I get letters, emails and tweets every single day from your fellow investors, and I’ve noticed a recurring theme that’s become very worrisome. It appears that many people believe that America’s greatness cannot be revived and that individuals can’t accomplish their dreams.
As many of you already know, my mission is to tear down that way of thinking. Yes, the American dream has been lost in some ways, but it’s still anything but dead.
And that’s why I wanted to get in touch today.
Here’s an example of what I’m talking about: A few days ago, I received an email from one of the viewers of my Fox Business show, Making Money with Charles Payne, who is worried about the sustainability of U.S. banks in the face of a Federal Reserve rate hike. She has cashed out of the market and is concerned that her savings may not be safe in the bank.
I understand the caution here, especially for folks reaching their golden years who have their cash in savings and a 401(k), but this is the perfect opportunity for me to hammer home a message I’ve been driving at since the market began to wobble with uncertainty…
Now is not the time to panic.
Between high taxes, an overwhelming amount of regulations and an ever-growing national debt (that’s currently heading toward $20 trillion), too many Americans are ready to give up. As a result, people are taking huge losses by prematurely throwing in the towel during the latest crash and missing out on the inevitable rebound.
Yes, interest rates will go up-it’s just a matter of when. But keep in mind that the move higher will be from record low levels in the aftermath of extraordinary measures. Those measures haven’t really helped Main Street unless you count spiking student and auto loans.
The better measure for the Fed’s handiwork and Main Street are credit card and home equity lines of credit. People are smart or snake-bitten or both when it comes to spending money they don’t have. Our collective credit card debt is still significantly below the peak ahead of the start of the Great Recession.
We are no longer using our homes as piggy banks, and that’s a huge statement considering we’ve been at zero percent interest rates. What this all boils down to is households aren’t confident enough to max out the cards or take a loan to build out the home deck and kitchen.
It’s called the virtuous cycle. The only problem is the virtuous cycle has been anything but virtuous. Consumers aren’t spending because their paychecks have been in neutral or drifting lower so business owners haven’t hiring.
That’s a decidedly un-virtuous cycle.
But First, the Crash
I know you’re hearing about market crashes from a variety of mavens, booksellers, shorts and curmudgeons and you’ve thrown in the towel. Remember, this is not the same kind of market that existed in 2000 and 2008, even though this has been a most disappointing rebound. So there has always been a disconnect between the rally and the U.S. economy. You’ve been skittish and the market has been insane.
We’ve been worried about Chinese stocks, worried about oil prices, worried that the market’s abrupt reversal. (Of course the notion of the stock market going down shouldn’t be a shock or news, although flash crashes are a problem for everyone.)
Corrections that become bear markets are often a self-fulfilling prophecy, because although the market ostensibly stands on a strong foundation, that cognitive dissonance is driving those who play in the market to both think and act irrationally.
Everyone wants to point fingers, hoping to pin the blame on the strong dollar or interest rates. But the fact of the matter is that there are always factors dragging on the market.
I’m looking for some wild knee-jerk reactions to last week’s FOMC meeting and then looking for the start of a year-end rally.
Don’t Throw in the Towel Yet… There’s Still Time to Make $$$
The bottom line is this: Your money is safe in the bank, but at some point you must get at least some of your money back into the market. Keeping all of your money in stocks can be a risky idea, but if you are truly concerned about your financial prospects, hoarding your cash under your pillow is sure to fail if you want golden years in your golden years.
You don’t want to just work hard for your money—you want your money to work hard for you, too.
