Tuesday, September 30, 2008

Market troubles: part 2

Now that the Dow took a bit of a nose dive, and panic is widespread, the question is: what is an average investor to do? Convert all your holdings in cash? Withdraw all the cash and keep it in a safe deposit box, knowing that, as banks start to fail en masse, FDIC will not be able to cover all the deposits(it's my uneducated guess) and will have to impose a withdrawal limit on your deposits? I certainly felt this way yesterday.

Nevertheless, despite all this doom and gloom and threats from the Wall Street that economy will collapse if they are not given those $700 bln, I thought to myself: where would all global investors invest their money if not in the US? Will it be China? China is a rising giant, but still almost completely dependent on exports. The rest of the emergent markets are very volatile, unpredictable, and subject to political turmoil( Eastern Europe)).What about Western Europe? Economically speaking, they don't have the same prowess as American economy due to over regulation and big shadow of their governments cast on their economy.
So it seems that the American economy is something those investors cannot live without.
And after that bloodletting on Wall St. on 09/29, they flocked to... US Treasury bills!

Besides, even there will be a massive collapse of the current financial institutions, there will be fast growth of the new type of financial industry, which is not burdened by the collective "sins" of the old good boys. That will happen just because the American economy is the most flexible and resilient in the world, and no banker would want to pass the opportunity of a lifetime.

Therefore, we probably should continue staying the course and even consider getting into a buying mode (I can't believe I'm saying this..). But will see in, say, 5 years, what will be going on

1 comment:

finance said...

At this point though, 5 years seems like such an eternity.