[lookout123]

Is it going to crash? That depends on your definition of crash. If you mean people running around making foolish decisions in a panic while watching well known entertainers (who do more entertaining than legitimate financial advising) scream and yell that the sky is falling and they will need to burn their houses down to get their money out...

Yep, we are already there.

If you mean a catastrophic downturn that leads to widescale corporate bankruptcies, bread lines around the block, and a massive flow of newly homeless people asking you for change... Probably not.

A lot of folks bought houses they shouldn't have. Did mortgage brokers assist them in their stupidity? Yep. Were some of the mortgage brokers participating in illegal activities to generate approvals? Yep, a few of them. Is it all just a big scam pulled on unwitting victims? No. Scratch that - HELL NO. If a person could look around and see that rates were at historic lows and they were stretching themselves thin to fit into the biggest ARM payment they could handle, well, maybe they deserve to be taught a very painful lesson. Markets have a very effective way of returning to averages and people never seem to learn. Most of the folks I meet who are seriously pinched because of the rates are the exact same folks who were screaming about the "unexpected" collapse of the tech boom a few years back. Get over it. A fool and his money... you know the rest.

The mortgage problems are big. They'll probably get bigger. We don't have widescale foreclosures ripping the economy apart. We have lenders who made bad decisions and are now sitting outside the risk exposure model that their business plan is built on. In a knee jerk reaction they've decided the response is to not lend. Oops. Now they don't have current fees coming in to generate revenue to keep investors happy. They will look at their books and realize that even though foreclosures are up, it still makes a very small portion of their portfolio, so they will open up loan programs slowly, allowing things to smooth out. It will not be overnight, but it will happen.

Yesterday we actually touched on the official definition of a "market correction", (a drop of 10% or more) but didn't close below that level. We are due. I have been telling everyone for a year to adjust portfolios for the rainy day in the future. It is all about your asset allocation. Those with good allocations didn't sustain large losses when the tech bubble collapsed because they understood the value of diversification. Those same people will ride this out as well. The loss from a missed opportunity is much less expensive than the loss of reaching too far.

One other thing. Turn off the news. These idiot talking heads only report that "The Dow tumbled 140 points today..." They don't explain that the Dow only represents 30 companies or that more importantly that a 140 drop(or rise) today is as insignificant today as a 20 point move fifteen years ago. Talk percentages, not points.

I'm watchful, but not panicky. I'm actually seeing some fantastic values out there too. And remember folks, Bulls make money, Bears make money, Pigs get slaughtered.