Different and yet the same

Many people are pointing out the similarities to this current financial crisis to the one in 1929 and then make the leap that this could lead to another Depression. While I believe that we are experiencing a nice sized CRASH in the markets, we will not enter a depression, but simply a very long, protracted time of slow to no growth.

Have you seen that oil is < $90/barrel, down from $147/barrel? and the stock market continues to dump. Why? Before when oil went up, the markets went down, and when oil went down, the markets went up. Now the markets and oil are moving together? Very confusing, eh?

Well, not really if you understand 2 things:

1. Oil is sold and denominated in USD (US dollars) and it is going up, so commodities denominated in USD go down

2. The global market crash is indicating that people are going to spending less, transporting less, and therefore energy demand, worldwide, will probably pull-back and therefore, there is an over supply of oil, and therefore the price of oil goes down.

What does all of this mean? Well, you need to do 2 things to protect yourself in times of financial chaos.

First, don't panic since those that keep their heads while everyone else is losing theirs will probably end up doing much better. You probably don't need your investments tomorrow so don't sell if you haven't already. Keep dollar-cost-averaging to your 401K or IRA. As the price of investments decline, you average dollars will buy more thereby lowering your average cost of acquisition.

Second, ensure that you have at least 4-6 months of living expenses in cash or credit cards. Yes, I said unused credit card limits. You need to have emergency money in case of loss of job, interruption in cash flow due to illness, or disability.

These 2 things allow you to sleep better at night and weather pretty much anything that will come our way in the foreseeable future.

BTW (by the way), we are not going to go into a depression due to the many things that are different from 1929. The worst that can happen, and probably will is that the Democrats get hold of the White House and Congress and go on a tax increase and spending spree. This will keep a big lid on growth, but will not recreate the Great Depression. Jobless rates will probably not get much over 8-9% and that's a far cry from the 25-28% unemployment during the height of the Great Depression.

In my next post, I will tell you how the Dems will get us out of this slow growth situation. You will not believe it.