Friday, October 24, 2008

Staring at the Abyss

Russia has suspended trading until next Tuesday after seeing another 10% loss in value. Russian default risk tops Iceland as crisis deepens. Hungary, Ukraine and Belarus have sought emergency loans from the IMF. Chrysler is laying off 25% of its salaried workforce and a day earlier, Chrysler announced 825 job cuts at its Toledo plant and another 1,000 relating to the closure of the Newark plant. GM Suspends Matching Contributions to 401(k) Plans. AIG taps $90 billion government credit line, after having exhausted nearly $120 billion in bailout money in under one month! Japan Stocks Drop to Brink of 26-Year Low while a recession panic hits the Nikkei.Meanwhile the Hang Seng (Chinese stock market) crashes 8.3 percent to a four year low. Mike Shedlock notes that Job Losses Mount as Recession Deepens. There aren't any remaining consumers out there who can take on more debt or purchase more junk. As Mish also is fond of saying, the Shopping Center Economic Model Is History.

Is the picture above getting clear enough for you yet? For the last few weeks, after the last big decline, we've been in another trading range from about 8300 to 9500. We're still in that range although near the bottom. And the global financial problems may cause the market to panic out of that range towards a new low. That new low, for the next round, will likely be around 7000 but that's not the bottom yet either. The bottom is yet to come and will be somewhere south of 5000, with a reasonable chance of being south of 4000. The next downleg on the S&P will be in the 650 range, when it finally comes. There's no sunshine in this market yet. None at all.

This weekend my adult children will be meeting with myself and my wife to discuss what the possible scenarios are and how we can all prepare for those scenarios. I've been busy the last few years learning to garden, compost, learning a bit about vermiculture and building rich soils. We've set aside food and other consumables to see us through an extended emergency and now we're going to try to ensure that our children and grandchildren are cared for as well. We may or may not succeed but we don't have lots of time to spend worrying about strangers who have not prepared at all.

MSNBC recently ran Hard times have some flirting with survivalism--Economic angst has Americans stockpiling 'beans, bullets and Band-Aids’., run by James Rawles, is a treasure trove of practical information about surviving catastrophes, ranging from Cat-5 hurricanes to Cat-5 financial storms. I advise bookmarking it and reading it regularly.

Most readers of this blog (the few that bother to read it) won't have the resources to really prepare. For people in that category, I suggest that you learn to pray. You're going to need it. Some small number though still have a chance to purchase rural land, even land without a house on it is better than no land at all. And I mean purchase it, not via a mortgage. Take that cash and get your hands on some productive land. In a pinch you can build a cabin, or even get fancy and go underground, as outlined in The $50 and Up Underground House Book. If things get as bad as I fear, we're all going to have plenty of time to work on things at home, so it's best to really own a home for that purpose. Additionally, being rural will get you out of the most immediately dangerous problem if society does go pear shaped - civil unrest, aka rioting and looting. Most won't be able to do this but if you can, your chances to actually take this step are drawing to a close.

The chickens are coming home to roost on decades of fiscal irresponsibility and we're all going to pay. The only question is how much?

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