Thursday August 18. DJIA 10,990.58 -419.63 -3.68%, S&P 500 1,140.65 -53.24 -4.46% NASDAQ 2,380.43 -131.05 -5.22%, Oioioioioi !! ………. ?? Old Familiar Patterns or familiar if you only knew! Ecclesiastes 1:9

Thursday August 18. DJIA 10,990.58 -419.63 -3.68%, S&P 500 1,140.65 -53.24 -4.46% NASDAQ 2,380.43 -131.05 -5.22%, Oioioioioi !! ………. ?? Old Familiar Patterns or familiar if you only knew! Ecclesiastes 1:9 King James Version

⁹The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.

This is a tricky thing, because just when everybody else is getting out, is paradoxically, the best time to get (or stay) in. But how do we know what to do. It’s clear in hindsight, but at the time, it looked like all hell was breaking loose. Everybody thought there was worse disaster to come. So how do we know?

A train runs from Los Angeles to New York. In hindsight we know that it got there. In looking forward, we don’t know whether it is going to get there or not. Assuming it got there, we shouldn’t care if it went through Montana or Alabama, through over the Grand Tetons and back down or through the Grand Canyon and back up. We invested to get to New York: so just enjoy the ride. The best time to buy would have been when it was going through the Grand Canyon, but we got scared.  

Instead we got excited (along with everybody else) and listened to everyone else’s advice and bought when it was going over the Grand Tetons. The question really is, “Do we think the train will (eventually) get to New York or not?”

We have a chart of the DJIA since its inception in 1928. We have market figures that go back further than that. Stocks earned close to 10% annual compounded for 100 years. They survived the Great Depression, World War II, the hippies, and Watergate. They have survived financial panics and market crashes that happened on the average of every 8 years for the entire 235 year history of this nation. Every jam we have ever been in, we got out of, because we are where we are now. Wouldn’t it have been nice if we could have identified those periodic low points in the stock market and invested a little bit extra at that time?

Well we could have, so why didn’t we? It was really scary at that time. Everything looked terrible. The problems looked unique and insurmountable, etc.  And now, how do things look? Do we think that this time the problems are unique and uniquely insurmountable?

I was reading some U.S. financial history, and I was amazed. The main problem with winning the Revolutionary War was that the states did not want to pay for it. George Washington was the first Washington lobbyist. Henry Pierpont Morgan personally bailed out the United States from his own funds. The USA has been bankrupt numerous times in the past, because people simply did not want to pay for it.

So what do we see in the government now, with the debt ceiling crisis and the S&P credit downgrade? We are seeing something that has happened many times before: we’re fighting over taxes, the role of government in our society and who has to pay the bills.

But this is not something new! This is old, old hat. This is what we have actually done continuously since the beginning. It is the reason we are not still a colony. The Tea Party is right to fight for their point of view. So are liberals who are trying to build something their way. We’re all right, and we’re all also wrong. But we are still fully within the unique and specially gifted form of government that many have called not a perfect government, just simply the best government that man has so far devised and developed on this earth.

So what if we threatened not to pay our bills? We have been doing that since 1776 and before. Why did Benjamin Franklin go to France? He did not go there to learn French! He went there to borrow money. Japan has been technically bankrupt as a nation numerous times. Their total debt is 235% of GDP (ours is a measly 96%), and they are still kicking our butts. What kind of car do we drive? What brand of stereo do we use. Did we buy a bicycle or a juicer recently? All these items are brought to us by a bankrupt economy overseas, an economy that has half the land of California and 3 times the population and almost no oil or other natural energy resources.

We should not get so down on ourselves. Or better yet, let everyone else get down on us, and we will invest in this economy, saying it’s not perfect, but it may just be temporarily underperforming right now. The government is showing signs of cardiac arrest, but it’s all just a big show. And more than that, it is our classical buying opportunity that we have missed so many times before!

The train is headed for New York but is stuck sight-seeing the bottom of the Grand Canyon. Great, great great! It couldn’t be better! The only problem now is that we don’t have any cash because we did not cash anything out during one of our recent periodic market highs (July 24 DJIA 12,724). But I did not want to sell then because everything seemed great, and it seemed like it would go higher. The best course of action would have been to look at the indicator: when everybody else is saying buy, then sell. Hold it just two weeks, and we are already in the throes of despair. But at least we got some cash! Now watch and wait, the opportunity to buy back in will not last forever.

This is a roller coaster ride: what goes up will go back down, and what goes down will go back up. And it’s funny, isn’t it? Yes, it’s funny in one sense, because we keep forgetting history and seem doomed to repeat it: but let’s just make sure that we’re laughing on the way to the bank this time.