Update on this week's market outlook

The big tell this week will be to watch the politicians on the Stimulus package as the markets will react to the politics and what's in the package. It must be bipartisan to enough of a degree to have a positive reaction on Wall Street. Watch for the fear level to rise. This is very necessary to get the politicians back on the same page on the stimulus plan.

UPDATE 12:30pm PST

3 Month Libor rates have risen from a low of 1.09% a few weeks ago to now at 1.23%. Maybe this is a signal that banks have started to lend and want to get something more for the trouble bank to bank.

The economy: Lest we forget how scared we were just a few months ago.

Yes, it hasn't been that long ago when we were having a run on banks and Lehman Bros. went bankrupt, AIG, the insurance giant, also faced failure and we all saw the sky falling. As a matter of fact it was Sept. 15th to be exact. But here we are this morning with a new President who wants to change the politics of the past and get a more bipartisan spirit going in the country and both Party's haven't gotten the message, as the House bill on the stimulus passed with not one single Republican vote. In addition, today the Michigan Consumer Confidence number for January came in at 61.2%, up from a December number of 60.1%. GDP for the 4th Quarter was down 3.8%, the biggest drop in over 25 years and the stock market doesn't know which way to go. It was up at the open about 35 points and now is down 55 points but it is anyone's guess where it is going to wind up today. So what's going on?

In my view, we aren't as afraid as we were back in September and October. Call it the Obama Effect or just fatigue, but there is less fear today than there has been. This is compounding President Obama's effort to get everyone behind the much needed stimulus and may be partially the reason why so many Wall Street Exec's got big bonuses which Obama is all upset about. Would they have dared do this if fear was the dominant emotion. Unfortunately greed returned. In order for president Obama to really get the country behind him in solidarity, there must be a higher degree of fear present than there is today. That means more pain may be needed for all of us.

It certainly would shut the Republicans up, as everyone would be clamoring for President Obama to act, just as they did with President Bush and former Treasury Secretary Paulson and even the Democrats led that fight in a bipartisan way. Again it was the Republicans complaining about Bush's actions and being idealogues rather than offering better suggestions than just let everything fail as that is the Free Enterprise market. If they had done that everything would have been lost and we would have been entering a worldwide Depression instead of a bad recession.

Republicans criticize Obama's, yet to be announced, recovery plan

Has the politic changed in Washington with our new President Obama having taken office? Unfortunately, no, it hasn't. Critics are lining up and speaking of how spending is not the way out of this economic mess. Where were they the last 8 years. It seems to me they need some medicine to help them see the light. I know exactly what is a required in a medicine for this group of skeptics. You see what we have had with Obama has been "hope" and while there have been naysayers these past 2 years on his road to the White House, even within his own Democratic party, there is one cure to their skepticism. What is that medicine? FEAR!

It seems that the "hope" brought in by his election allowed the naysayers to gather strength and now seem to have their voices back. A good dose of fear is due again to get them back in line and to get back onboard to the change needed. When there was a run on the Banks, people were very scared. They hoped even the Bush Administration would do something to fix the problem, anything. Well Paulson and Bernake started to do what they could to stemming the panic. No one was telling them to stop. The naysayers wanted even more done without even thinking about any consequences. We now find ourselves a long way from that moment.

But we do need a dose of FEAR again because we have to marshall now a Nation to do the right thing and to once again "trust" our new leaders and ourselves that, "Yes We Can," do the right thing. I know it's a lot to ask of politicians this "trust" thing. It's a lot to ask of politicians to allow a different way of doing things gain their acceptance. I know it's a lot to ask of politicians to allow a contrary viewpoint by a new President to get their vote, but they must! Fear is our friend right now and is Obama's key ally in this process of change to move swiftly. He needs to allow for it to express itself and then to seize the moment.

When will you know the economy is getting better? A look at the psychology of the current financial storm.

Most individuals and media outlets have been looking at outside factors to give a signal as to which direction we are headed, in the financial and stock markets. When the fact of the matter is, that the information you need to look at, is right in front of you. You see the changes which have taken place since September, have created a loss of trust and confidence in these markets by most Americans. It started with a stock market drop and then a run on Banks, followed up by the greatest intervention by our government since the Great Depression. This will truly be seen by historians as transformational period in our society.

For the past 40-50 years the messages we get from television advertising and newspapers all were focused to tempt us to shop to buy these great things. There was never any focus or messaging about saving. We were encouraged to borrow to finance our shopping. We were told that 70% of our economy depended on the consumer, even though our tax system was based upon our income, not our consumption.

We embraced the psychology of greed along with the underlying fear that if we weren't in the game, we would lose out on our share of the pie. So we thought we could use "OPM" for everything. What is "OPM?" It stands for "Other People's Money." Many a seminar has been conducted these past 20 years by real estate experts with keynote speakers like Donald Trump and others hyping OPM as the way to become rich. The theory was to put as little, to no, cash down as possible, and borrow the remaining balance from the bank to buy property and then rent them out to have a positive cash flow and use "OPM" to own the property. This was the early hype that caught up so many speculators who wanted to get rich quick. The game worked until the banking industry was also caught up in the idea, overextended itself and ultimately created the Sub-prime mess.

You never saw advertising to encourage consumer saving. Just think about how we define ourselves, "Consumers". That should have been a clue if we paid attention to the use of our language. Occasionally, we would hear that we Americans had one of the lowest savings rates in the world. We did hear that Japan had the highest savings rate in the world and often also heard their economy was "stagnant", that was a "bad" thing and they needed to encourage spending.

We have been heading from the psychology of "abundance" these past 40 years to the psychology of "scarcity" now. Fear has gained the upper hand in our society today. We placed our faith in all banking and insurance institutions. We placed our faith in our government and we thought we had proper oversight and regulations to ensure there was no wrongdoing and we blindly followed as individuals, by trusting people we hardly knew, to manage our money for us. We took little to no responsibility for ourselves and thought everything would be fine as everybody was doing the same thing.

Now we just don't trust anyone anymore. We hear of people like Madoff who used Ponzi schemes to bilk Billions from charitable trusts and philanthropists, who thought they were going to make huge gains by investing with Madoff. When you think about this more deeply one comes to the question as to how did smart people make such stupid mistakes? There is an expression, "If it's too good to be true, it most likely isn't true." But these so called smart people never questioned the reality of the basis of the investments and allowed themselves to be swept up by the gains they saw were possible. Greed ruled the day.

So now fear grips the Nation. We are awaiting the unemployment rate numbers today which most likely will show a 7% unemployment and an acceleration in the unemployed. Many are waiting on the sidelines to catch the "bottom" of the stock market so they can get back in and make a killing on the gain, as a once in a generation opportunity. But what if it doesn't come back for a long time?

Trust has been broken and while some may be waiting for any sign the markets will be turning back up soon, the psychology of our Nation doesn't support this scenario happening any time soon. As I stated in the beginning of this post, "When the fact of the matter is that the information you need to look at, is right in front of you." And what is that information? It is how you are feeling! As long as fear grips you, it most likely is gripping others as well. And no change in the stock market is going to convince you to jump back in until you feel more secure and less afraid. The answer is this. You must start with living within your means all the time going forward. If something seems too good to be true, it probably is too good to be true. Buy only what you can pay for with cash or pay off within a very short period of time, like 30 days. Lend a helping hand to others still trying to recover from the loss of wealth and confidence in themselves and start being more trustworthy to others. It is up to all of us to restore confidence in our fellow citizens. We will need to go from exclusively a Consumption society to a more balanced society, where we consume what we can afford and save a portion of our income regularly. We stop living from paycheck to paycheck. We stop getting caught up in instant gratification. Some things are worth waiting for rather than buying something on impulse. We hopefully wouldn't shop for a spouse that way, as it is too important a decision. Would we?

So we will know things are turning around when we individually are feeling more secure. It takes one person at a time to get there, so you be responsible for getting yourself there first and watch others follow. It starts with you!

How can we turn the ship of this economic crisis? Some suggestions.

As a result of the election of Barack Obama, a new day of hope has been realized. Most Democrats, many Independents and some Republicans now are wishing the President-elect all the best and are wiling to get behind his leadership that will help us out of this Financial and economic meltdown. So we all look for leadership. But we must now start to look within, as the Consumer, that's you and me, can either help resolve these problems or contribute to magnifying them. This can happen when we are not aware of how our individual collective decisions or "herd" mentality is at play.

Right now, no matter where I go, I am asked how I am viewing the economy and financial crisis from my client interactions, business associates, neighbors, friends and family. What I see as a common thread is the fact that fear is present to different degrees by individual, but it is there and influencing daily and future decisions. Some are looking at household expenses and tightening their family's financial belt, Some have choices to make in there daily business decisions, which affects spending patterns now and plan changes in the future that all cut back and contribute to a tightening on a National level. This in turn affects a Global economy.

So how can we all help ourselves out of this mess and give the Obama Administration a better chance of success in getting this ship turned in the right direction? First, being aware of what decisions you are making and how they affect you and your family is the first step. Some do need to cut back as they are spending much more than they are earning. But some that have plenty are also cutting back unnecessarily as it is the herd mentality at work, affecting the economic environment additionally. If you make a good salary and have enough to carry you through some tough times, consider continuing with your current habits as if nothing is really wrong. You will be helping some businesses survive, as well as your community, State and Country. If everyone stops spending any money, the entire system will grind to a halt and it will get much worse.

So as we are approaching a dismal holiday for retailers in general, it is important that the Consumer consider the consequences of their actions and think broader about how they can affect things more positively. Those of us who make contributions to Charity at year end need to do it again, especially this year. The most needy among us will need our help. Research into the elimination of disease still needs our help by our donations. It can help reduce medical costs and health insurance. Public radio will still need your donations as will the Museums.

So as we approach our first holiday of Thanksgiving, there is much to be thankful for. A new President, the first African American to be President, and a change from the Bush Administration policy's is surely something to be thankful for. A family where love is present and learning abounds is a blessing. Having a roof over one's head where you don't have to worry about foreclosure, is a blessing. We can make a big difference with our collective actions but we all need to start being aware of how every decision we make or choose to defer has a consequence for the economy and the well being of our Nation. We can make this holiday season better than what most had expected and this would be a great gift to give the Obama Administration. A few gifts are in order this Christmas and if we all do some shopping rather than a total cutback, it will be a wonderful gift to our new President and the Country. Choose wisely!

Collective mindset (herd mentality) and the implications for the economy worldwide

I have been working as an Executive Coach for 35 years and for the past 22 years I have focused on the importance of our mindset in creating the results we want in our lives. For the first 10 years I focused on changing behaviors as a way to create a result, and while it worked short term, it didn't have staying power and was quite labor intensive. Then I learned the power of "mindset", or the power of ones mind.

Today we are facing a collective mindset which has a proclivity towards seeing doom and gloom in our future and is driving us towards that very future. In the 2004 election it was fear that drove our decisions because of the fear promoted by the Bush/Cheney Administration to scare us into voting for another 4 year term for them, as they were the only ones protecting us from another attack. As sheep, many voted their fear and we got another 4 years under their leadership.

We now face the fear of a financial institution collapse and subsequent economic meltdown. This has precipitated runs on banks to withdraw cash, major drops in the stock markets and credit availability nearly at zero probability of getting any.

The collective mindset of fear is at work. How will we collectively get out of this spiral mess and what can you do? And what got us into this mess in the first place? Greed got us here and it is the flip side of the coin of fear. In part that is the answer to get us out of this at an unconscious level. The place where to look for a reversal will be in the stock markets. As stock markets go down precipitously, there is a point where some decide there is a chance to really make some money and they jump in in the final stages of the drop in stock prices, often called "Capitulation". Our stock markets have gone down almost 20%. They are ripe to drop more but there will be a bottom where the first courageous ones jump in and take a risk and buy stock. If the drop is severe enough, there will be a rebound. As the rebound is reported in the media, it should get those who have moved from fear to greed to start buying with a vengeance. The same process happened in the markets after 9/11.

It takes a lot of self confidence and control of ones emotions, to manage to do this as an individual. It is easier to be caught in the actions of a crowd and to go along with the crowd. Most individuals don't believe they really make a difference if they take an action. But the truth is that every individual does make a difference. So the way out of this is NOT to panic, not to wonder what everyone else is doing and follow along. It is best to decide what is right for yourself, being mindful whether you are following a crowd or assessing the situation for yourself.

Here's an example to test yourself. Think back when you made your last purchase in the stock market. Did you make that purchase on a day when the stock you were purchasing was going up or going down? Think about 9/11 and ask yourself did you sell at the first chance you had when the markets were closed for a week or did you buy? Most people Buy when a stock is going up quickly and they sell when a stock is dropping quickly. A select few sell when everyone is buying and buy when everyone is selling. This was the case most recently with Warren Buffet, America's finest financial Guru, when he invested in Goldman Sachs and GE.

We have a chance to influence the future we want. Barack knows that when he says "the change we need comes from the bottom, not the top" or "you are the change you have been waiting for". How can you help immediately. First, decide that the Banking industry is now under control. If you have cash you have withdrawn from your banks, return it to the bank. If we all have faith and we believe our deposits are insured now up to $250,000 from the $100,000 limit in place before the Rescue Plan, then we can help the government help the banks start to lend money again by returning our cash. We can continue to frequent our local restaurants so they don't go out of business and we can plan for a wonderful Christmas. Remember it is the Consumer who controls 2/3rd's of the economy, while the other 1/3rd is controlled by Corporate buying.

Let's ensure that our collective mindset is focused on seeing the future we want, not the future we have inherited. You have the power, as do I. Let's use it collectively for the good of all.

What will be the message contrast between the Republican and Democrats Convention?

The week of the Democratic Party Convention is coming to a close. What take aways did people get from the Convention and how will they differ from what comes out of the Republican Party Convention? Well I for one saw the Democratic party Convention focus is all about "people", specifically the Middle Class and their struggles during the past 8 years of the Bush Administration and their down right focus on the wealthy few, to receive the benefits from their policies.

What do I expect to hear from the Republicans next week? Honestly, I am not sure. But if they follow the previous Republican Party Convention goers and their TV audience, they will put the focus on Barack and attacking everything they can think of about him. They will talk about "money", because that is what is important to them; how much they have, how much they want, less government in our lives and to promote the security of our country from the "evil" ones, through the fears they will conjure up, stating that the Country will be at risk under a Barack Obama Presidency. They will use fear in every form and contrast that to the "hope" of the Obama message.

I might be wrong here but I don't think by much. It is obvious that the Democrats are for uniting people at this historic moment and anniversary of both Martin Luther King speech "I have a dream!" and the three year anniversary of Hurricane Katrina and the abysmal response of the Bush Administration in the aftermath even to this day.