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Friday, August 13, 2010

Welcome to Freddy Kruger-land (formerly Wall Street)

And a happy Friday the 13th to all, the only such Friday in 2010. Freddy would be so proud -- after all, we're descending into a surreal, dangerous fantasyland very much like the dream sequences in those famous movies.


In case you have not read or listened to the old-media outlets (ABC, CNN, etc.) lately, the above pretty much summarizes their view of our world. The reality is somewhat less heavy with kittens and rainbows.

Stock prices have staggered this week. Is this the beginning of a general slide in stocks? Probably not, but the eventual decline is inevitable. Governmental interference and geopolitical stresses are exerting incredible pressure on financial markets. While the majority of us are no experts in the machinations of Wall Street, any reasonably aware person can see that the moving hand has already written "MENE MENE TEKEL" on the wall. Everyone knows the last word is coming; it's merely a question of how quickly or slowly the hand writes.

A variety of techniques are in place to attempt to prevent such drastic stock price declines. For example, Germany recently joined other countries in banning what is known as "naked short selling". The effect of this ban, of course, is to artificially restrain the market from seeking its natural price level. Many other such methodologies have been enacted toward the same end.

But the market cannot be restained indefinitely. Eventually, prices will drop to the level demanded by economic, political, and social pressures. The drop will likely be sudden, thus destroying such remaining confidence in stock-price growth as exists.
This will cause a further decline in prices.

Where does the market bottom out? It's really anyone's guess. Take advice from whoever you believe to be knowledgeable, but keep in mind that you must know your expert's political and social biases, because those biases will always color the advice they give.

My best guess, at this point, is that things may stabilize with the Dow at around 3,000. But by that time, "stabilize" may be a laughable word.

What can you do to mitigate the effects of such a catastrophe on your family and work? Study history. Learn about the Weimar Republic and Argentina's recent history. In those places and times, the last word has been written.

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