Tim Sinks Advises "Riding This Out" Until Bottom Is Hit
posted October 10, 2008
A financial expert told the Brainerd Kiwanis Club on Friday that Wall Street, Main Street and the government are all to blame for the nation's current financial free fall.
Tim Sinks, managing partner of Capital Financial Group in Nashville, said greed by financiers and Americans who chose to live far above their means were key factors. He also said the Bush administration turned a deaf ear to warnings from members of Congress from both parties that a crisis was coming.
Mr. Sinks said he expects the current dramatic stock market drop to eventually bottom out and then start back up.
He said, "We need this correction, though it's painful and we are paying a dear price."
In the meantime, he said, "I do not advise cashing out."
The speaker said sub-prime mortgages were a small portion of overall loans, but he compared it to a cake with a small amount of cinnamon. He said, "If the cinnamon is bad, all of a sudden nobody wants to buy the cake."
He said the problem with the over-leveraged sub-prime loans "began to trickle down and to freeze the entire credit market."
Mr. Sinks said there have been a number of steep stock market declines, and there has always been a recovery.
He said, "This will end. The market always sorts itself out."
Mr. Sinks said since 1900 there have been 360 significant stock market shifts, 117 moderate alterations, 58 severe market jolts and 31 times when there have been true bear markets (drops of 20 percent or more).
He said the market in the past had bounced back from calamities like Black Monday, the scary shift to a new century, and the 9/11 terrorist attack.
In the meantime, he said many businesses and families will face tough economic conditions.
He referred to the stock market reaching an all-time high, but said it is down 40 percent since that high point, including a plunge of 22 percent in the last seven days.
The speaker said when credit stops, then the business of the nation grinds to a halt because it has become so credit dependent.
He said the federal bailout was necessary because "the government was the only source large enough" to provide funds to give some liquidity to banks and other financial houses.
Mr. Sinks said it is "not a bailout of Wall Street fat cats."
He said some of the mortgages the federal government plans to purchase may have significant value. He said Mass Mutual is considering acquiring some of those the government is expected to take. "We truly believe that some of them have some real value imbedded in them."
Mr. Sinks said, "The loans may very well turn out to be worth a lot more than the government pays."
He told the group at the Country Place Restaurant, "We as a society are greatly over-leveraged. For the last 5-7 years, people almost have felt like debt is free money.
"It is absolutely amazing how many people are living way above their means."
And he said the nation's individual savings rate is at zero.
He said the question needs to be asked, "Why didn't their bankers stop them and tell them you can't afford this house when the interest rate bumps on up?"
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