In order to prosper in your financial life and get through this economic environment with the greatest peace of mind, you must rid yourself of any short-sighted thinking that may negatively impact your financial life. 

Every major downturn has its own unique characteristics.  This frightens investors into making the wrong decision at the wrong time.  For example, over the past 18 months I’ve witnessed investors dump their stock market holdings regardless of how well-managed the companies might be.  

A classic short-sighted decision.    

“But Roland,” you say. “Shouldn’t you move more of your money over to cash until you know the market recovery has arrived?  Isn’t that the safe thing to do for now.”

Nope, and here’s why:  For 95 years now the Federal Reserve has destroyed the buying power of our dollars.  With the massive amount of money that’s been created in recent months, I expect inflation to continue being the dominant, long-term trend throughout my lifetime. 

Cash is the LAST place I want my long term savings to be.  For more on this see my previous posts on derivatives. 

Knowledgeable investors I know realize that putting money in the bank today that could buy a loaf of bread will one day be given back those same dollars but this time they will only buy a few crumbs after inflation has taken its share.   

See, there is a difference between money and wealth.  Money is just the tool society uses to measure and trade wealth.  The true wealth: businesses, stocks, land, real estate, and precious metals cannot be created without limit; money can. 

My suggestion is that you recognize the difference between the two and if you have not done so already, start dipping a toe into the market by taking money and buy up the abundance of wealth that so many of your peers are ignoring. 

Here’s one last bit of common sense that explains why now is not the time for cash:

FINAL NOTE: I could be wrong but the chance we saw the market bottom back in the early part of March grows by the day.  Don’t get too excited yet because the windbags in Washington could quickly change that with a speech or a new piece of legislation.  But please stay tuned - the remainder of the year will likely be filled with many twists and turns.  

From CATO – Treasury Secretary Tim Geithner seemed to go from zero to hero in one day when the stock market soared on March 23, ostensibly because of his latest plan to help banks unload illiquid securities of uncertain worth.  The Wall Street Journal headline shouted, “Toxic-Asset Plan Sends Stocks Soaring.”

But homebuilder stocks jumped as much as bank stocks, suggesting the same day’s news about a 5.1% jump in existing-home sales deserves much of the credit.  Any remaining credit should go to Fed Chairman Ben Bernanke, not Geithner. 

The rally in financial stocks began after Ben Bernanke’s March 11 speech to the Council on Foreign Relations.  He came out strongly against the nationalization of banks and admitted that the bookkeeping problems of many banks are largely an artifact of foolish federal regulations.  Bernanke said, “capital standards, accounting rules and other regulations have made the financial sector excessively procyclical.”

Until recent headlines gave Geithner undue credit for a one-day rally, the administration officials had correctly insisted such daily moves could be misleading.  Weekly stock market moves, however, are not so easy to brush off.  The administration must learn to respect sustained market reactions to its policy proposals because the loss of stockholder wealth has had a devastation effect on consumers, banks and businesses.

Since last September, the federal government has justified numerous costly and heavy-handed programs by claiming each new intervention would help the banks and restore confidence to financial markets.  The only objective measure of success or failure is the market value of financial stocks.  By that standard, government solutions have been the biggest problems. 

From The Right Perspective:

Russian Prime Minister Vladamir Putin has said the US should take a lesson from the pages of Russian history and not exercise “excessive intervention in economic activity and blind faith in the state’s omnipotence.”

“In the 20th century, the Soviet Union made the state’s role absolute,” Putin said during a speech at the opening ceremony of the World Economic Forum in Davos, Switzerland.  “In the long run, this made the Soviet economy totally uncompetitive.  This lesson cost us dearly.  I am sure nobody wants to see it repeated.”

Sounding more like Barry Goldwater than the former head of the KGB, Putin said, “Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors, and shareholders for their decisions, is being eroded in the last few months.  There is no reason to believe that we can achieve better results by shifting responsibility onto the state.”

Part 2 and Part 3. 

Video used with permission of WOWT Channel 6. 

Take some time and watch John Stossell’s “Bailouts and Bull” that aired on ABC’s 20/20. The first part is shown below with the remaining segments linked further down.

Part 2, Part 3, Part 4, Part 5, and Part 6.

It’s interesting to note that each of the states on the above list is a Right to Work state.

Click here for the full list of unemployment data.

(HT: Carpe Diem) 

Via Michelle Malkin.