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8:30 AM EST Thursday, January 10, 2008: The best news is that all of this will pass. All preceding financial crises have. The bad news is that there will be more bad news. What started as bum subprime loans has now morphed into a full-blown bank credit crisis. Loans by banks are the oil that lubricates the economy, keeps its wheels turning. Without that oil, the gears will grind to a halt, factories won't be built, buildings won't be constructed, people will lose their jobs, etc. All previous financial crises were finite -- we knew how much Mexico needed to right itself; we knew how to stem Long Term Capital Management's problem; we knew how save Russia, Latin America and the Asian countries' crises. Finite bundles of money did the trick. Here there is no finite. Losses have been announced but many believe that what we've seen so far is the tip of the iceberg. New capital has been raised by the banks but many believe much more will need to be raised. There is a possibility that several financials may actually fail.

All this is hastening economists' recession predictions. Yesterday Goldman Sachs forecast lackluster first and second quarters in 2008 followed by two negative third and fourth quarters, leading in total to a miserable 0.8% growth in GDP for all of 2008. Economists define recession as two quarters of falling GDP. There are other definitions. The classic one is that when my neighbor loses his job, it's a recession. When I lose my job it's a depression. A lot of people are about to lose their jobs -- Goldman figures unemployment will rise to 6.2% by the end of 2008. It's presently at 5%, which most economists consider full employment.

The worst performing stockmarket sector in 2007 was financials. Many wealthy investors believe that bottom fishing financials now makes huge sense. Many have approached their financial advisors for confirmation of their (the investors') brilliance. These requests caused one big investment banker to hold a conference call yesterday addressing the one big question: "Is now the right time to buy financials?" The answer, after an hour of rigorous analysis was a resounding NO. Or, to put it in Wall Street-speak, "The balance of risk has us waiting for a more compelling entry point."

The key problem is "lack of visibility." That's Wall Street-speak for "we don't know how much the banks have lost on subprime lending, nor do we know how much they're about to lose on credit cards. With housing in the shitter (a technical term) and jobs evaporating, the consumer is suffering a rough ride and it's spreading. To wit, to quote Cnet,

AT&T's stock took a hit Tuesday after the company's CEO told investors that a weak economy is hurting the company's landline and broadband business. Randall Stephenson, AT&T's CEO, said Tuesday during a Citigroup investor conference that the company was forced to cut off some of its broadband and landline customers in the consumer segment in the fourth quarter because they were not able to pay their bills. The news shook investors, and the stock dipped $1.87, or 4.5 percent, to $39.16 per share at the closing bell.

Stephenson was responding to a question posed by an analyst who asked whether the weak economy had affected AT&T's business. And essentially Stephenson, said yes it had. "We're really experiencing some softness on the consumer side of the house from the economy," Stephenson said.

In short, you can expect more bad news, from financials (Capital One cut its 2007 earnings forecast this morning) and more bad news from others, like companies selling pricey technology.

Stockmarkets detest uncertainty. It would rather know bad news, no matter how horrible, than live in the uncertainty of more, undefined bad news coming.

There was one good news yesterday. The Dow bounced 146 points, crossing back over its support line, stemming technical analysts' extreme fears for now. I don't personally place much faith in yesterday's bounce. All bear markets are characterized by occasional violent daily bounces. Here is an update of yesterday's chart.

As I've said to the point of hoarseness, I don't like this market. You should only be in it under two circumstances:

1. Shorting stocks, like financials or highly-priced technology stocks.

2. Owning individual stocks that have something special going for them -- e.g. an upcoming FDA approval.

For now, your involvement in the stockmarket should be minimal to none. You should be accumulating piles of cash. Remember:

+ Cash is king.

+ When in doubt, stay out.

+ Start a new business. It's easy to hire people, but hard to raise money.

+ Focus on the kids.

+ Go play tennis (or even golf). Take a six month vacation.

What about your short-term cash? I talked about short-term muni bond floaters. I received this email from reader, Don Verlench, who sent me an email he received from his son-in-law:

After selling MNG and finally having some cash for once, I log on to tdameritrade to see what interest rate I'm getting. According to the site, it's a whopping .2%...yes as in 2/10's of a percent! Then I check the margin rates: for borrowing $20k, I get to pay tdameritrade a whopping 10%!

So let me get this straight, they can use my cash and pay me .2%, but when I borrow their cash it's 10%??? wtf!

I get ticked and start checking around. I came across a relatively new online broker based in Chicago called OptionsXpress. They have a lot of positive press, and they pay 3% on cash and charge 7-8% for margin.

So before I liquidate my account, I give tdameritrade a chance at keeping my business. Well after 20 minutes on the phone and two different account reps, they offer me 4.5% interest on any cash I have sitting, along with 8% on margin!! I felt like I was dealing with used car guys but it just amazed me how much their "policy" changes when you negotiate!

So the morale of the story is: you don't get what you deserve, you get what you negotiate!

By the way, I just checked and the money markets are not FDIC insured. So I could potentially lose money if these things are invested in the toxic underworld of subprime debt.

Ah. ah. Now you see "the problem." No one any longer trusts what they're invested in. You don't. I don't. The banks don't. Without trust, things are grinding to a halt. That's not good.

Want to see a real productivity improvement? Check out the digital X-ray at your dentist. You stick this thingee in your mouth. They click a button and instantly your dentist's computer screen pops up with an image of your defective teeth. It's magic. It's fast and it exposes you to 70% less x-ray. Your dentist no longer uses chemicals to process the images of your defects. Three dentists eyed my x-ray of my offending teeth and (if I may use a bad analogy) were chomping at the bit.

I asked, "Is my mouth a disaster?"

They pondered my question and one answered, "No, Harry. It's an annuity."

Soon it will be tax-time.
Moishe, the owner of a small Kosher New York deli, was being questioned by an IRS agent about his tax return. He had reported a net profit of $80,000 for the year.

Why don't you people leave me alone?' the deli owner said. 'I work like a dog, everyone in my family helps out, the place is only closed three days a year. And you want to know how I made $80,000?'

'It's not your income that bothers us," the agent said. "It's these travel deductions. You listed ten trips to Israel for you and your wife."

'Oh, that?," the owner said smiling. "Well... we also deliver."

The high cost of health care
Two immigrants meet on the street.

'How's by you?' asks one.

'Could be worse. And you?'

'Surviving. But I have been sick. It's costing me a fortune. Why, in the past month, I've spent over $10,000 on doctors and medicine.'

'Ach, back home on that kind of money, you could be sick for two years."

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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