Friday, October 16, 2009

Checking on TED

The TED Spread has calmed down. It now sits at about 25 basis points (bps), well below the 100 bps level that triggers alarm in the credit markets, and miles below the 500 basis points that it was a year ago.

I keep hearing people talk about hitting the bottom of this recession, and the bounce back that is happening. Fortunately, here in Austin, Texas, things never got as bad as they did in other parts of the country, like Detroit, or other parts of the world, like Iceland. I guess all economies, like politics, are local. Except when they're global.

As we near the end of the 2009 Atlantic hurricane season, it's hard to know if the storm has blown over, or if we're just sitting in the eye. As I wrote in this post, I keep thinking that confidence has a lot to do with our situation. If people feel like we are in a crisis, we will act like it, which will hasten the crisis, and a vicious circle begins. If we don't, then consumer spending and reasonable saving will continue, and we will avoid, or at least postpone, a crisis.

Either way, there are some fundamental personal risk management strategies we should all consider, such as eliminating all consumer debt, securing a long-term mortgage at a low fixed rate (a great hedge against inflation or hyperinflation), reasonable, though not excessive, cash reserves, retirement funds largely invested in Treasury issued Inflation Protected bonds (TIPS), and perhaps a modest amount in private equities, like stocks. The very best investment, though, is investment in our own personal health and knowledge, so that we can roll with the punches, adapt to whatever becomes the new working environment, and be happy doing it until we keel over, if need be, because there may be no such thing as "retirement" anymore, if the second wave of the storm is lurking.