Toronto Sun, Sunday Nov. 9, 2008 Not your average bear market By GAIL BEBEE

I am in awe of what has been happening around the world in the past few months. Stock markets everywhere are on a roller coaster ride -- plunging, soaring and plunging again.

Headlines scream that the world's financial system is blowing up. I feel like a spectator at the Roman forum where the gladiators of global economic stability are battling the untamed lions of financial chaos. Will each fresh thrust of the gladiator's sword -- be it a $700 billion US bank bailout, nationalization of Icelandic banks or coordinated global interest rate cuts -- finally slay the beast?

Or will the wild animal knock the fighter to his knees or even eat him?

This financial firestorm is essentially a crisis of confidence in our financial system. Banks around the world stopped loaning money to other banks. The lending bank feared that the borrowing bank might have invested in now worthless U.S. sub-prime mortgages and would not be able to repay the loan. Without the ability to borrow money when they need it, banks reduced their lending to businesses, stalling economic activity. Governments around the world have now stepped in and continue to take measures to ensure that our financial system keeps running.

This is a serious financial crisis -- a once in a lifetime event for many of us.

So saying, I think the situation seems much worse than previous financial crises because we live in the age of information overload. I've lived through several bear markets and recessions in my life. During one of the worst bear markets in the last 50 years, November 1980 to July 1982, the Toronto stock market tanked over 40%. I barely remember talk of this stock market crash. The big issue then was inflation. I and many others had jobs. I even bought a house. But, all that was before the 500 channel television universe, business television networks, all news TV stations, financial websites, blogs, cellphones, Blackberrys and e-mail. The stock market rebounded to its previous peak by May 1983 but I don't recall that either!

Another recent development, do-it-yourself discount brokerages, is also impacting current events. Today, anyone can trade stocks with the click of a mouse. All these amateur traders plus the many professional traders trying to make a buck flipping stocks, contribute to increased stock market volatility (and investor anxiety).

LOOK AT THE HISTORY

So, what happens next?

The world has been here before. History tells us that stock markets and economies follow interrelated cycles with the economic cycle trailing the stock market by several months. Prolonged stock market declines or bear markets come around about every four years and last about 13 months on average.

The average recession lasts 11 months before the economy starts to expand again. We've had a relatively long period of stock market gains (the last bear market ended in 2002) and economic expansion (over 10 years). So, I think this bear market and recession will be longer than average.

But in time, this too will come to pass. The politicos and bureaucrats dealing with this crisis will do whatever it takes to resolve this mess because their own personal financial and political survival likely depends on it. Think of it as survival of the fittest. Fortunately, their struggle for survival should help the rest of us.

How to weather economic storm By GAIL BEBEE

Crazy stock market volatility. A probable recession barrelling at us. What's the average person to do? Here are some suggestions to help you weather the economic storms ahead.

1. CHILL OUT: Don't check the price of your mutual funds or stocks every fifteen minutes just because you can. Avoid panic selling your investments.

2. GET OUT OF DEBT: Start by paying off those credit card balances with 18 or 19% interest rates.

3. STAY OUT OF DEBT: Don't borrow money you won't be able to pay back if you lose your job.

4. BUILD UP A STASH OF CASH: It will come in handy if you lose your job. The first $5,000 of your emergency fund should go into the new Tax Free Savings Account which will be available in January 2009.

5. REVISIT INVESTING BASICS: Read up on the pros and cons of various investments: Fixed income (cash, GICs, etc.), stocks, bonds, mutual funds, exchange-traded funds.

6. SAFETY FIRST: Decide on the maximum drop in the value of your investments you can truly live with now that you have experienced the harsh reality of a major stock market downturn. If you can't sleep because your investments are tanking, you need to own safer investments.

7. MIX IT UP: Discuss your investments with your financial advisor. Decide if they are still right for you. Make sure you own a mix of cash, bonds and stocks, either purchased directly or through mutual funds or exchange-traded funds. The mix will depend on your personal situation, your appetite for risk and when you need the money.

8. UNDER REVIEW: Buy or sell investments based on your review. Ask lots of questions before buying the latest financial product promoted as offering superior returns and low or no risk.

9. GET IN CHEAP: If you have money to invest for the long haul (over five years), consider buying stocks now that they are cheap. You would be in good company. Famously successful investor Warren Buffett recently made major purchases of American stocks such as General Electric.

10. DON'T WORRY: Finally, this is not the end of the world. Take the time to enjoy the good things in your life.