A global economic meltdown is obviously underway. Sell orders are inundating stock exchanges around the world as people panic sell. Russia, Indonesia and Austria suspended trading to help keep the sell off in check. Of course, no one knows when a turnaround will commence.
I was adamant in my opposition to the U.S. bailout plan. I saw no reason to take bad mortgages and loans off the books of the banks and financial institutions that practiced irresponsible lending and borrowing tactics. I don't want to be on the hook for all these bad decisions.
On the other hand, a few analysts that I respect, John Mauldin in particular, say the government intervention is necessary. They make a case that no government intervention is probably the worse thing. One of his newsletters mentioned the Japan crisis as an example of what happens with no intervention. Japan's markets and real estate never quiet recovered in the last decade. The newsletter points out five steps the government should take to help alleviate the crisis. Mauldin states that no matter which course of action it's going to be expensive. Since no action is far worse and far more expensive than government intervention, it's time we bite the bullet and accept it. To read more go to Mauldin's Outside the Box: Banking Crisis Around the World.
Despite my objections and protests, Congress didn't listen to me and they passed a bailout bill. So the bill passed and I have to accept the fact. Now I can only hope that the government takes prudent and smart action to turn this around. I'm not to confident that will happen. There are some extremely smart and intelligent people who will be overseeing the bailout but I worry that silly rules and bureaucratic mandates will weigh the measures down. I pray that Congress and the President let those they assign to bail us out let them do their jobs.
As I write this I just got a news flash email that the Dow has dropped below 8,000 to open the day. Fear and panic have taken over the market. Me personally I have no reason to sell any of my holdings. The only thing I sold was a portion of my Buffalo Wild Wings (BWLD) on recommendation from an investing newsletter I subscribe to. In fact, I plan on looking for companies that have been wrongly sold off and had their stock pummeled. Now is the right time to buy stocks that have been beaten down for no reason. There are many companies out there that will still turn a profit and provide goods and services people need just for day to day living. I haven't done any valuations yet but a stock that comes to mind is Johnson & Johnson. I'm going to have to read the newsletters and message boards I subscribe to in order to get a feel for what's out there and follow any recommendations that I feel comfortable with.
Another company that I'm looking at is Berkshire Hathaway (BRK-B). Warren Buffett, arguably the greatest investor of all time, isn't selling. He is buying. When Buffett buys, more than likely it's a good buy. He's getting a sweet deal in putting money into Goldman Sachs (GS). For $5 billion Berkshire gets a 10% dividend on the preferred shares it bought along with the option to buy more stock at $115 per share regardless of the actual price of the shares. So Berkshire makes money at anytime the share price goes above the strike price and they decide to buy. For example, if the shares go up to $150, Buffett can then buy them still for $115 and, at least on paper, make a profit of $35 per share. Not to shabby. Of course, the likes of me can't get a deal like that but by investing in Berkshire I can get a piece of the action.
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