Wow the DOW!

I'm writing this blog post after the DOW has dropped 1300 points over two days. I waited an extra day to comment. Often the day after a big drop, stocks bounce right back. After two days, I'm beginning to wonder if this is a trend. Of course, by the time you read this, the stock market could have risen to new highs.

That's the problem with looking for trigger events. If every time you headed for the hills when the DOW took a tumble, you'd have taken a lot of unscheduled emergency trips for nothing. After a few days you'd have to come back and see if you still had a job. You might get away with that once or twice, but sooner or later you'd be out of work. While the world's financial market didn't collapse, your personal finances soon would.

Then again, what if the market keeps heading down? In spite of all the governmental manipulation, the economy has downturns. Sometimes they aren't too bad. Other times they are catastrophic. Recessions and depressions are pretty much baked into the cake. Nothing goes up forever.

If you are student of History, you've probably studied the Great Depression of the 30s. Most people think it was one horrible day in the markets then everything collapsed. It was actually a lot more complicated than that. There were ups and downs. At times, it looked like the economy was going to recover soon. Only over a period of months did it really sink in that a full blown depression was going on.

Our next depression may be like that. We could ease into a depression with a series of up and down moments of the economy. Months might go by before we admit to the reality of a depression. During the 30s, newspapers never used the word “depression.” Depressing economic news didn't sell papers.

Of course, this isn't the 30s. We live in a digital age where everything is connected and fast. Negative economic shocks could case a feedback loop that quickly locks up the whole system. We just don't know.

The only sure way to be “up in the hills” when an economic collapse happens is to live in them before bad things happen.

-Sixbears