The Coming Economic Crunch

You know, I don’t do much with the economic news on this blog. Oh, I realize a lot of it is tied to politics, and that’s what this is all about, it’s just that I think a lot of the economic doom and gloom that you hear over the years is bunk and isn’t worth anything. Today is a little different. Today is a cautious reminder to be vigilant and wary. It could just save your retirement.

Earlier this week, the stock market dropped a couple hundred points. Now, that hasn’t been anything earth shattering or new. It wasn’t a new record low, and it didn’t set a record for the most points dropped in a day. It just got my attention. The market dropped because of the tension in the Middle East. In case you missed it, over the past weekend, Saudi Arabia ended up executing a bunch of people including a Shiite cleric that they said was guilty of fomenting an insurrection of sorts. That set off a big intra-religious rivalry with between the Shiites, which basically are the folks in Iran, and the Sunnis, which are the folks in places like Saudi Arabia. It also goes along the Persian vs. Arab thing.

Now, while this particular event is dangerous, and very unsettling (Saudi Arabia basically broke all ties with Iran over the incident), it’s got most of the Middle East choosing sides. On one hand you have Iran with the largest army in the Middle East, vs. Saudi Arabia with the most money, and protector of the most sacred spot in all of Islam. It’s an interesting turn of events that has the world on edge to say the least.

The reason I say be cautious is because if you go back and look at what the stock market and the US economy has done historically, we go about eight years between recessions. Lately, it’s been tied to the end of a presidential term (when that goes eight years), and it usually takes anywhere from six months to two years to get out of it. Well, the last recession we had was in the fall of 2008. That means we’re about due sometime this year. I tried to explain that to my money guy last summer, and he tried to talk me out of going to the sidelines. I waited, and got more and more worried. Finally around Christmas time, I pulled the plug and moved the money to cash. Call it an intuition, call it luck, it saved me a ton of money to do it that way. And I still have a queasy feeling that we’re not done yet.

Look, I don’t have a magic crystal ball, and frankly if I did, I wouldn’t use it to be giving financial advice. I just would hate for anyone that has worked hard all of their lives to lose big chucks of a 401k or IRA because they weren’t looking at the market when they should have been. Do your own homework, and take a look around. But realize something I learned; money people want you to stay in the market. They don’t make any money with you on the sidelines. The “buy and hold” strategy suits them well, and over a forty year term, it’s usually ok. But if you don’t have years to recover from a staggering loss like in 2001 or 2008, then maybe you want to protect yourself. That’s all I’m saying!

Hopefully, we can avoid a recession in the near term, and a catastrophe in the long term.

Carry on world…you’re dismissed!