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When the Dust Settles


...consider the opportunities that will eventually present themselves when it is all said and done.

There is a common saying, not used as much today as it used to be, that says, "When the U.S. sneezes, the rest of the world catches a cold." The phrase has always made a great deal of sense, being that the United States stood strong as the global super power in just about everything except oil.

This idea usually referred to the U.S. consumer, which kept many other countries economically healthy as the U.S. sought to purchase their goods and export its jobs. When the U.S. consumer felt pinched and buying slowed, the ripple effect would be felt more strongly in these product-producing countries as well as others that fed off the entire system. It was much like a retail store seeing a massive decline in shoppers.

Much like the U.S. learning that its foreign dependence on oil doesn't make good business sense, these countries started to heavily invest in their own infrastructure and economy, trying hard to move away from their dependence on the U.S., which would ultimately keep them on their own path rather than one that is determined by the health of another.

While that all makes great sense, the problem always lies in the human greed factor when it comes to making money and as these countries became more advanced, ironically they became more tied to the U.S. financial structure than some would care to admit.

As global economies enjoyed a fantastic run over the last several years and new wealth was created, a vast majority of that wealth found its way back into the U.S. financial markets, buying up everything from U.S. stocks to U.S. debt. Furthermore, as interest rates across the globe remained low, leverage was used on both sides in order to borrow much more than was needed in order to squeeze out a few more dollars on vehicles paying more interest than the interest owed.

Unfortunately, now with a massive credit crunch taking place in the U.S., which in plain and simple terms means no more borrowing at a low rate to invest at a higher rate, the unwinding across all nations is on and is most visibly being seen in the stock market.

Why does this affect the stock market when it should be confined to other places? Simply because when someone can't sell something they want to, they sell what they can. If the bond markets are getting squeezed and financial deals are being halted, capital will be raised in other places, most notably the stock market.

Is it ugly? Yes. Is it scary? Absolutely. However, consider the opportunities that will eventually present themselves when it is all said and done.

Rather than think like an economist, this is definitely the time to brush off that list and start thinking like Buffett.

Despite what may end up being a global crisis due to a massive credit crunch, will people stop buying cheeseburgers for lunch or Happy Meals on the weekends? I doubt it, and while McDonald's (MCD) has already enjoyed a superb run for the last several years, should the stock market continue its decline, it will bring down McDonald's, which will eventually be ripe for a value shopper once the dust settles.

While Starbucks (SBUX) may be cut out of the morning diet, have you ever tried to wean a person off their Coca Cola (KO)? It is ugly and odds are that regardless of how much subprime affects the housing market, Cokes will be consumed and the stock is worth keeping on the radar.

Last but not least, once it's all said and done, and this may still be a long way off, take a gander at one of the major banks that, regardless of how bad it gets, will remain in business and eventually present a tremendous opportunity. While some say there is talk of a major bank throwing in the towel, odds are a power house like Bank of America (BAC) or Citigroup (C) will weather the storm and still be standing when your grandchildren want to open up their first checking accounts.

It looks and feels far too early, however individuals should start brushing off that notepad and start to consider what will be their plan of action when the dust eventually settles.

Don't rush it, as there is no need to wade back in too early, but if this is the start of something much more, these blue chips will be dragged down as well and may be worth picking up when others are throwing them out.
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