The worst crash since 2001... 1987... 1937. As the National Debt Meter ran out of digits on Time Square earlier this week, the comparisons of the current crash with earlier catastrophic events are on a sliding scale backward.
On Monday, they may compare Friday's performance to 1929.
And yet it doesn't quite feel like anything is amiss. Stores are abundantly full of goods. So are the parking lots in front of them and the bags of supermarket shoppers. And as I was stopped at a red light driving my daughter to her violin lesson yesterday, I couldn't help but marvel at the Latin American construction workers putting the last touches on a new Cheesecake Factory (CAKE) in a brandspanking new addition to our mall... across from a brandspanking new complex of apartmnts they're finishing.
Next to me, a college girl in a $30,000 Mini Cooper was yakking it up on her cellphone, wearing $200 Jackie-O shades with lenses like saucers.
How odd, I couldn't help thinking. We're in a war that we're unaware of in our daily lives... and we're in a market crash nobody but the talking heads seem to notice.
This is going to change today. Come Monday, companies all over America will start laying off people. It's a reflex, and a natural one. Portfolio valuations have been destroyed by up to 20% on real estate... and 50-60% on stock portolios. Even if the destruction of value is mostly theoretic for most people who don't trade daily, it's a chiller.
Come next week, we'll see a spike in new unemployment filings. We'll see a downturn in spending... and a collapse in company earnings across the board that will last through January... and probably well into the first quarter of 2009.
Now, my general recommendation is not to panic during market downturns like this. To the contrary, history has proven time and time again that the seeds of wealth are sown during market crises... by buying good companies at crash valuations.
This is exactly what you need to be doing over the next couple of months. Buy judiciously and in controlled quantities, mind you... maybe by investing a fixed amount in stocks every week. Set aside fifty or 100 bucks of beer money... skip the kids' video games, don't allow them to buy another CD or iTune (AAPL)... cut down on their Christmas list... take the money you'd spend on pizza or lunches until Christmas... and religiously invest it in stocks. Buy shares of Ford Motors (NYSE:F).... refiner Alon (NYSE:ALJ)... "death services" provider Stewart Enterprises (NASDAQ:STEI)... buy General Electric (NYSE:GE) and General Motors (NYSE:GM) and General Mills (NYSE: GIS).
Buy them share by share. Instead of coffee... instead of gum... instead of your daily newspaper. WALK INSTEAD OF TAKING THE BUS. Buy $10 worth at a time... heck that buys you five shares of Ford today. Buy stocks at prices your father wishes he had bought them for back in the seventies.
But buy them gradually... and be prepared to experience some despair even then: No stock is ever cheap enough that you can't lose another 90% of your principal!
Let's not make any mistakes about it: Times will be tough. Your own wife will tell you you're crazy. So compromise: Make sure you have cash on hand. Easier said than done, in many families: So cut down on expenses.
Keep the kids home for a semester rather than hand over tens of thousands of dollars to some college next term. Think their degree in Chicano Poetry or "International Relations" is important? Not if nobody's hiring! Nobody cares!
Instead, take 10% of the tuition you saved and buy stocks in their names.
Did I say it often enough? Stop buying useless things: Start buying stocks! Start buying -- and don't stop! -- NOW!
If you stay employed, keep paying into those 401(k)s and 403(b)s. In fact, max out your contributions. Invest for the long term.
And for crying out loud... don't start buying gold now. Buy a gun instead!
The markets are wreaking havoc not only with your retirement nest egg, but with the balance sheets of hedge funds and the billionaires who're propping them up. In the weeks ahead, dozens of funds will close. There will be a run on on principal. Funds will sell off everything they've hoarded over the past six years. Oil. Molybdenum. Copper. Indium. And gold.
Today is the turning point in global economic expansion. Be prepared to suffer. But think ahead: Over the next three months, the seeds of great fortunes will be sown. Cash is king in the coming weeks. But part of that cash needs to be converted into capital.
Disclosure: Author holds a long position in F