What the financial meltdown means to you -- if you're not in finance world
Amey Stone
Over the weekend and on Monday, the population of the country suddenly divided. On one side are average folk who aren't involved in financial markets, except for maybe their 401(k), credit card, mortgage or checking account.
For those people -- the great majority of the population -- Monday started the week pretty much like any other. If they glanced at the news, it was to note more headlines predicting financial ruin for investment banks and institutional investors (the news is of the actual ruin of Lehman Bros. (NYSE: LEH) and probably Merrill Lynch (NYSE: MER) and AIG (NYSE: AIG), but after months of such news, that may have been lost on many people). Wall Street may not have been front of mind to most people going about their day today.
• Banks Establish Emergency Fund
Then there is the other side of the new dividing line: People involved professionally in the financial markets. For us, the events of the weekend and today are a sea change. Huge investment banks failing, securities trading opened on a Sunday to allow firms to unwind their positions, the government finally saying no to massive bailouts. There are going to be multiple thousands of finance professionals who lose their jobs. What will that do to the economy?
For me, a New York City resident and editor of BloggingStocks, I've felt the kind of nervous anxiety all day where I don't know if I'm going to cry or laugh. Among our team there has been plenty of gallows humor -- two actually quoted the same R.E.M. lyric in messages to me before 8 a.m.: "It's the end of the world as we know it."
That sounds dire (indeed, today feels very dire to me). But when I put aside my anxiety and wonder what all this means to folks that aren't engaged in the financial world professionally, here is how I see things shaking out:
For investors: The stock market will no doubt be extra-turbulent through the end of the year (on top of the financial sector's meltdown, we have election uncertainty and a weakening economy to worry about). I don't expect stocks to trade higher by the end of the year and think we may see a dramatic sell-off in the weeks to come. If we get a sell-off, you should use it to buy some strong stocks on the cheap. If you expect to need cash in the next year that you currently have invested in stocks, I would suggest gradually using rebounds in the market over the next few weeks to exit some positions. This is a good time to have an extra cash cushion.
www.bloggingstocks.com/2008/09/15/what-the-financial-meltdown-means-to-you-if-youre-not-in-fin/