Monday, October 6, 2008

Getting Out of Egypt

The Red Sea hasn’t parted, but at least the bail-out gives us some boats. Our problem now is to realize that the leadership skills needed to get out of Egypt aren’t the same ones needed to get to the Promised Land.

It is expected that the congressional action will have a calming influence on the markets. The next few weeks will be telling. Markets are still likely to show some volatility, so just remember that roller-coaster rides are always scary, but only dangerous if you decide to jump out (especially when going downhill…).

We are continuing to monitor the situation and will keep you informed. The greatest danger in this situation is that it could be aggravated by other events. Major financial catastrophes usually are due to a ‘perfect storm’ of exogenous events. For example, the Great Depression is variously thought to have been caused by the Smoot-Hawley Tariff act (which caused global retaliation and crippled our exports), or the run-up in the stock market due to low margin requirements, or the government not stepping in to save the banking crisis. In my opinion, the Depression was due to all three happening at once, and then compounded by the severe drought of the 30’s.

Serious exogenous threats would surely aggravate the situation today, like a major Calif. earthquake, Mideastern war, terrorist disruption of oil supplies, etc. However these are improbable possibilities which we can’t do anything about, except complain and worry.

The real threats in this environment are endogenous threats which you may encounter, like losing your job, or emerging health issues, or problems in relationships or with children. These endogenous events can be exacerbated by the current financial situation. I believe that these are times when a professional fee-only financial advisor offers the most value and can provide you with peace of mind. If you are losing sleep due to this situation, please let us know. We can help you figure out a plan to find the Promised Land.

Bert Whitehead, MBA, JD

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