Saturday, February 16, 2008

Remember: Watch For The Signs

A year ago a few of my acquaintances were referring to me as "an economic fear-monger" and a "prophet of economic gloom". This certainly was not my intent.

In fact, my intent was, and is, exactly the opposite. Nothing can be gained by being afraid of what lies ahead. Fear leads to bad decisions. My goal in sharing the dark truth about the economy and other issues is to raise your awareness of what is happening in the world so you can be prepared. Hopefully, this blog, along with those of many others, will be your canary in the coal mine.

Now with that said, take a deep breath and read this.

When the Swiss Say Money's Tight, The Depression's Gone Global

By Michael Fox

Okay, people, if the foreclosure rate, the banks closing perfectly good credit card accounts, or the loss of thousands of jobs a month hasn’t made convinced you, this is Earthshaking. Because, as depressed as the real estate market has been, and as volatile as the stock market has been, bonds have been the conservative investment of choice for large investment fund managers and long-term individual investors. Secretly, who hasn’t aspired to “retire and clip coupons?” (Note to the young’uns: tax-free municipal bonds used to have perforations like a sheet of stamps, and each coupon represented a monthly or quarterly interest payment that was like tax-free cash, thus the expression amongst the wealthy, “clipping coupons”; it has nothing to do with 20¢ off a box of Tide). Now this:

UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation. The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail … Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily…Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks…[Feb. 14 (Bloomberg)]

Food for Thought:

A good friend of mine offers this word of advice for anyone who is serious about their finances. A good credit score is important if you're planning on borrowing money. But it's more important to think in terms of building net worth. Anything that a bank or third party holds the deed/title to isn't really yours.

What do you own that no one can take away from you?

Related posts:

Watch For The Signs
published October 2007

The Economy Is Based on Borrowing
published April, 2005

Despite More Jobs, US Poverty Rate Rises
published September 2005

The State of the Economy

published February 2006

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