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Clouds of Economic Despair

In the last few days, two people, on two separate occasions, approached me with their concerns about what is happening in the markets. One of them said that he couldn't say exactly why, but it feels like a "Great Depression" might be imminent. He has never been involved in stocks, nor cares much at all about the world of finance. The other also had no money in the markets herself, but was concerned for a friend who had a significant sum in various investments. What has stood out from these encounters, is the sense of alarm from two people who normally could care less about the stock market or economic indicators.

There has been increasing talk of the possibility of a recession in the financial news. I have seen a few of them come and go in my lifetime, with little personal impact, other than a looming possibility of a job lay off which I was fortunate enough to escape. Yet, during those other recessions I don't recall anyone who I personally knew speaking of "Great Depressions" or describing a sense of large, imminent, engulfing doom. Something is different this time. Whatever is happening, is not like any of the recessions I have lived through. I can't help wondering whether people had such feeling in 1929 just before the big crash.

It is impossible to know whether we will have a one big event market crash such as that fateful October in 1929. It may not really matter. Whether we have a single big crash event, or a consistent and persistent economic contraction, the result would be the same. We may be witnessing the beginnings of a profound transformation of the lifestyles we have become used to.

The only practical advice I had for my friends is this: For the time being, and for at least a couple of years, stay away from long term investments; don't buy a house. Stay away from the stock market and money market funds, keep your debt down, and hold on to cash. And by the way, in case what is going on means that banks will be failing, and that looks likely, make sure your money is in a conservative, solidly rated bank.

This could be a long, rough ride.

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