Some Sunshine

The last several posts have probably painted a fairly bad picture of the markets, and indeed if you've watched the stock market over the past three weeks or so, it has been extremely volatile. But, there are reasons not to be too concerned (and I, in fact, am not overly concerned):

1. The global economy has never been so strong. There are always risks (including environmental collapse in China among other things), but all things considered, things are really good out there.
2. American profits have been at record levels as a percentage of GDP.
3. The economy is stronger than many thought. The second quarter's GDP was revised up to 4.8%, which is a great rate of growth. I think everyone would be thrilled with a consistent 3.5%.
4. Only a fraction of 1% of all homes have a subprime mortgage attached to them. Heck, about one in three homes is owned outright.
5. We are not yet witnessing a collapse in asset values, the housing prices around the country have been coming down, and inventory is certainly building up, but prices have only dropped marginally. For instance, in Orlando prices have recently begun to tick down a few thousand dollars, but over the last five years, prices are still up about 95%.
6. The Federal reserve bank seems determined not to let a panic set in for the commercial paper markets, but rightly, I think, they also seem determined not to bail out people who made poor decisions.
7. People aren't stupid, and therefore people are getting out of their adjustable rate mortgages that are resetting to higher interest rates for a fixed 30-year mortgage, which a qualified buyer can still get for around a 6.5% interest rate - which really isn't bad.
   

This whole scenario might just be one of those great "walls of worry" that disciplined investors hope for. And, hey, you might end up being able to buy that vacation home you've always wanted on the cheap if prices do drop.