Monday, September 29, 2008

WSJ: Jason Zwieg: What Should Investors Do Now?

The Intelligent Investor: When the Dow drops 778 points in one day, it seems like there's nowhere to hide.

Jason Zweig gives us some great perspective on today's events, a couple excerpts from this excellent article:

On whether we are heading for another Great Depression:

"First, when you spend time studying the Crash of 1929 and the depression that followed, what stands out the most is the dearth of doomsayers. Even Roger Babson, the economist known to posterity as "the man who called the crash," did no such thing; he forecast only a 15% to 20% drop, not the apocalypse that actually occurred. Depressions start not when lots of people are worried about them, as we have today, but when no one is worried about them, as in 1929.

Second, the Great Depression and the Panic of 1873 (which triggered what arguably was the worst depression in U.S. history) both occurred before the Federal Reserve Bank had aggressively grown into its role as "lender of last resort." In the wake of 1873, after a railroad-building boom had swept the nation and then gone bust, companies and consumers alike were left gasping for capital. Nothing but the passage of time could supply it; the Fed would not be established until 1913. After the crash of 1929, when the Fed was still weak, years passed before the federal government could flood the economy with cash.

Today, however, the resolve of the Fed is not in question; nor is there any doubt that the Treasury department is willing to provide the financing it takes to get the economy moving again. Furthermore, U.S. non-financial companies have just under $1 trillion in cash on their books."

I encourage you to read the whole article.

Scott Dauenhauer CFP, MSFP, AIF