Troy Sandal

My wife and I were talking about the recent low in the Dow Jones Industrial Average this morning when she asked a great question – why aren’t people panicking?  Better yet, why isn’t a 5 year low in the DJIA reason for us to fall into another Great Depression.  My guess is that, as simple minded as I am about the market, that if mortgages are truly the basis for this situation then there’s actually real, hard property underneath the financial problems.  Yes, these mortgages were overrated, overpriced, sold to less than quality buyers and then wrapped up into investment burritos that created a myopia that even the best of bankers cannot see through.  Yet underneath it all there is physical property and that property has value. We own two homes and I feel absolutely confident that they are still of good value now and into the long term.  That makes me thinks that there is truly a hard bottom – right around the basis for all these mortgages and if we go below that basis then there are good deals to be had. As the markets correct, tons of stable and profitable companies are seeing their shares sold off by people who now need to raise capital to offset their losses.  That creates a massive downward pressure – both the sale and the visible act of selling.  So be it, but it will rebound.

The Depression was brought about by people leveraging themselves and the wealth in this country being badly distributed.  Today we have consumers with massive credit card debt, true, but the middle class is huge and at the moment, appears to still have jobs and some savings.  That’s a good thing.  The governments and central banks around the world are all working, in concert at times, to keep this from falling too fast and many great investors such as Warren Buffet are picking up good deals.  That’s another very good thing.  Buffet knows good deals when he sees one and if he is buying then I should be buying, even if my portfolio is now worth 50% of what is was a year ago.  It’s always worse before it gets better but if we’re talking stock prices, it really doesn’t get much better than this.

If you think there’s going to be a panic then there probably will be.  If you think there’s going to be a rebound then there probably will be.  What are you thinking?