More questions about the economy

Q: How does the current crisis affect the traditional notion of a personal safety net?

A: You need 3-6 months of cash reserves

Q: When will things get better for people seeking credit?

A: If you don’t have a FICO score in the mid-700s or higher, it’ll be difficult. If the bailout plan is approved, 6-12 months before credit eases.

Q: What about credit card debt?

A: What about it? Stop using it (if you’re carrying a balance). And make double payments if you can.

Q: I’m close to retirement, I have a diversified portfolio. Do I cash it out?

A: The markets are down 25% in the last year. The key is to have the cash and liquidity. You’re probably better off to put it into bonds. A younger person should look on this as a buying opportunity.

Q: Why should I bail out the banks?

A: The alternative is more extreme. The credit markets aren’t functioning and will put accounts at risk. There’s no good answer.

Q: I’m 10 years away from retirement. What do I do?

A: Now is crunch time. You have 10 years to make it up. You save as much as you can and put it in 401K, reduce your expenses, get your kids out of the nest if they’re adults. You can’t get a loan for retirement.

Q: I’m a person with a fixed-rate mortgage, no credit card debt, and a good amount of money saved. What should be my biggest concern with the current economic situation?

A: If your money saved is in money markets, getting back dollar for dollar could be a concern. “Breaking the buck” a term known for money market failures began to occur last week in some money market accounts at brokerage houses. Also, your investments like 401K’s will tank if the market heads further south.

Q: If the bailout is passed, when is a good time to reinvest and buy stocks? I know there is a lot of money to be made with all the cheap stock options right now.

A: You’re exactly right. There are bargains out there. Anticipate an initial spike in the markets and then the sluggish results in the economy to slow market recovery, however.

Q: How long will it take for the stock market to recover?

A: Sometimes recovery comes more quickly than expected. Back in 1987, the stock market fell 22% in a single day — equivalent to about 2300 points on the Dow Jones Industrial Average at today’s level. But for that calendar year, the Dow managed to eke out a meager gain. Of course, sometimes recovery can take quite some time. The Nasdaq Composite Index has yet to recover its dotcom-bubble high of 2000. And the Dow Jones industrials didn’t reach their pre-crash levels of 1929 until 1954. While chatter about the markets is decidedly dark, few anticipate that kind of scenario unfolding.

Q: Fed chairman Ben Bernanke told Congress that it risks a recession, with higher unemployment and increased home foreclosures, if lawmakers fail to pass the Bush administration’s plan. Is that true?

A: The bailout has been sold as preventing another depression. If its going to be a recession, well, we haven’t had this kind of massive bailout in dealing with any of the previous post World War II recessions. We’re in a recession, and its going to get worse. No way the bailout stops that.

(Sources: Ray Martin, CBS financial advisor; Gib McEachren, WGHP, NC; David Kansas, WSJ; Chris Farrell, My Two Cents)

  • bigalmn

    For a moment there I thought you had turned into an economist, but then I see your sources at the end and it shows that you are a good information hound.

  • Eric

    Still taking questions?

    I keep hearing Chris Farrell (and everyone else) give advice to people close to retirement and people far from retirement. But what about if you ARE retired? What’s the best move for that person?

    Thanks.

  • momkat

    Eric, do what I did: plan way ahead and marry a younger person and keep him working, baby!
    ;)

  • David

    I agree the bailout will not solve anything. It will trigger Weimar hyperinflation immediately, will bring down the whole banking system, and, contrary to Gordon Brown’s fantasies, will not save the hopelessly bankrupt British banking system.”The so-called Paulson Plan will hand trillions of dollars in U.S. taxpayers’ money to foreign financial interests, particularly British interests. Seems clearer who the masters of coordinating a sophisticated hijacking are! Never before in history has any government proposed to use taxpayers’ money to bail out the worthless paper of foreign investors, in particular, the Europeans, led by the Bush family’s ‘Brutish’ friends

  • David

    Today’s Times of London, the mouthpiece of the British establishment, which now reports that the five top British banks could grab as much as 25% of Treasury Secretary Hank Paulson’s $700 billion mega bailout plan. British banks hold no less than $175 billion (95.3 bn pounds) of “distress assets”. “If the British banks tap the rescue fund,” writes The Times, ” being set up by the U.S. treasury and the Federal Reserve to the maximum, they could secure one quarter of the $700 billion being made available.” The breakdown of what these banks are holding is the following: HSBC, the flagship of the British Empire, holds 45 billion pounds; Barclays, 17.4 billion pounds; Royal Bank of Scotland, 16.2 bn pounds; HBOS, 13.3bn pounds; Lloyds TSB, which now owns HBOS, 3.4 bn pounds. Another confirmation that the British Banks are nothing more than Zombies is that fact that the Bank of England announced this morning it will be pumping an addition 55 billion pounds into the financial system. Included is an offering to lend $30 billion in U.S. dollar funds for one week. The first such operation will be an auction for 40 billion pounds maturing on Thursday January 15, 2009, an obvious move to get Britain’s Zombie banks past the last quarter. The BOE will be accepting mortgage backed securities as collateral. This operation is being coordinated with the European Central Bank, the Swiss Central Bank and the Federal Reserve. The Swiss are offering $9 billion which the ECB is offering $35 billion. The bailout will not solve anything. It will trigger Weimar hyperinflation immediately, will bring down the whole banking system, and, contrary to Gordon Brown’s fantasies, will not save the hopelessly bankrupt British banking system.” FROM EIRNS 092608