Deep, disturbing thoughts

As I sit here watching my portfolio of stocks (which I live off of) melt away, I try to console myself with the thought that, "what goes down must eventually go back up." One of my friends said to me the other day, "stocks have always been back up within three years of the bottom." It sounded good at the time, but when I think about it, I wonder what the hell he really meant. First, it's not true that stocks have always been back up to their previous high within three years. It's taken more than a decade in several cases. Second, by definition stocks have to be higher than the "bottom" after they hit bottom. So, I'm not all that heartened, but then, in my gloomier moments, things look even worse. What if they never come back at all?

Here's what I fear. It seems to me there is at least a chance that this depression will be something like Noah's flood, washing the ground completely clean of all the companies and institutions that went before it. Not unlike what happened to the social conventions of the late nineteenth and early twentieth century in which my grandmother grew up (gentlemen all had a man-servant to help them dress and ladies all had several live-in house servants and a nanny to help them run the household and take care of the kids, people dressed for dinner, etc., etc.) after the first World War scoured the social surface of the earth, all the companies we now know may go the way of the horse and buggy. Yes, the economy will come back, eventually, but will any of the companies that now make up that economy come back? I'm not sure. I always believed in diversification as a means to eliminate having all your eggs in one basket, but this may be the time that the diversification becomes irrelevant.

Why do I fear things might get this bad? Because the current government is doing everything it possibly can to make things worse. It is refusing to use the bailout money. It is refusing to save three million auto industry jobs. It is refusing to do anything sensible about the foreclosure crisis. It is promising to veto any extension to unemployment insurance. It wants to CUT spending (along with taxes on the rich) at the very worst possible moment. If it's not a deliberate effort to destroy the country before Obama gets it (a la, "if I can't have it, nobody can"), it might as well be. By the time Obama gets into power, it may well be too late to salvage anything.

And, if the today's companies all fail, where does that leave my portfolio? A scary thought, at least for me and most of my friends who plan to retire soon on their 401-Ks. Yet, I still haven't been able to bring myself to bail on the market. Am I clinging to a false hope? I just don't know, but I'm not sleeping very well these days.