With Markets a Bottomless Pit, Concentrate on Cash Flow
As I write this, the U.S. stock markets are not yet open but Asian markets are continuing their free-fall. The European and U.S. markets are sure to follow, after the European Union announced its refusal to help either its car companies or the hapless Eastern European economies.
The European and Asian economies (perhaps excluding China because of its strong foreign currency reserves and manipulation) are mostly in much worse shape than we are. That is important because our recovery cannot gain serious traction without functioning export markets.
Adding to our bad news is that money rat hole known as AIG which reported a $67 billion quarterly loss and is going to need billions more from the U.S. Treasury, money which it doesn’t have.
Those that rely on technical analysis of the U.S. markets are floundering, to say the least. There is nothing in their charts that shows that we are at or near a support level for stock prices. One such expert (economist Peter Navarro) describes the S&P 500 as experiencing a “Point & Figure double bottom breakout” which he translates into a “bottomless bottom.”
Some technical analysis consultants are recommending both the DJIA and S&P as short sells for the foreseeable future. Is there any reliable economic data to undermine or counter this negative outlook? I haven’t seen or heard any. Have you?
Gold is back in the headlines with positive movement. Why? Because investors can’t think of anything else to do with their money.
Nothing that the Obama Administration has said or done has even come close to slowing the investing death march. Perhaps if our President had fired a rifle instead of a shotgun at our problems, there would be more room for optimism.
So why is Mr. ToughMoneyLove saying all of this? The answer is that I am only saying what I am thinking. But I do have a point and and some suggestions.
Scott Burns wrote a timely piece this week, reminding us that our wealth is not our standard of living. That is a principle I can agree with. It is also something worth building a financial strategy around when you are looking into the bottomless pit of our stock markets.
Therefore, I’m also thinking these things about our own financial plan:
Don’t have anything in the stock market that you will need to sell in the next 5-10 years.
Start your tax planning now (as in finding ways to minimize the effects of the government wealth grab that will be starting this year.)
If you are content with the “stocks are on sale” concept, I would dollar cost average your way down to the unknown bottom, as a risk control measure.
For the foreseeable future, maintaining income will be more important than building wealth. At this point, just keeping your place in the line of investors waiting for a recovery would be a good outcome.
Watch the cash flow constantly – adjust expenses (downward) as needed.
Find other strategies for managing financial risk.
Not all of these steps will necessarily help your bottom line. But they can help minimize the damage to your standard of living and prepare you for an escape from this economic pit of despair when the good (not so bad?) times return.
The better times will return – won’t they?
Image credit: Caetano Lacerda