I Give Up. We're All Doomed.

Man, did I get some grief for an article I wrote recently.

As you'll see if you click through and read it, my point was pretty simple. In a nutshell: There are good stocks that have been beaten up with the rest of the market. If you want to sell the stocks you have and get into better position for the eventual recovery -- and maybe make some money in the near term via dividends -- now's an excellent time to do that, before big-pocketed bargain hunters start pushing prices on the best businesses back up again.

I didn't think that was a particularly controversial idea.

But geez, from the emails I got, you'd think we were having some sort of global economic panic or something. Apparently, now is a terrible time to buy because it could get worse and the market might go down further!

I won't argue with either of those things -- they're both true. But as objections to doing any investing at all … I think that's panic talking. Here's why.

Yes, it could get a lot worse
It is certainly true that things could get even worse from here. One or more of the U.S. automakers could collapse, which would cause great pain for everyone from commodities shippers to "Tier 1" suppliers like Goodyear Tire & Rubber and Johnson Controls.

Mighty institutions, foundations of the American economy, seem to be in danger. Dark rumors and signs of doom stalk General Electric (NYSE: GE  ) . Citigroup … I don't need to tell you about them. Even Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , the very model of a triple-A rated credit for so many years, has come under intense selling pressure on worries about an option transaction -- worries that are unjustified, says Fool analyst Alex Dumortier, and I agree.

But there's still plenty to worry about.

Yes, the market could go significantly lower
It could. A sober-minded analyst I greatly respect thinks that the S&P's ultimate bottom could be around 600 -- another 25% down from here -- if certain factors in the economy break in particular ways. Maybe even lower.

That would be ugly. But here's the thing: This isn't going to last forever.

Really. It isn't.

Some of my emailers seem to think that things are going to get worse and worse (or at least no better) for 10 or 20 years or more. But the stock market isn't going to go to zero, the U.S. government isn't going to collapse, and -- while I won't be surprised if its current rally flips at some point -- the dollar isn't going the way of the post-World-War-I German mark.

But the perennial doomsayers who insist that America and the dollar are doomed unless we greatly increase manufacturing and exporting to "pay" for our "consumption" miss something huge: America is already a major exporter -- of ideas.

Why we're not going down the tubes
Companies in several Asian countries make components for iPods and iPhones, but the design, the innovation, the idea for the thing in the first place came from -- and the lion's share of the profits return to -- Apple (Nasdaq: AAPL  ) headquarters.

Which is in California. And those profits are in dollars.

Sure, many cell phone makers are headquartered outside of the U.S., and their profits return to Korea or Finland or wherever. But consider the global giants whose ideas drive other industries, and whose money is ultimately counted in dollars -- Microsoft (Nasdaq: MSFT  ) , Dell, Pfizer (NYSE: PFE  ) , even troubled Ford, which remains a significant and successful player in European and Latin American markets. How about all of the global revenue generated by the ideas owned by, say, Lucasfilm or Marvel Entertainment (NYSE: MVL  ) ? All those earnings come home to America. 

You get the idea. American innovation isn't the one and only "motor of the world" as it arguably once was, but it's still an enormous driver of global business. And I firmly believe that the ideas born of that innovation are products of America's unique culture -- and will reassert themselves in years to come.

It's a recession. It's bad, and it could get a lot worse. But it will pass. The markets will rise again. And when they do, the stocks you buy at discounted prices now will bring you a lot of dollars, too.

If you'd like some help with your search for the best values in today's roiled markets, the Fool's Inside Value team is on the case with up-to-the-minute recommendations and commentary. You can check out their latest ideas for new money now at no charge with a no-obligation 30-day trial.

Fool contributor John Rosevear owns shares of Apple. Dell and Berkshire Hathaway are Motley Fool Inside Value recommendations. Marvel Entertainment, Berkshire Hathaway, and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Pfizer and Berkshire Hathaway. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (20) | Recommend This Article (56)

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  • Report this Comment On November 24, 2008, at 2:14 PM, Mortgagee wrote:

    It's great to be optimistic but who is going to step up and buy the TRILLIONS of dollars of T-Bonds needed to finance all of this government intervention? If you don't think that this can go the way of the post WW1 German Mark then please who will be buying these TRILLIONS of dollars of new bonds because if they can't sell them the only way to meet obligations will be to print currency causing a collapse of the dollar.

    Sooner or later Asia and the oil producers will tire of funding our lifestyles by buying 0 to 3.5% debt and when that happens we're in for a very rude awakening.

  • Report this Comment On November 24, 2008, at 5:26 PM, asg749d wrote:

    Well, you got the grief because you are an easy target. With all the emotions flaring right now due to current market conditions, people react to your comments not because they don't make sense, but because it reminds them of what is causing them so much anxiety and sleepless nights....it is just a reaction...

  • Report this Comment On November 24, 2008, at 5:48 PM, Tygered wrote:

    I'm a buyer these days, not a big pocketed buyer, but none the less I have faith in the market going back up and I want to be along for the ride. I'm buying every month.

    Besides, it's way too damn late to sell now and hide what's left of my portfolio under the mattress. The best way to make back what I've lost and even more after that is to buy as much as I can of good companies now and just hang in there.

    I for one applaud your article. I know these are scary times. I'm sure scared, but I truly believe we should be buyers and holders now while the fire sale continues.

  • Report this Comment On November 24, 2008, at 6:55 PM, dividendgrowth wrote:

    Those who whine about our national debt forget that other governments are even better at printing money.

  • Report this Comment On November 24, 2008, at 8:31 PM, GoNuke wrote:

    It is a common misconception that the largest costs associated with manufacturing is the actual making of the product. Indeed most of the cost is incurred in the inventing/developing of the necessary technology, designing the product in light of consumer/customer needs or desires, financing production and selling the product. In my industry direct labour costs were about 15% of the selling price of the product.

    The US is a major source of the most expensive "product" -knowledge. It is also a manufacturer of high tech or complex products where a well educated workforce is required. Low end manufacturing will return to the US but it will be carried out by robots.

    People need to understand that the national debt is meaningless unless it is compared to the GNP. Debt as a percentage of GNP is the critical measure. It is a little like a debt to equity ratio. If there is a massive recession/depression then GDP will go down and the debt/GDP will go up without a nickel in new government debt. The GDP is what you use to pay down the debt. That is why you must always consider how borrowing will affect the GDP. A fiscal stimulus package -using borrowed money, that averts a major recession may actually reduce the debt/GNP ratio over what it might have been if the severe recession had been allowed to occur.

    With respect to whining -the US taxpayer pays less tax than any other first world taxpayer. Once the economy is stabilized there is plenty of room for tax increases that will serve to pay down the debt. Republicans have criticized the Democrats for years as being "tax and spend liberals". During the same era the Republicans have been "borrow and spend opportunists". Every Republican era tax cut has led to increased debt. Since the end of World War II the average Republican president has increased the national debt/GDP by 9% whereas the average Democratic president has raised the debt/GDP by less than 5%. Bill Clinton left George Bush with a national debt/GDP of less than 60%. Before the bailouts the debt/GDP had risen to 70% under the Bush administration. Bush cut taxes and the economy grew; therefore tax cuts lead to economic growth. The same nonsense was spouted by the Reagan Republicans. Both the Bushes and Reagan borrowed far more money than they lost to tax cuts. Reaganomics was not conservative at all. He borrowed lots of money and pumped it into the economy while lowering taxes. It was the new debt that led to the apparent economic growth not the tax cuts.

    Americans have been living in a fantasy world for many years with respect to taxation. The main beneficiaries of the tax cuts have been the very people who benefited most from the economy pumped up by debt. I expect the Democrats will use debt to stimulate that part of the economy that pays taxes.

  • Report this Comment On November 24, 2008, at 10:40 PM, 123go100 wrote:

    so i guess now is the time to fix social security. the feds have given monies to some of the most poorly manged companies in the country. so therefore it seems like a good time to fix this problem without the government having to admit they gave it,the ss trust fund, away on their pet projects. whats a couple more trillions --feds borrowing from feds to cover the feds thanks to usa taxpayer.

  • Report this Comment On November 25, 2008, at 3:00 AM, Alwaysgolong wrote:

    I'm DCA'ing into this mess for the long term. Playing the volatility for short term gains. November has been a great month for me.

    I am keeping my shotgun clean, in case I need it later to put food on the table. :)

  • Report this Comment On November 25, 2008, at 6:56 AM, TMFMarlowe wrote:

    Mortgagee, they will find a market -- though maybe not at the current ultra-low rates -- because of the case I outlined above.

    asg749d, agreed. I feel an obligation to say "don't panic" in as many ways as I can these days, so that's what I'm doing.

    Tygered, I'm DCAing into some long-term long positions too. Thanks for stopping by.

    dividendgrowth, indeed, though a race to the bottom on that front wouldn't benefit anyone except gold bugs, I'm afraid.

    GoNuke, good points, thanks.

    123go100, big changes will certainly be floated soon. We'll see.

    Alwaysgolong, I'm right with you.

    Thanks to all for stopping by.

    John

  • Report this Comment On November 25, 2008, at 12:59 PM, Brad8888 wrote:

    Please feel free to comment on and discuss the following economic bailout proposal. I look forward to your opinions!

    First, I am a small business owner with a bachelors degree in economics. I also consider myself to be conservative with libertarian leanings. I would like to submit the following proposal for consideration:

    Why not stimulate consumption by encouraging people and businesses to buy vehicles? Use the government bailout money to give "rebates" to the end purchasers of the vehicles. For $25 billion, a rebate of $5,000 per vehicle could be given to the first 5 million vehicles sold.

    Recognizing that a lot of people need to buy cheaper vehicles, this money could be used to make the monthly payments for the first year to two years on the purchased vehicles, or to reduce the purchase price from the final negotiated level.

    Another option could be to allow people to take the rebate money in the form of a check. Then, people would be able to use the money in the way most beneficial to them.

    This stimulus could actually be a tax windfall to the nation due to the large increase in economic activity that would occur throughout the nation. If you assume an average vehicle purchase price of $20,000, and that 50% of the purchases would not have occurred without the rebate, the initial increase in vehicle sales of 2.5 million units at $50 billion. The additional flow of this money through the economy is normally around 5 circulations prior to the flow stopping. That would be another $250 billion in economic activity, for a total of $300 billion, prior to the spending of the rebates by those who choose not to put the money towards the vehicles.

    If half of ALL 5 million vehicle purchasers spend on things other than their vehicles, that additional 2.5 million people times $5,000 equals an additional $12.5 billion on an initial basis. Given the same 5 additional circulations through the economy, the additional stimulus from this spending would be $62.5 billion, for a total of $75 billion just from the rebates.

    The total of all of the economic activity that could be generated would be around $375 billion. If you assume that 33% of all of this activity is taxable wages or profit, that would mean that tax roles would increase by $125 billion. Assuming a 20% tax rate on this amount, the tax generated would end up being $25 Billion! The government would be "paid back" the stimulus money it spent!

    Additionally, these companies likely would actually show profit, as well as many others. The stock prices of many companies would jump, and overall the stock market would recover, thereby allowing more people to invest in real estate due to having more money available for downpayments. Housing construction then picks back up and we are better off than we have been for several years!

    Obviously, there are many assumptions in this post. I do believe, until ANY significant stimulus actually reaches the end consumers of goods and services, that we will continue the downward spiral that we are currently suffering. Please feel free to pigeonhole this idea as much as you like. I am hopeful that if this type of discussion continues that someone who has actual influence might somehow get reached with this type of plan, as opposed to simply prolonging the current environment by just plugging the holes in the financial dam by stopping imminent defaults and failures.

  • Report this Comment On November 25, 2008, at 1:11 PM, XMFHRFool wrote:

    Flex-fuel, hybrid plug-in vehicles so that we also reduce our petroleum dependence. That might force the manufacturers to actually make them.

  • Report this Comment On November 25, 2008, at 1:28 PM, TMFMarlowe wrote:

    You don't need to "force the manufacturers", you just need to give them a couple more years to develop them. They're working as fast as they can, believe me -- the first-to-market in that space will reap enormous benefits. Technology doesn't magically happen. Just because some guy in a garage somewhere can cobble one up doesn't mean that it can be manufactured on an industrial scale or pass global standards for reliability and durability and safety.

  • Report this Comment On November 25, 2008, at 1:33 PM, Picardums wrote:

    Brad888 I think if we just encourage the sales of current automobiles we encourage business-as-usual. We'll perpetuate the cycle that has brought the "Big Three" where they are today.

  • Report this Comment On November 25, 2008, at 1:36 PM, XMFHRFool wrote:

    According to Anne Korin, co-director of the Institute for the Analysis of Global Security (IAGS)

    - Flex fuel vehicles can run on any combination of gasoline, ethanol or methanol

    - 90% of cars sold in Brazil in 2008 are flex fuel vehicles

    - All cars that General Motors will sell in Brazil in 2008 will be flex fuel vehicles

    - It cost an automaker $100 more to make a flex fuel vehicle than one that runs only on gas

  • Report this Comment On November 25, 2008, at 4:46 PM, TMFMarlowe wrote:

    "Flex-fuel" is not the same as "flex-fuel, plug-in hybrid", which is what I thought you meant. Go tell Anne Korin that lots of FFVs are already available in the US, including a big selection from all three US automakers: http://www.e85fuel.com/e85101/flexfuelvehicles.php

    The sticking point isn't getting the carmakers to make them, it's having something that isn't gas (or corn ethanol) to put into them.

  • Report this Comment On November 25, 2008, at 9:34 PM, 123go100 wrote:

    before u go giving people monies for cars u better first fix the roads and bridges that we drive on. and before u do that, u should first fix the water and sewers of our small and large cities. no new subdivisions-- get our cities going again. fixing them first will get people working again making the parts ,pipes and etc needed for the sewer and water crews to put in place. that in turn puts monies in the pockets of people to again start buying your new cars and etc. it always starts at the bottom and goes up. common sense shows it works that way. the lack of cs at the top fed spots gives us the mess we have today.

  • Report this Comment On November 26, 2008, at 3:45 PM, TMFEldrehad wrote:

    I have, for many years, believed that in the competitive global marketplace the chief competitive advantage that the U.S. economy has can be summed up in one word...

    Innovation.

    Excellent article John.

  • Report this Comment On November 27, 2008, at 11:22 AM, ARJTurgot wrote:

    PEG on the S&P 500 was 1.1 yesterday. Stunning that to head into a fair-value range we had to drop 40%, but so it goes.

    Recovering that 40% while staying close to a fair-value range is going to require changes. I'm not sure what we have left that generates enough earnings to do that, but this country and its economy will come up with something.

    Bet on it.

  • Report this Comment On November 28, 2008, at 4:51 PM, baksheesh wrote:

    When will the Chinese stimulus plan give the bounce back to Chinese solar?

  • Report this Comment On November 28, 2008, at 9:45 PM, hungry4food wrote:

    should The UAW buy the big 3 auto companies and run the business as a Employee owned Franchise ????????

  • Report this Comment On November 30, 2008, at 5:28 PM, frigger wrote:

    Unfortunately, it is our "ideas" in finance and financial marketing, lacking in transparency and ethical principles, which are now discredited in the global and domestic community. The three "Rs" for salvation of the United States are Repent, Repair and Repatriate.

    Repent for waging war and selling Ponzi scheme financials;

    Repair our financial integrity and infrastructure

    Repatriate our soldiers by bringing them home and our labor by bring it back our shores to make something legitimate to sell.

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