How many more Black & Blue Mondays?
If you’ve been reading my blog for some time, you’ll know that I’ve been banging on about moral hazard as it relates to governments bailing out banks. However, after events these past 10 days (most of which were spent in Canada), I am not so sure anymore.
Meaning, I have had a slight change of heart because the market has become completely irrational and the actions by various governments across the globe has not helped the situation. Despite billions being pumped into the market to increase liquidity, confidence remains extremely low and banks are still not lending to each other. So things are getting dire. And so I have come to believe that perhaps a comprehensive global plan is needed. All this piece meal action is making things worst. The banking crisis that started in the US has truly gone global and recession is on the horizon in the US, Canada as well as a number of European countries. Heck, the UK and Ireland are already in recession.
So here’s hoping that the finance ministers from the G8 nations and other key global players can get together and work something out. In the meantime, my advice to all of you out there is to spread your risk. Better yet, put your liquid cash in one of the new super banks (i.e. Bank of America, Citigroup, JP Morgan Chase, and HSBC). While I wouldn’t bet my life on it, I seriously doubt that these banks will fail anytime soon. As for the others like Barclays, Royal Bank of Scotland, etc. — well I’m not one to speculate, but things are not looking good.
For those of you in the US with money in a 401K plan, if you don’t plan to retire in the next few years, just forget about it. Considering the massive losses already, never mind the tax penalties you’ll encounter for any withdrawal, it is just not worth taking the money out. Perhaps switch to less risky investments in the plan. Beyond that, do nothing else. Remember, the market is in a serious slump now, but it will bounce back eventually.
Finally, beyond spreading your risk, think about what is really important to you. Money should never be the end all. Take it from someone who walked away from an extremely lucrative paying job in the middle of this financial crisis (more on this later). Crazy? Not really. As events over the last few weeks/months have shown, 100 year old institutions with all their wealth can disappear overnight. Thus, as our time here on this earth is short, it is important to find and focus on our true passions. It is important that one’s life has real purpose and meaning.