How Low Will It Go?

As Wall Street in general and by portfolio in particular continue to perform the limbo, I’m left to ask, how low will it go?  The Dow was down 350 points today.  The lowest it has been in two years.  My company’s stock has lost almost eight bucks this week and the weeks not even over yet!  The company stock is down over 50% from what it was this time last year. 

On June 30th the company makes the determination on this year’s employee earned value trust bonus.  This is a bonus the every eligible employee gets.  We all get the same amount.  The bonus is paid in stock and the number of shares distributed is dependent upon the stock price.  As of June 1st the estimated payout was about $3,000.  As of today the estimated payout is near $1,000, and the month is not over yet!

Why is this happening?  Well there was the falling value of the dollar.  There was the home loan crisis.  Now, there is now the gas crisis.  I think that they are all related, this is how I think it works.

For almost eight years now our country has been deficit spending.  These deficits have been fueled by Bush’s tax cuts.  This has led to the devaluation of the dollar.  Through our trade deficit with the Chinese, et. al., we have been propping up our federal budget deficit.  They sell us stuff.  We give them dollars.  They buy our treasury bonds to finance all our debts.

Everything was working fine until last year.  The rising U.S. deficit was still leading to a falling U.S. dollar.  Treasury bonds were no longer as attractive.  Along came mortgage backed securities, so all the equity that was going into treasury bonds bought these securities.  This fueled speculation in and abuse of the home mortgage market and then that market collapsed.  So where was the world’s equity to go?  Commodities, as it turned out.  That is why oil, food, metals and everything else is now costing more.

I have one question to ask of the reader.  It is the same question asked by Ronald Regan, “Are you better off than you were four years ago?”

1 thought on “How Low Will It Go?

Leave a Reply