Our economy seems to be like the Titanic. It hit the iceberg around August or September of last year. Since then, the economy has been kind of stalled in the water. Now, the economy is starting to take on water in earnest and it feels like it’s about to break up and sink to the bottom.
It’ll be interesting to see what happens next. It feels like the Dow has no bottom and could go straight to 5,000 in a relative instant. The spike in gold really has me worried. It makes me think that the bailout of AIG has put the U.S. on the line for trillions in derivatives. I don’t think anyone really knows what the total liability could be for AIG yet. Plus there’s Fannie and Freddie too.
I’m concerned that the Fed and the Treasury have put us in the worst of all worlds. Instead of no bailouts or a full-scale bailout, the Fed and Treasury have acted in fits in starts with seemingly no plan whatsoever. I fear that their plan is going to lead to both a massive devaluation of the dollar and a crash in the market, whereas a full-scale bailout or a “no-bailouts” policy would have likely only lead to one of those.
That being said, I’m continuing to dollar-cost average into the stock market. We should keep in mind that both LTCM and the 1987 crash happened in the September-October timeframe and in both instances the market came back nicely. However, this credit bubble seems to be bigger than anything that’s ever happened before and could lead to a Depression. I heard recently that unemployment was 25% in the Great Depression. I couldn’t imagine living through a period like that.
