses. One bubble popped, the Fed eased, thereby creating a new, bigger bubble. With each new bubble, people felt less fear. Wall Street invested in ever crazier stuff, like in an estimated 500 trillion in derivatives, just like the ones involving those currently exploding sub-prime mortgages. And because of years of historically low interest rates, Government, business, and individuals, took on impossible debt levels.
2.NOTHING WILL HELP.
This time, the Fed won’t be able to save our collective tushies. Lower interest rates will help as much as giving 2 Tylenol to a guy with stage IV brain cancer.
3. EVERYONE OUT OF THE POOL
It’s a great time to get out. The crisis is just starting. People are still calm. People still think it’s just a mortgage mess and the economy is still in good shape. The stock market is only 6% off of it’s all time high.
4.KNOW WHAT YOU OWN
First try opening up your statement understand exactly what kind of stuff you have in your portfolio. See how much risky things you own. Stocks, bonds, even money market funds are risky now. Treasuries are the safest.
5. SELL EVERYTHING
Then Put 90% in 3 month t-bills and the rest into a gold ETF, TICKER SYMBOL GLD.
6. DON’T BELIEVE ME
Hey, I know that I aint no Warren Buffet. So please, at the very least, talk to your broker and/or the smartest financial guy you know. Tell him/her what I said, then ask them what they think is best way to protect your money.
7.IF YOU ARE A POOR SCHNOOK
Even If you don’t have a lot of money, you can still own gold by buying gold coins and gold jewelry, and protect yourself.
8. PRAY THAT I’M WRONG
THE RANT ITSELF
I think everything is going to crap. The stock market, the real estate market, the dollar, is going to the toilet. A lot of people are going to loose their shirts, their pants, socks, and dental implants. I think that the crisis will build—up a momentum of its’ own that no man in tie and suit or Dockers will be able to stop.
The turd soup is the big global money mess we are in today. The mess is debt. The U.S., the government, Wall Street, regular people are all up till the eyeballs in debt. The current U.S. Government national debt is 9 trillion. (Every year the feds got to pay out $400 billion just to cover the interest on this. The U.S. consumer owes $12 trillion, around $42,000 per person.
YOU SAID THIS IN 1989, MORRISELE
I know you’ve read all this crap for at least the last 10-15 years. You’ve been Hearing about the huge budget deficits since Hinckley popped Ronnie Reagan. I know you’re thinking, Moishe Chaim, You were short the rock n’ roll, 1990’s NASDAQ, from 1500 all the way up to 5,000, the top. Also, you were telling us to get out of Manhattan real estate in 1997 because you thought the Asian contagion will spread. So why should we listen to you’re the geshrei of self-admitted compulsive gambler, hysterical, doom prognostication now? What Mr. smarty sweaty pants makes you think you’re going to be right in the 00’s?
WHY IS IT THE CRAP CRAPPIER THIS TIME
You ask good. I’m proud of you my genius Talmidim (students) . I’ll tell you why. There are two reasons why it is different this time.
1. Because over the last five years, individuals have been using their soaring home equity as an ATM, incurring $12 trillion of debt. The government too has been spending like crazy, gorging themselves on unprecedented levels of debt. (FYI, the U.S. proposed military budget for 2008 is 670 billion, more than half the total budget, 10 times more than china’s)
2. During this same period of time, there has been an algorithmic increase, of these beasts call derivatives, totaling an estimated 500 trillion, that’s right trillion. The sub-prime mortgages, the things that triggered this whole mess, are often packaged into derivatives.
Yea, that’s exactly what everyone said until a month ago. All this debt and high financial high jinks can theoretically go on forever. Debt and more crazy kind of leveraging products can go grow and morph as long as everyone thinks that whatever he is buying, or whatever asset he is borrowing for, he will be able to sell to the next guy for more money. Once prices stop going up, the music stops, everyone races to get their bottoms into a nice, secure seat. People will not only stop to want to make new loans, they will be scared they won’t get their old loans back. They will not want to take on more risk or else demand to be compensated for the higher risk. Likewise, foreign investors holding 2 trillion of U.S. debt will not feel so good about holding their super- tankers of dollars, and will want to diversify into other currencies. This will make the dollar go down and Interest rates go up.
THE DOODEE IS STARTING TO HIT THE FAN
It’s starting to happen now. The music is stopping. One day, there’s a run on a British bank, the next day everyone is bailing out of a hedge fund that lost 30% in a month. Everyone is rushing to get their caboose into a seat. People don’t want risk anymore, they just want their money. People, financial people are so afraid that everything may have some kind of exploding derivatives hidden inside of any security that they might buy. So they’re selling first, asking questions later. Prices in the stock market, real estate market, the bond market are beginning to fall. Banks are getting scared that they won’t get their loans back so they’re stopping to make new loans. The next thing that will happen, and its just starting now, is that all this financial turmoil will start make people and companies scared and not want to spend and invest, thus undermining the real economy.
DON’T COUNT ON RAV BINYAMIN (BEN BERNAKE)
I don’t think that the Federal Reserve can help. So what if they lower interest rates from 5 1/4% to 4 1/4%. If borrowers are worried about the banking system, if they’re worried about crazy derivatives bombs going off seemingly every day, why would a one percentage point reduction in rates restore their faith in the soundness of the system and make them want to lend? And similarly, why would consumers, up to till nose in debt, with their homes starting too drop in value, now scared about their jobs, want to take on more debt, now matter how low interests rates are.
Remember Japan in the early 90’s? In response to their real estate bubble bursting, they cut their interest rates to zero and it didn’t help, their economy didn’t come out of recession for a decade. In December 29, 1989, the Nikkei closed at a high of 38,957. Today it closed at 16,122. That’s a 58% drop. A similar drop on the Dow would take it to 5830. (The Dow closed Friday 9/7 at 13,113.)
DON’T EXPECT AN URGENT CALL FROM BERNAKE
Don’t expect anyone important to come right out and tell you, hey Yossele, things are beginning to stink in the goldene America.. Even if Bernake believed that things are going from bad to worse, (and I don’t think he believes this) he could never ever say it. His whole job is to make sure the U.S. financial system is stable and people have faith in the soundness of the system. Any hint of panic from him would send every market in the universe straight into the crapper. As for Wall Street types, they also don’t want to scare you cause their job is also dependant on keeping this overripe, debt-infested, charade going. And besides, why in Nike’s world should they tell you to sell? They aint no Mother Theresa. They want to sell first and get the best price, before the regular schleppers wake up, panic and sell.
A HARD MESSAGE TO SWALLOW
I know you will have a hard buying this dire prediction. For the last 60 years we have (of course, I’m talking about us bourgeois westerners) have experienced unpararelled, uninterrupted prosperity. We have been lulled into a complacency of an endless sweet lullaby of good times. We think we are utter control of our huge financial tanker, Capt. Bernake at the helm. We think we’ve been inoculated against hard times. But the history of banking is littered full of financial panics. Fortunately, or unfortunately, we have become too adept at swerving around oncoming financial disasters, (which, by the way, has only encouraged us to take on more and more debt, more and more risk). What I’m trying to do here is rattle you out of your complacent stupor, and to tell you that I think were finally not going to be able to wiggle out of this. To tell you bad shit can happen even to us.
A FINANICIAL 9/11
This will be like a financial 9/11. The fully fueled 747’s are Over Yonkers and are heading straight into Wall & Broad Street. It still a beautiful sunny, September day. But soon disaster will strike, denial will be impossible, panic will ensue. Soon there will be body parts and flaming portfolios falling from the sky. But I’m not here only to scare you. I mean I want to scare you, but only in order to get you off your complacent tush.
So here’s what I want you to do.
1.Sell all your stocks. (In a real bear market, even Google will be gorged.)
2.Get out of money market funds. Some of them are holding risky paper.
3.Get out of all bonds, including all corporates, junk, Fannie and Freddy Mac’s, Gnmae’s (These “agency” bonds are not actually guaranteed by the Fed. In case they fail, it is unlikely the Gov. would bail them out.)
4.Buy 3 month t-bills
5.Put 5-10% of your money in gold. Gold usually goes up in times of fiscal, political panic. It is also a great hedge against the sinking dollar, which is sinking as we speak. The easiest way to do this is to Buy an exchange traded fund (ETF) that represents actual gold bullion. It’s called streetTRACKS Gold shares, Ticker symbol GLD.
6.At the very least, make this meshugena happy and check exactly where your money is. Once you know and UNDERSTAND what kind of investments you have and how risky they are, ask yourself this question: What would happen if my things dropped by 50, 60%. How badly would my life and the life of my family be affected?
THERE’S STILL TIME
It is a great time to do this. I think we are only in the first inning of this mess. The market is only 5-6% off of it’s all time high. I’m just not talking here. Last week I sold my mom’s stock mutual funds, exchanged her money market fund for a 3 month T-Bill. I put 5% of her money into gold via GLD.
This is what the man himself, Warren Buffet warned back in May, before this sub-prime crisis hit:
Buffett warned about the dangers of derivatives — financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. The Federal Reserve’s efforts to regulate the use of credit to purchase securities have been made irrelevant by derivatives, he said. “The introduction of derivatives just made any regulation of leverage a joke. It’s an anachronism,” he said. Because of them, “there will be some very unpleasant things that happen” in the financial markets. “We may not know exactly where the danger begins and at what point it becomes a super danger.”
But the good news is that the toilet has just now been recently flushed and the pieces of your turds (i.e. your money) have just started their downward spiral. There is still time to stick your hand into this turd soup and chap, grab, your valuables, before they go into the sewer.
Go, my dear ones, grab.