Crash Market Stocks - Financial Tips On Making Money In The Stock Market

On September 18, 2008, it was leaked to the media that The Fed was in motion to put together a plan to come to the rescue of the some odd hundreds of billions of dollars out there in debt to be foreclosed on. The news resulted in the stock market making about an 800 point swing into the green, which it greatly needed after the beginning of what was going to be the worst week in Wall Street history. Today, the market remained optimistic by ending today well into the green. Is the beginning of the end of the crisis? My guess is, NO!

What is the greatest lesson we learn in our economics classes of why the banks failed during the Great Depression? It was because of the lack of confidence from consumers. The Fed has done a great job of slowing the pain by stepping in during critical times, as we saw with the Fannie and Freddie takeover, bailing out AIG, and now looking to rescue the rest. We began this week by what looked to be the beginning of the worst week we've seen in the stock market. If it were not for this news, we could have seen devastating losses, which were on the week of option expiration. We could have seen up to 3 more banks do what Lehman did last week.

This surely would have destroyed all confidence of consumers fueling this recession into even a worse state. The announcement saved us, for now. Looking at the numbers today, I do not see how The Fed will be able to embark on such a task it has laid out to do. Plus, I'm not so sure congress will be optimistic to move the risk of these failed loans from the banks to the taxpayers, who are you and I. Either way, this does not mean our economic woes are finished.

Strategist say that even if the Fed pull this off, they don't see the housing market reaching the bottom until late next year and 10-30% lower in prices. However, The Fed is determined to have something to send to congress by as early as next week in hopes to "juke" America away from all the financial hurricanes we have been faced with.

Take this news with what it seems to be. A temporary relief from a battle in the financial sector. Consider taking out a line of credit on your house to use as an emergency fund for then next 2 years. Access to equity will most likely get more difficult in the near future. Next week will tell a lot of how the market accepts this announcement long term.

By definition, recession means "a contraction phase of the business cycle." Although, in early stages, most economists dodged that word by saying we were a "slowing economy," I am pretty sure that all agree that the recession is here. The plan is to hopefully put it off until the economy is back on the upswing and we can look back and call the time a recession. No one likes to admit that we are currently in one. However, I believe if you can recognize it, prepare for it, you can come out of it more successful than you are today.

Signs of the Times
We first began to feel the heat on the economy when the sub prime market fell out in early 2007. This began a ripple effect which halted the purchasing of new homes, then lead to a surplus of houses on the market, then leading to a decline housing prices throughout the country. This resulted in new housing projects to be put on hold or cancelled.

Losing equity in your house is usually the biggest influence on a person's disposable income. Hey, you've always got your house, right? When you've lost 30-50% value in your house in 2 years, you tend to tighten the belt a bit. National retailers banked on new growth areas and a booming economy to sell their inventory which they pay for after they sell.

As a result, we have retailers like Linen's & Things, Starbucks, Circuit City, Mervyn's and many more, who then make the decision to either file for Chapter 7, or close several stores to prevent bankruptcy. In 2007, commercial real estate owners should have realized it was only a matter of time until the same problems that plagued the residential market would eventually come to the commercial side. What is that problem? No Lenders.


CMBS Market
From 2000 to 2005, CMBS financing became very popular by offering new financing terms that had never been seen. CMBS can be explained by taking a group of different loans and packaging them into a bond rating (ie AAA, BBB) depending on their strength of credit. These rated bonds would then be traded on wall street and sold to investors depending on their credit rating. This in turn allowing lenders to provide very competitive interest rates and terms.

However, the underwriting standards became sloppy and banks were being loose with their lending. This in turn led to the eventual collapse of the CMBS market all together. In short, the banks were lending out AAA money to CCC properties which artificially pushed property prices into the roof. Buying buildings for $400 per foot in secondary and tertiary markets was unheard of. It became a reality.

It was only a matter of time until this bubble popped. Now with the turmoil of the banks (Lehman Brothers, Freddie and Fannie, AIG), this has stepped up the crisis one more notch. Not too mention the oil crisis, weak dollar, inflation, commodity scarcity due to global economy, and the upcoming election. All of these elements combine to provide the vehicle into maybe one of the worst economical positions the US has seen since the Great Depression.

Goal Of This Site
Knowing the signs, you can prepare for the worst, but hope for the best. Living within your means is the key. In this site, I will provide the tools, warnings, strategies, and vehicles that have helped me to weather these storms. Living in a land that promotes "free economy," we must live with a Cyclical Economy. There is no way around it. The goal is to know when the cycles are coming and change our lives accordingly.