The Bottom Line
By Chad Wilson
September 29, 2008
Foundation Bank --
The Bottom Line
Writing the Pages of History
Volume IV Issue IX – Monday, September 29, 2008
A monthly financial commentary for our friends, Clients and Advocates
I know that the title above is obvious. We are always writing the pages of history. But the present time period will be no ordinary chapter in the history books. This will be a time in history when my son will ask, “What did it feel like to live through the economy of 2008.” Last week, President Bush did his best to frame why Wall Street is not an island, and why the things going on in credit markets are going to have a major impact on people like you and me. So what are some of the things that will be in bold print in this chapter of history? Here’s is my attempt to capture the present, as well as to frame what the future might look like:
1. More Bank Failures may be inevitable – With the loose lending of the last 5 years, those decisions tend to eventually work themselves out. Wilber Ross, a well-known private investor, told CNBC that over 1,000 of the country’s 8,000 banks could fail in the next 3-5 years. But there is some good news. First of all there are several strong banks that remain. Secondly, even with the biggest bank failure in the country last week, the FDIC has been able to arrange for other banks to buy them out. That means that customers of Washington Mutual have barely even felt the bump. FDIC has played the part they are intended to play, and done so brilliantly.
2. The government may very well make money on the recent buy-in – The government has what very few corporations in this day and time have, patience. The treasury will be able to buy assets at fire sale prices, hold them, and sell them at a time when more rational pricing prevails. This means that if it is handled correctly, the taxpayer could stand to actually see a profit on this historic government intervention. That is what happened in the 1979 bailout of Chrysler.
3. There will be a purging of sorts in the business climate – In 1988, a fire at Yellowstone National Park wiped out 1/3 of the park in a matter of days. If you go to Yellowstone today and ask a park ranger about the fire, they will tell you that it is one of the best things to ever happen to the park. What rose from the ashes was an even more beautiful array of sights and smells than you could have seen in 1988. In nature, there are times for purging. The same is true in business. Today, we find ourselves in a time of purging. But once the smoke clears, there will be a beautiful business climate for those who survive. We have already seen this on Wall Street, as only 2 of the 5 investment banks remain today. We need to be prepared that this phenomenon may work its way to Main Street. The landscape of business is changing by the hour.
History is not near as fun when you are living in the middle of it, is it? How then should we react to these trends as they emerge? First of all, have a reserve that is greater than normal. We cannot predict what we will happen, we can only prepare. Having a strong reserve fund will allow you to be prepared for anything. Secondly, only borrow what you need. Those with too much debt can get caught with their pants down. Lastly, look for opportunity. This is hard to do when your emotions tell you to do just the opposite. But remember that the seeds of great returns are planted in scary times. I will close by quoting an old prayer that is appropriate for these days: “God, give us grace to accept with serenity the things that cannot be changed, courage to change the things that should be changed, and the wisdom to distinguish the one from the other.
Chad P. Wilson, CFP
Foundation Bank – a division of McKenzie Banking Company - 731-554-2423
The above is strictly informational and does not constitute any sort of recommendation. Please consult your own financial advisor for specific tax, loan, or other investment advice.
|
