“Dow Below 10,000 For The First Time Since 2004!”
“Dow Below 9,000 For The First Time Since 2003!”
“Dow Tanks Record 800 Points in One Day!”

Do these headlines look familiar?  You can’t go to a news site or watch a news show without seeing it.  The importance of the matter is intensified once the likes of Saturday Night Live and The Daily Show address the worries.  What’s a guy to do?

You could do like CNBC and constantly talk about a crash or their bi-hourly segments of “Is Your Money Safe?“.  Their little glowing logo is worse than the “Fox News Alert” that takes up half the screen to tell you Obama has landed in Topeka, KS to raise the dead kiss babies.  Or you could do like me a smile at the fact that you’re buying your retirement at a huge discount.  This of course means you are still investing with every paycheck.  You haven’t stopped that have you?

What do I mean about a discount?  About this time last year, the Dow Jones Industrial Average, a popular (if mostly useless) representation of the stock market, touched 14,000.  That means twice a month my payroll deductions for retirement were buying in at that level.  Since then the value of the market has tanked about 40%.  Gosh that sounds like a lot.  If you think about it in the light CNBC sheds, you should be throwing yourself (or the nearest mortgage broker) out the window.

But consider for a moment that your payroll deductions for retirement are just a regular expense, like gas or health insurance.  You are simply buying your retirement.  Would you be happy if your gas bill was 40% less?  What about your health insurance being at a 40% discount?  So if you could buy the same retirement you were getting last year for 40% less this year, you’d be pretty stoked.

I could cut my contributions by 40% and still be buying the same amount of assets I was getting last year.  Instead I’m continuing to put the same amount of money in every month; I’m buying more and more shares all the time, at a huge discount.  If I had any spare money to invest, I’d put that in there too.  The market has tanked because of fear.  The old investor maxims of “Buy low, sell high” and “Run into the burning building while everyone is running out” are true right now.  The building is scorched, and prices won’t get much cheaper.

Weakonomist, the market could get worse, where does it all end?  The market cannot sustain this level of pessimism for much longer.  Stocks are devalued for one reason, we’re all scared and don’t know where to put our money.  Walk with me over the past 15 months:

In the spring of 2007, the long awaited gas bubble of the real estate market finally had it’s finger pulled.  The flatulence created a shockwave that has “changed everything”.  The managers of your pension, mutual, hedge, and insurance funds that had money tied up in mortgages sparked a huge sell-off of real estate based investments.  Well they took the cash from those sales and had to put it in something.  With the “falling dollar” and “recession” game of the fall these investors put their money in the solid stuff that traditionally protects them from the losses of traditional investments, commodities.  The oil, natural gas, and golds of the world.  This created one of the fastest bubbles in the history of modern finance.  Oil spiked to almost $150 a barrel and in 6 months tanked (oil went below $80 last week, where’s the news coverage?  No fear, no coverage).  Through regulation and public outcry, the money managers of the world again pulled their funds out of these assets.  Are they going to put their money back in stocks and mortgages?  Hell no that stuff hasn’t been fixed yet.  Where else do they have to put their money?  Basically nowhere.  So it sits in cash and equivalents.  The amount of investable money sitting in cash has spiked hundreds of percents over the last year.  Everyone is sitting on the sidelines, too scared to move.

The end result is a deflation in the value of our stock market, a deflation in the value of goods like oil, and the slowed growth of a struggling economy.  Banks won’t lend money, and people won’t invest the money they got.

Those of us that ignore the daily news, and just thank whatever force it was that created the big boom (call it God for simplicity) that we still have a job, we’re just investing like nothing’s happened.  Something will trigger an influx of money.  It takes 12-18 months to “reset” the market.  But it only takes about 6 months to recover.  Whatever trigger it is that gets people to start lending and using their money again is going to happen, and those of us that continued to buy stocks at a discount over this period of time stand to make a boatload of money.  The trigger is there, all the signs of an overdeflated market are there, it’s only a matter of time before the market leaps forward.  This is the easiest money you’ll ever make.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics.

categories: economics, investing, personal finance