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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

No Nightmare on Wall Street

by Ben Stein

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Posted on Thursday, October 25, 2007, 12:00AM

As I write this, the markets are in turmoil. Stocks have fallen considerably since their recent highs. There's growing gloom on Wall Street, and the newspapers are filled with scare stories.

The upshot: Now is the time to buy. Not for tomorrow, not for next month, maybe not for next year. But for the long term, it's absolutely time to buy.

Beware of Doom and Gloom

Here are a few reasons why I think the sky isn't falling:

1. The Fed isn't going to allow the big-money-center banks to fail.

There's such a thing as "too big to fail." If the really big banks in New York start to look genuinely shaky (a farfetched possibility in and of itself), the Federal Reserve has all kinds of tricks up its sleeve.

The Fed can buy assets -- even junky assets -- and replace them with good, solid cash dollars. (Well, pretty good cash dollars.) The Fed's done this before, and can and will do it again. The Fed can also push large banks toward merger, with explicit and implicit promises that it won't let the merged entity fail.

No, the Fed isn't about to allow a rash of big-money-center bank failures -- and in a way, that's a shame. It probably means the fools who run those banks into the ground won't suffer one iota, and they'll get to hold onto their mega-paychecks. But the cost of the failure of these big banks to the nation and to the world would be prohibitive, so they won't be allowed to fail. That, by itself, removes a large element of terror.

2. The merger-and-acquisition business is reviving.

Several very large private equity and public mergers and acquisitions are getting financing, among them First Data and Allison Transmissions. This is requiring higher interest rates than were originally forecast, but they're still getting done when some pundits predicted that the whole M & A flow would dwindle to a trickle.

M & A is a significant prop under Wall Street -- not the biggest prop, but a prop. If it stays even fairly strong, that's a support of the market and a benefit to investors.

More than that, if the spread between low-rated debt used in mergers and acquisitions and risk-free Treasuries remains as low as it is (far below recent highs), it's a sign that the credit markets are nowhere near "frozen," as some papers and commentators would have us believe. If the channels of credit are open -- even if they're not as open as they were a few months ago -- it's a good sign for commerce.

3. The housing sector is being partially offset by a surge in exports.

The housing sector, down drastically from where it was a year and a half ago, is correcting dramatically in part by a surge in exports.

This correction still has miles to go, and exports aren't a big enough portion of the economy to completely offset the losses in housing. But they are an offset, and in a section of the country -- the upper Midwest -- that's really been suffering.

4. Federal and state spending remain extremely strong.

This is an "automatic stabilizer" that keeps a huge segment of the workforce employed and buying products and services. The defense sector is especially strong, alas, and will continue to be very strong for some time to come (maybe for all time to come).

5. There's still a severe labor shortage in almost every area of the nation.

White-collar jobs and sales jobs are going begging in the Southwest, Northwest, Southeast, and Mid-Atlantic states. Only in the upper Midwest is unemployment a real problem.

As a general rule, recessions don't occur in periods of acute labor shortage. Indeed, one indicator of a recession would normally be serious unemployment.

Where the Fun Is

Those are the reasons I don't see a recession brewing. Or, if one is brewing, it doesn't strike me as a long, strong one.

Given that, if the market is pricing stocks as if there'll be a major recession, and pricing financials as if there'll be a collapse in New York, you might do well to buy broad indexes of stocks and indexes of financials.

The road ahead will be bumpy. Fine -- "mama, that's where the fun is," as Bruce Springsteen sang long ago. But if times are better than Wall Street is betting, you may want to bet against Wall Street. They're in it for a day or an hour -- you're in it for life. And you have an immense advantage: You can take advantage of their panic.

They take plenty of advantage of you, so now it's your turn. Buy and hold.

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189 Comments

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  • Yahoo! Finance User - Saturday, November 17, 2007, 2:33PM ET  Report Abuse

    • Overall: 1/5

    Go watch this video and judge for yourself what kind of an expert this clown is. http://www.youtube.com/watch?v=6XtQoZAqjc8

  • Yahoo! Finance User - Thursday, November 15, 2007, 1:32PM ET  Report Abuse

    • Overall: 5/5

    From 1988-1995 I owned 50% Vanguard 500 and 50% Vanguard Small-Cap Index. In 1996, I branched out into 20% 500 Index, 20% Foreign Stock Index, 20% Small Cap Index, 10% Mid-Cap Index, 10% Emerging Markets Index, 10% Real Estate Index, 5% Precious Metals and Mining, and 5% Energy Fund. I rebalance one a year and invest every month according to the above allocation. To say that I have done better than my bearish friends would be, umm, a dramatic understatement. We'll see where I am in 20 years when I plan to retire--young. It's important for you bears to ignore the long-term history of stocks, though, and keep playing your Chicken Little "Sky is Falling" role. It's folks like you that make stuff cheap for me to buy! Thanks!

  • Richard - Monday, November 12, 2007, 5:17PM ET  Report Abuse

    • Overall: 1/5

    Rediculous. I hope Ben re-reads his article in a year's time. Countries that have debt and unfunded liabilities at our level don't get off easily. Folks who stayed in the market back in 1929 eventually made out just fine - somewhere around 1955 or so. How much time do you have to wait it out? Ben, a lot of people are going to listen to you and are going to lose their shirts.

  • RedDog - Sunday, November 11, 2007, 5:24PM ET  Report Abuse

    • Overall: 5/5

    Keep on writing...you are 100% right on.

  • Cindy - Sunday, November 11, 2007, 6:24AM ET  Report Abuse

    • Overall: 5/5

    Great insight. It's time to buy when everyone is panicking. We will all win in the long run. Thanks Ben.

  • Yahoo! Finance User - Friday, November 9, 2007, 8:32PM ET  Report Abuse

    • Overall: 1/5

    LOL, Ben's WS friends must be the ones giving all the 5 stars. They are trying to sell before others.Ben is right, banks can't get out easily. There is still enough to short, I guess. Mama, that's where the money is.

  • Yahoo! Finance User - Friday, November 9, 2007, 12:40PM ET  Report Abuse

    • Overall: 5/5

    buy Citigroup, BofA, etc... while they are at these levels.

  • Yahoo! Finance User - Thursday, November 8, 2007, 3:17AM ET  Report Abuse

    • Overall: 2/5

    Robert Kyosake and Trunk Penelop need to write more.

  • Yahoo! Finance User - Wednesday, November 7, 2007, 1:11AM ET  Report Abuse

    • Overall: 1/5

    Hahahaha."Wall street is in turnmoil" is not a nightmare. "Market is falling sharply" and the author is telling someone else to buy and hold. I think he's referring to buying the Banks that are writing off billions. Get some "Visine".

  • Yahoo! Finance User - Saturday, November 3, 2007, 8:00PM ET  Report Abuse

    • Overall: 2/5

    Greenspan worked for years to lower u.s. currency to boost exports. Over the time most of the manufacturing moved to China. Now you have weak dollar and almost nothing to export.

  • Sonoran84P - Friday, November 2, 2007, 10:08PM ET  Report Abuse

    • Overall: 1/5

    Ben Stein's father was a good economist, but Ben should stick to acting. He was recently on tv telling everyone to buy Merrill-Lynch and the financials. "MER is so cheap they should give it away in cereal boxes". A month later and it's it's $20 lower. You would have lost your shirt. Don't listen to this guy. By the way, he also pushes annuity products which are totally inappropriate for most people.

  • Chuck - Friday, November 2, 2007, 7:37PM ET  Report Abuse

    • Overall: 4/5

    Ben is attempting to tell some highly emotional or down right negative doom and gloomers to not rely on an emotional responce to short term movements in the market. I commend him. Somehow though there will be those he just cannot convince. They love to hate or expect to be beaten down. Doom and Gloom is only for halloween. Approach your portfolio correctly and you don't react to short term events.

  • Charles - Friday, November 2, 2007, 2:26PM ET  Report Abuse

    • Overall: 3/5

    Good article. A reminder to be sane. And to those of you who confuse "lose" and "loose" so frequently that English teachers should never be unemployed again, here's a quick explanation: "Lose" is what happens when you fail to keep control of something, or when you misplace it. It is spelled with ONE "O" and is pronounced "Luuuz". "Loose" can mean either (a) the opposite of tight, or (b) to release something from a contained state - that is, to let something out of one's grasp, to turn something or someone loose. It is spelled with TWO O's and is pronounced "Luus" (with a sort of hiss at the end rather than a hard "z"). Most people make the mistake of writing "loose" when they mean "lose". Those of you rolling your eyes that don't think this matters had better make sure this mistake doesn't appear on your resumes or any other sort of business reports. At least for reputable businesses that pay well (you do want to get paid well, don't you?), spelling still counts.

  • Molly - Friday, November 2, 2007, 1:51PM ET  Report Abuse

    • Overall: 5/5

    If I had followed Mr. Stein's advice over the years I would be quite wealthy. I am just glad I found him now.

  • Yahoo! Finance User - Thursday, November 1, 2007, 10:27PM ET  Report Abuse

    • Overall: 1/5

    It's funny to me how comments below accuse Ben of being both left and right winged. Likewise, the media is blamed for both "doom and gloom" as well as "rose colored glasses" analysis. Guess it depends on your preferred reality. Realtors will always say now is a great time to buy. Seems like Ben's take is the same. History says otherwise. If I buy an overpriced California home today that drops 20% in value next year, now is most certainly not a great time to buy. Same thing for stocks. No one debates the long term inflationary effects on asset prices. Sure, inflation will bail my poor decision out in the long run...if I don't need my investment money sooner. Isn't it smart to ignore the excessive peaks of cycles if you recognize them for what they are? Then again I avoided buying that San Diego, California home the last 4 years. Now I'm going to reap the benefits. Some people think bears are bitter. I'm feeling better and better by the day. I cheer the return of sanity and hard reality. I've got my crosshairs set on 2000-2001 prices which are not far fetched, given the fundamentals. That will have an enormous impact on an overall economy built largely on selling each other homes and mortgages.

  • Dee - Thursday, November 1, 2007, 8:45PM ET  Report Abuse

    • Overall: 1/5

    hey ignorantexposer! get your own material! as for these fools there is no hope!

  • Wilbur - Thursday, November 1, 2007, 7:59PM ET  Report Abuse

    • Overall: 1/5

    BOY DO I HOPE ALL THE STUPID SHEEP FOLLOW THIS LOONS ADVICE! Ben is so lost that only a cosmic event of biblical proportions could fix his problems and rewrite his brain so that it has a clue. Oh yeah and to the coward who wrote that the uneducated american is loosing money, 90 percent of all americans salaries are down from 2001 inflation adjusted levels. only the rich investor class and those in power are increasing their REAL incomes. As for all those other ben stein sheep out there like, hippiness1,darthh8r,wrsexton, and the like. I hope that warm fuzzy feeling that you get deep down on a day like today when the stock market plunges 360 points you dont mistake that for the shaft that ben is sticking you with so that he can pad his pockets at your expense. Keep in line sheep.... Baaaaaa.... stupid sheep if only they knew... Baaaaa

  • mark - Thursday, November 1, 2007, 7:50PM ET  Report Abuse

    • Overall: 1/5

    BEN-YOU ARE A GOOD RESOURCE-HOWEVER ON OUR STREET ALONE-AND BEEN HERE SINCE 51--6 OUT OF 24 HOMES HAVE BEEN LOST THE PAST 6 MONTHS-AND RISING-NO JOBS HERE-EXCEPT FAST FOOD-LODI,CA-CHECK REALTRY TRAC-GOOD 4 RICH-POOR-HOPELESS-

  • John - Thursday, November 1, 2007, 7:38PM ET  Report Abuse

    • Overall: 2/5

    As I was reading this article followed by the comments I couldnt help but notice an excerpt written by a mr. willrwright. In this article he states that the worst possible scenario for our economy is a deflationary recession. Even though his logic can be followed... cheaper money is easier to pay down debt with... it is still nonetheless flawed to a great degree. Inflationary recession or a stagflation period is the most dangerous scenario to wealth destruction that could possible occur the cost of all governmental liabilities will increase in proportion to the increase in inflation as will the cost of imports and cost of living. What this means is that worthless dollars beget worthless dollars and in the end no one winds up growing wealth or paying down debt as any increase is eaten up by the inflation. I wish that the writters of such articles could examine the facts and become more educated as to the truth before they babble on about what they think they know about economics. Ben Stein gets a two star rating for this article because his investing advice is inferior to most people with a decent understanding of economic workings.

  • Sam - Thursday, November 1, 2007, 7:14PM ET  Report Abuse

    • Overall: 1/5

    I love Ben Stein and for the most part rate his articles a '4' or '5', however this one is a travesty and quite frankly disgusting. He is dead wrong. The FED won't let the money center banks go under?!? How can they avoid this outcome?!? They are the cause of this travesty. The longer America believes this B.S. the worst the correction/restructuring will be when it arrives.

  • Jay B - Thursday, November 1, 2007, 5:45PM ET  Report Abuse

    • Overall: 1/5

    I disagree

  • Yahoo! Finance User - Thursday, November 1, 2007, 5:29PM ET  Report Abuse

    • Overall: 1/5

    Interesting that this article averages 4 stars, whereas the one by Kiyosaki predicting recession averages only 3. Seems like a good contrarian sell signal.

  • Da Big Guy - Thursday, November 1, 2007, 3:27PM ET  Report Abuse

    • Overall: 1/5

    I have an idea...Let's try price freezing like you did back with Nixon! You're right though..Lot's of McJob's out there!

  • Yahoo! Finance User - Thursday, November 1, 2007, 2:57PM ET  Report Abuse

    • Overall: 1/5

    Anyone reading this column should consider the source. This is the same Ben Stein who on August 18th appeared on the FOX Cavuto Report to tell us that MER was a strong buy (it has since fallen 18%), that the mortgage mess was overblown, and that foreign investors/central banks had confidence in the US dollar. How can readers of this column have any confidence in someone who has been so horribly wrong...?

  • Yahoo! Finance User - Thursday, November 1, 2007, 2:20PM ET  Report Abuse

    • Overall: 5/5

    Ben's the greatest! I was once rich in splendor, living the high life in a palace, driving fast and fancy cars, and babes all around me. I followed Ben's advice and now live a humble life in a tent and stand in line for a slice of bread and cup of soup. If it was not for Ben I would not have found Jesus! Thank you ... Ben! God Bless!

  • Ave - Thursday, November 1, 2007, 11:38AM ET  Report Abuse

    • Overall: 4/5

    Ben, I greatly enjoy reading your investing commentaries. Keep them coming. PS My Irish Catholic ex father in law forwarded a copy of your commentary on religion/ Xmas/ etc. He always appreciated that this Jewish guy that married his daughter enjoyed the Xmas holiday, same as you. Again, thanks and keep up the good work! Ave

  • LeoR - Thursday, November 1, 2007, 8:47AM ET  Report Abuse

    • Overall: 3/5

    In a short run, this probably is not the ultimate doom day but like they say, you can't borrow your way into prosperity. Current fallout is a clear demonstration that the "free market" or even "capitalism" as defined by citibank, ford, s&p, bush, and suchlike is a failure just like the Soviet version of "socialism" was. The main thesis this system is based upon is spelled like "market will take care of itself" which gets transferred into infamous "what's good for gm...", and corportations tend to go even further: "we can - and should - rule the world.". Ford losing record $12B, s&b under investigation, citibank and countrywide losing billions not to mention recent enron, mci, etc. should be a pretty good indication that the concept of capitalism being translated into grab-and-run - and this is exactrly what's been happening lately - is a straight road to disaster. Looking at a wider angle, the "free market" idol in general is seen by big shots as a tool of never-ending robbery and extortion. Apparently, they "think" that when the system collapses they will escape and sit it through somewhere on the Bahamas which makes me question their overall intelligence.

  • Yahoo! Finance User - Wednesday, October 31, 2007, 8:08PM ET  Report Abuse

    • Overall: 5/5

    Yes. Ben always speaks the truth. He is never wrong. Keep investing in the stock market. It will never go down. The US market is unstoppable. China really isn't that big of threat. We are about to experience a bull market like never before. I expect the DOW to hit 40,000 in a year or two. Happy investing.

  • Douglas - Wednesday, October 31, 2007, 7:50PM ET  Report Abuse

    • Overall: 5/5

    nope, no sky falling here!

  • Yahoo! Finance User - Wednesday, October 31, 2007, 5:34PM ET  Report Abuse

    • Overall: 4/5

    Ben Stein, once again, provides the public with a comprehensible, rational explanation of the complex interaction of variables that comprise the economy.

Showing comments 6-35 of 189<< PreviousNext >>
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