Someone asked how my investing buddies and I reacted to last week's market drop. I responded, "All I know is that I went through some grief, my brother went fishing, and Jim Cramer lost his cool on national television." Otherwise, I'm unsure how my other friends reacted to losing all gains since the beginning of the year. But, I'm fairly certain how they would answer if I asked.

Most of my friends are now long-term investors, so they probably went through a little grief like I did, or they went fishing. I doubt anyone reacted like Cramer, who is not my friend and who seemed fit to be tied over the fed's (as in Federal Reserve) initial silence in reaction to the housing and credit crunch.

Granted, I'm a bit miffed that the bull market fairy hasn't visited my portfolio this year, but my stocks are ok. Last week's fiasco pushed my portfolio back to January's numbers, but only if I add the brokerage fees I accumulated since that month back into the equation. Since I chose my stocks based upon the solidity of the company, possibility for growth, dividends, and value at the time of initial purchase, I don't want to sell them. And, since value has been added back in with current "on sale" prices, I'm about to accumulate more shares while the getting is good.

The only grief I went through last week was over the timing of that market drop. It never fails - my stocks always drop right before payday, and they rise right after I deposit the check. But, market timing has never been my forte, which clearly explains why I've dropped my day trading habits. I think the real question here concerns the credit and housing markets, not the stock market. If you had asked me how I felt about those former markets, I would have burned your ear off with my tirades. Instead, I'll supply you with some news that may knock your socks off. This information is supplied by this week's Barron's magazine, page 11:

"Consider a typical $250,000 three year adjustable-rate mortgage with a 2% rate-hike cap. If the monthly payment is now $1,123, after the first adjustment, the monthly payment is $1,419. After the second adjustment, the monthly payment is $1,748, a $625 per-month increase. That's $7,500 more per year just to maintain the same mortgage. If you think high gas prices are biting the consumer, consider the cost of mortgage adjustments."

Here are some more interesting facts from Barrons:

• 32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000.
  
  
• 43% of first-time homebuyers in 2005 put no money down.
  
  
• 15.2% of 2005 buyers owe at least 10% more than their homes are worth.
  
  
• 10% of all homeowners with mortgages have no equity in their homes.
  
  
• $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007.

If you can identify with any one of the sentences listed above, then I can understand why you're selling off your stocks. You need all the money you can get just to stay afloat. If you "own" a home worth more than $350,000, and you purchased that home with no money down and with an adjustable mortgage, then you really don't own anything. You're paying interest, and you haven't accumulated any equity.

Plus, if you owe 10% more than the market value of that house, you're really over your head. That poor house may not see its purchase value for a long time if ever, in my opinion. Further, if you can't reduce that debt before your house loan adjusts to a higher rate, what will you do? Will you be tempted to suck that retirement account dry? If I were in your shoes, I wouldn't be tempted - I would feel that it was necessary.

The problem with your situation is that you've affected my situation. And, you've affected my friends' situations as well. We've worked hard over the past three years to eliminate our credit card debt, and we've resisted temptations to purchase homes at inflated prices with no money down. Believe me, it wasn't easy, especially when real estate agents were promising the moon.

But, my friends and I will get over this crisis, as we understand that this isn't the only problem that will affect the stock market over the next few years. Plus, the banks need to take a bit of the blame. They were so anxious to lend you money that they sold you more than you could afford. The good news is that it appears that the feds may drop interest rates before their slated meeting on 18 September, so you may see some relief.

In fact, my friends and I may see some relief if that interest rate cut happens, as a drop in interest rates will affect the already low interest rates that bonds, CDs, and money markets earn. If you aren't pulling your money out of the stock market to pay bills, then it's silly to pull it out at all if you're a long-term investor. Compared to already low interest rates that other investment vehicles offer, the market is the only sensible place to put those investment dollars. So, investors may see some new activity and an upward trend by the end of the year.

Honestly, I feel for you if you're caught up in this housing/credit crunch. Just remember that you're not alone, and many of us have been in your shoes before (although not quite this bad). As for my friends and me - we'll be just fine.

Until Next Week,
Linda Goin