Being i'm selling at what is an inopportune time, reading the article didn't give me the warm fuzzies.

In spite of everything i've been reading, i'm trying to remain optimistic.

Yeah, we've got some interesting data floating around out there...

Gold at over $740/ounce; Oil at over $83/barrel; the US dollar on par with the Canadian dollar (first time in 37 years!); the liquidity squeeze; & now I hear that Dubai is going to buy 20% of the NASDAQ.

Something is happening but I'm uncertain if it's a momentary blip or we are already into the beginnings of something much larger & more important? Every time I think I've got a handle on it...a new piece of data is released that contradicts what I'd concluded. For instance, why...pray tell...were Unemployment Claims down last week? Am I loosing my mind or wasn't it the bad Employment Report for August that catapulted the Fed into action? When I hear Bush say he supports a strong dollar, I wonder if he's saying what he means or if I'm hearing another 'Bushism'? If the dollar keeps dropping we'll be like Mozambique! :( (sarcasism)

/tricia

"Gold at over $740/ounce; Oil at over $83/barrel; the US dollar on par with the Canadian dollar (first time in 37 years!); the liquidity squeeze; & now I hear that Dubai is going to buy 20% of the NASDAQ."

All four of those are a consequence of the dollar finally weakening to a reasonable level. A weaker dollar will also go a long way to solving the trade deficit. Its not bad news, its just news.

As far as the article goes, I don't agree that we're headed for negative growth. More like flat growth. The default rates are not the problem, its just a liquidity problem. Lack of liquidity does not create negative growth, all it does is limit positive growth.

Being i'm selling at what is an inopportune time, reading the article didn't give me the warm fuzzies.

In spite of everything i've been reading, i'm trying to remain optimistic.

Well Trish, I'll take your word for it and not read it yet so that I can stay optimistic. I know people are watching our listing waiting for the price to drop, then they will pounce. We have one of the nicest houses in Country Lakes, very surprising it hasn't sold.

The market still depens on location, location, & location.
The large jump in foreclosures is still confined to a relatively few areas. Other areas have increases but not in the 200% range.
The percentage can also be misleading.
If an areas had 10 foreclosures and now has 20 it has increased by 100%.
Unstated is if the foreclosures are in a town of 10,000 or a city of 1,000,000.
The increase in foreclosures as a percentage of housing is a better metric, but it can be impossible to find.

mfbenson, interesting points. I've heard that liquidity is the issue. I've also heard that there's plenty of liquidity and the problem is a market gone cold over credit risk.

Are we on the cusp of a recession? Beats me...the best economic minds in the country seem to be debating this one endlessly. It's the level of noise that disturbs me enough to take a few precautionary steps.

Novahomesick, would you mind elaborating on those few precautionary steps that you've taken? We've become a little more liquid in the past few months, and hope to shift some more assets soon. Dh thinks that I am unduly cautious. However, an investment choice he made a decade ago has had long lasting negative repercussions, including delaying his early retirement. Our current timeframe is approximately four yrs., and I am not about to let anything that's within my control mess things up again.

Badin, this is a long read...prepare yourself. The best I can do is share my thinking process but please understand that my philosophies and actions are very specific to my financial situation. Lots of people would disagree and what works for me, may work only for me.

That being said, I dont have any special secrets. My ideas are of the more "diet and exercise to lose weight" variety. Like most people of a certain age, IÂve lived through a few financial downturns. The most important lesson that IÂve learned about financial self-protection is that income protection matters more than anything. I truly believe that steady employment or the ability to replace income in the event of a job loss is the best thing I can do to emerge from tough times intact and ready to take advantage of better days. That tired old adage about having an emergency fund is really important.

Why? Ensuring income and cash flow keeps one from selling off investment assets at the wrong time to pay the bills. You avoid locking in any losses and buy time for recovery. My portfolio took quite a haircut in 2002 but we held and made it back within the next year. Downturns usually bring greater volatility to the markets and you donÂt want to get caught selling assets in a downdraft. A strong emergency fund also protects us from the lure of the credit card to make ends meet while accumulating bad debt. I remember a bleak recessionary period, years ago, after a layoff, when my credit was so stretched that I was living on tuna sandwiches purchased at the nearest gas stationÂs convenience store. My Citgo card was the only one that had any room left. That was my Scarlett OÂHara standing in the field moment.

So, how stable is your job and how long will your savings replace your wage income in the event of a job loss? Have you built into your savings an amount to cover COBRA payments? Do you have retiree health care? How employable is your skill set? Is there education you can be getting now that will enhance your employability down the line?

DHÂs career is in private business and is very vulnerable to financial downturns so we keep more money liquid than, say, my brother who works for the federal government and has far greater job stability. DH is also at a level that might mean itÂll take a long time to find a comparable position. In line with our level of risk, IÂve recently moved from two years of expenses to three years in laddered CDÂs. If we need to replace income for a longer period, the income generated by our investment portfolio will be tapped. Laddering CDs, bonds, treasuries is a good way to take advantage of interest rate changes.

By the way, if you are four years away from retirement, whatÂs your stock exposure? Do you need your investments to produce an income stream or do you have pensions to cover? If you need income, have you lessened your position and moved more into income-producing investments? I donÂt think todayÂs or tomorrowÂs retirees will have saved enough to back out of stocks completely. Keeping 5 years of income in laddered fixed income investments with the remainder in stocks for growth is a technique lots of planners are recommending to their retiring clients.

Dump Debt. Pay it down. Get rid of it. Now. IÂm talking credit card debt. If inflation takes off and interest rates follow, those credit card rate hikes can act like a pay cut.

No matter how tight things get, donÂt stop contributing to retirement funds. Downturns present excellent buying opportunities. If you remain employed, make sure you contribute enough to get the employerÂs match. This is the "buy low" part. Take advantage of it.

Add a new twist to Date Night and sign up for an investment class with your spouse. Leave a few financial magazines in the bathroom. Seek out a good financial planner who can lend an objective voice. DH and I are like monozygotic twins regarding finances but it took a lot of education to get us there.

From an investment standpoint, my current goals are still weighted towards growth but with a bit more emphasis on capital preservation than last year. IÂm heavier in cash than usual and have backed out of bond funds in favor of bonds themselves. Again, IÂm just keeping an eye on reducing volatility.

Diversification is critical. Invest within your comfort zone but please donÂt keep all your eggs in one basket like a house or a couple of stocks. We go well beyond owning a range of asset classes and manage at the sector level. There are plenty of people who will disagree with me but IÂve reduced my exposure to financials and upped energy and health care. Since DHÂs career and stock options are in technology, we invest less in that sector to reduce our exposure to sector risk. But, diversification means knowing whatÂs in your mutual funds. YouÂre not diversified if both your Large Caps and your Internationals own the same companies. Morningstar provides an X-ray service that can help root out overlapping funds.

A lot of investors are in love with gold right now. I have concerns about anyone rushing headlong into gold. As a diversification play, a little gold can be a good thing and help smooth volatility. But I remember when gold was in the tank for a long time so I recently and grudgingly added a small gold position. If it grows out of target, IÂll sell it back into position. ThatÂs called rebalancing.

ThereÂs an old investing adage I like quite a bit. Use sailing strategies during good weather and rowing strategies during bad. In the investing world frequent rebalancing is a rowing strategy. Basically, when your asset/sector allocation departs from plan (ex: a target of 70% stocks, 30% bonds is now 80% stocks 20% bonds) you sell 10% of the stock valuation and funnel it into bonds to bring the portfolio back to target. This forces you to sell high and buy low. YouÂd be surprised how many people resist this one. They donÂt want to let go of their winners. So, they market time...might as well just go to Vegas. During the 90Âs bull market, buy and hold (a sailing strategy) worked well for a lot of people. I was rebalancing about once a year. WeÂve been rebalancing every quarter for a while now. In a bear market, rebalancing is your friend. I like quarterly. If your investments are tax-sheltered in a retirement fund, rebalancing wonÂt have a negative tax implication. The bulk of our portfolio is not sheltered so we need to be mindful of tax risk.

It is way too early in the game and things need to get much worse before I would implement this next strategy. Lurking in the back of many an investorÂs mind is the ghost of 1929. I shrug it off but itÂs there. So, placing stop-loss orders on the stocks is always a possibility that can be implemented quickly. The signs of a good economy are still too strong to consider such a move but itÂs nice to know that itÂs there. I read some study of people who survive disasters. The ones who lived thought about what could go wrong and rehearsed what they would do in the event of an emergency. Apparently that preparation helped them take action faster than those who hadnÂt thought about it. The latter tended to panic. Hope for the best, rehearse the worstÂsounds right.

Last strategyÂif we end up in a long recession and/or a bear market; keep a copy of Rudyard KiplingÂs poem "If" handy. It helps

Novahomesick, thank you for taking the time to give such a detailed response. It was very interesting reading.

The following caught my attention:
"In line with our level of risk, Ive recently moved from two years of expenses to three years in laddered CDs. If we need to replace income for a longer period, the income generated by our investment portfolio will be tapped. Laddering CDs, bonds, treasuries is a good way to take advantage of interest rate changes." That's something I plan to discuss with dh this weekend.

We're a little too heavily invested in dh's employer's stock, thanks to years of deferred bonuses and incentives. I'd suggested selling approx. 1/4 of our holdings earlier this year, but the price tumbled before his quiet period ended and he's still waiting for a recovery. I fear it will be a long wait.

On the plus side, our only debt is a small mortgage balance which will be paid off in the first quarter of '08. Beginning in January, we'll have no more dependents and expenses will decline considerably. By mid-year, we hope to have sold our second house, for which we paid cash. It's in a RE market that's still healthy, thanks to significant growth in govt/military jobs.

Some of the recent gloom and doom talk about the economy puzzles me. It seems overblown, and I don't quite get the fuss about mortgage rates that are still single digits. I can well recall being young and stupid, buying a dream house with a negative amortization loan that had an accrual rate of nearly 18% and a payment rate of 13%. When we finally got below 10% it seemed like cheap money. Now some folks are fuming over 8-9% on 100% financing with poor credit. Their feelings of entitlement amaze me.

It seems as if too much of the news is focusing on stories that have emotional impact (single mother of four fears losing home due to skyrocketing mortgage payments) and there's too little solid reporting on bigger economic issues. Or perhaps it's just me - I've jumped around too much here which is typical when I'm sleep deprived - and maybe I haven't been reading enough of the more serious journals and papers.

"you dont want to get caught selling assets in a downdraft."

This is exactly what's happening to RE/people's homes. It's not exactly like the stock market, but after following the stock market for many years, I see that people can get "doomsdayish". This will end as well. Some can't wait that long, so they obviously siffer the most.

My main point is there will always be people saying the sky is falling, whether it is or not, doesn't matter. It could be that bad or not, we won't know until it's over. Just like the boom end of it.

What I DO know is it will end. Those who follow stocks have heard both sides of the fence. "BUY NOW!!" "SELL NOW!!!"

Everything needs a correction once in a while. Housing is just a long drawn out process due to many factors.

Oh Wow! I try to forget the days of stagflation and 18% interest rates. Nasty times. My mom was so funny about those days...grousing about why she could no longer get 13% on her CD's and forgetting about the inflation part.

I think the gloom and doomers are nervous because our economy is so tied to consumer spending. What's the figure? 70% of GDP...so if a large chunk of US consumers were spending more than they were making and using home equity to do so, an erosion in housing values could cause them to stop spending. Goodbye consumer confidence, Hello recession.

Plus, the way housing has been financed is a Brave New World of Risk Management turbo-charged by Wall Street. The unintended consequences could be very painful.

We'll see.

You will find other interesting comments about this subject at Tricia's post titled "The Fed Cuts Big Time!"