Friday, October 10, 2008

Keep the cool for god's sake!

So, finally it came. The day when the market realized money was too cheap. It was a bit dramatic seeing the "Lehman Brothers" letters being picked down from the facade of their building in New York last week...

For years I have been standing in awe, watching people pay ridiculous amounts for housing or borrow more on the housing they had, just to consume it. I was annoyed because I wanted to buy an apartment too, but the prices were already silly. At the same time companies have been increasing their return by decreasing their safety margins. Finally this ridiculous chase for easy bucks has come to a halt.

Don't be panicked because of what happens, it's just a natural, and in the long run healthy, adjustment back to reality. What we now see is a huge transfer of wealth from those in debt to them without. A fair change, as the ones in debt for a long time have been the winners. What we have to be careful about, though, is that the panic isn't used by some to gain power and wealth at the cost of others using foul tricks. We can see how companies suddenly expect billions from governments to cover their lack of business skill. Don't bail them out. They have to pay the price, just like they reaped during the golden days. That's the brutal nature of market capitalism. If bad business isn't punished it won't stop.

At the same time, be careful about what the governments do. Some claim we have never been as socialised as today, after some big bank takeovers. We must watch that it doesn't go too far. Governments shall not run businesses, they shall provide a climate where the businesses live well. And, very importantly, are controlled. A market that is not controlled will eventually commit suicide as markets are by their nature unstable. This is where the governments have failed. The USA has been screaming about free markets ever since the Reagan/Thatcher era and many governments have just danced along. Which we now suffer from.

Note that the average man is in no danger. Our money is safe. Some of us have stocks and bonds and they are loosing a lot in value, but hey! Rule number one is to never invest money on stocks that you can't afford to loose. If you did that - blame yourself, idiot. The same goes for the people who bought too expensive houses and now might even have to leave their homes. Of course the blame is to put on the banks, you can't trust the average man to be very business-minded, and this again just emphasises the need to make the businesses pay for their mistakes. Banks thought they were safe lending 100% of a house's value to anybody and for a while they did well. To make the poor idiot that borrowed the money to pay the whole price is not fair, it should somehow be split between the idiot and the greedy. This is another area where governments should step in and calm the people.

So, stay cool. Whatever you do, don't sell anything. On the contrary, if you have money, the coming year is a perfect time to invest. On a 3-5 year horizon you are likely to make a really fine profit on stocks. If you need to buy a house, keep cool too, next year will see a drop on the market.

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