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market expectations
Old 02-27-2003, 01:58 AM   #1
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market expectations

"Probability distributions that are estimated largely, or exclusively, over cycles excluding periods of panic will underestimate the probability of extreme price movements because they fail to capture a secondary peak at the extreme negative tail that reflects the probability of occurrence of a panic."

-- Alan Greenspan


I thought this information would help in rebalancing your portfolio.

Dory36
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Re: market expectations
Old 02-27-2003, 06:10 AM   #2
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Re: market expectations

Not as catchy as "irrational exuberance". He's losing his touch.
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Re: market expectations
Old 02-27-2003, 06:35 AM   #3
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Re: market expectations

One implication of this is that neither FIRECalc, nor any other model for planning finance during retirement based on historic stock and bond returns, can indicate a withdrawal rate that is "100% safe," even if it would have survived every crisis over the past 130 years or so.

The "good news" (in a perverse way) is that the period for which data is available included several extreme crises -- particularly the period from 1929 to 1945 that included a worldwide depression and the greatest war in history. As evidenced by several presidents having supported Alan Greenspan as Fed Chairman, (and Paul Volcker before him) the U.S. political system is able to apply the principles of macroeconomics (that is, national economic policy) that have become understood by the majority of economists since the 1930's. So it is unlikely that we will experience another depression of the scale of the one in the 1930's.

The really serious threat to the U.S. economy (and thus to the standard of living of retirees and everyone else) is from a war involving nuclear weapons or biological weapons reaching the U.S. itself. There is no way of predicting the probability of this, but I support an active foreign policy to minimize the chances of it by preventing the spread of these weapons, even to the extent of using preemptive military action.

Financially, the safest thing that anyone can do is to invest in TIPS. Physically, about the safest thing to do would be to move to a solar heated house in small town in Wyoming :-/.
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Re: market expectations
Old 03-14-2003, 03:20 PM   #4
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Re: market expectations

Quote:
One implication of this is that neither FIRECalc, nor any other model for planning finance during retirement based on historic stock and bond returns, can indicate a withdrawal rate that is "100% safe," even if it would have survived every crisis over the past 130 years or so.
Absolutely correct.
Quote:
Physically, about the safest thing to do would be to move to a solar heated house in small town in Wyoming :-/.
Or move onto a self-sufficient boat!

Dory36, still moving up the edge of the Everglades
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Re: market expectations
Old 03-14-2003, 06:17 PM   #5
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Re: market expectations

Ted writes,

Financially, the safest thing that anyone can do is to invest in TIPS. Physically, about the safest thing to do would be to move to a solar heated house in small town in Wyoming

-----------

What if we had a war with China and they won?

Do you think the victorius Chinese would honor US debt and make your TIPS whole?

Maybe Swiss inflation-protected debt is safer.

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Re: market expectations
Old 03-15-2003, 07:49 AM   #6
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Re: market expectations

Quote:
-----------

What if we had a war with China and they won?

Do you think the victorius Chinese would honor US debt and make your TIPS whole?

Maybe Swiss inflation-protected debt is safer.

intercst
If the U.S. loses a war that destroys the U.S. government's ability to honor its debt, it will probably be one that destroys the U.S. financial system and physically destroys most cities. *In that case, survival would require being in a remote location with a means of self-sufficiency. *Even assuming that Switzerland or New Zealand or some such country survived, I don't think there would be an effective way of cashing in on their debt.

I'm not predicting a catastrophe of this magnitude, but I do advocate a high cost, high technology, internationally active defense policy as the best way of averting it. *

I recognize that this thread originated to poke fun at Alan Greenspan's verbiage, but it when that is translated into plain English ("Sh-- *Happens") it has some serious implications that are worth considering by everyone who invests and bothers to vote in national elections.

Quote:
Absolutely correct.
Or move onto a self-sufficient boat!

Dory36, still moving up the edge of the Everglades
Sorry, Dory36, but if you want to insure self-sufficiency in a boat, it had better be one powered by wind, oars, or a wood-burning steam engine! Even without a major catastrophe, it's reasonable to believe that oil will become a lot less abundant/more expensive in the future. If I were you -- seriously -- I would own at least one long-term futures contract on oil to hedge against that prospect. (Long-term oil futures now are priced at about $24 per barrel -- a huge discount to the spot price of about $37 per barrel.)
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Re: market expectations
Old 03-15-2003, 03:32 PM   #7
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Re: market expectations

Well, I for one no longer bother to vote and fully expect
the world to go to hell in a hurry (although maybe not
in my lifetime). I see disaster piled on disaster on into
the future, and have no intention of getting involved
any more than is absolutely necessary.
Just trying to stay out of the way as best I can, until my
demise. Like my fictional doppelganger, I have dropped out. The main difference is, I am never coming back!
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Re: market expectations
Old 03-15-2003, 04:55 PM   #8
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Re: market expectations

Quote:
Sorry, Dory36, but if you want to insure self-sufficiency in a boat, it had better be one powered by wind, oars, or a wood-burning steam engine! *Even without a major catastrophe, it's reasonable to believe that oil will become a lot less abundant/more expensive in the future. *If I were you -- seriously -- I would own at least one long-term futures contract on oil to hedge against that prospect. *(Long-term oil futures now are priced at about $24 per barrel -- a huge discount to the spot price of about $37 per barrel.)
Probably a good idea, but I am playing it simple. My hedge is carrying about a year's supply of diesel. I bought the last tank at about 90 cents a gallon, versus the $2+ I see these days. I can get by until probably the end of 2003 with what I have on board.

As it turns out, fuel usage is tremendously sensitive to speed. At 6 MPH, I can go about 1000 miles on what I have in the tanks. At my max speed of 9MPH, I can go about 250 miles, maybe less. I didn't have to study that disparity too long...

And in fact, if fuel gets too expensive, I just SIT. I don't NEED to be anywhere (except out of hurricane-prone areas, by June or so), so I can always just stay somewhere nice for months at a time -- which I've done frequently.

But to your point, the folks who travel far mostly go by sail.

Fair winds!

Dory36
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Re: market expectations
Old 03-17-2003, 04:46 AM   #9
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Re: market expectations

Dory36,

Your approach to having a boat with a modest diesel engine is reasonable for now and the foreseeable future. The boats with twin 300 horsepower engines are going to become white elephants (or permanently moored houseboats).

As for myself, I have a kayak which requires no energy other than what I provide (if you don't count what it takes to drive to a place to use it). I don't plan to retire on it, however, because it is a single seater without room for my wife. Some guys might consider this to be an advantage, but we get along well, and she can't swim as fast as I can paddle.

What does this have to do with Alan Greenspan .
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