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Old 03-07-2009, 11:13 AM   #141
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I now have 10 years in cash and safe investments and I've turned off CNN and went back to enjoying my life and trying to ignore the markets .
Good for you. I used to be more of a strict asset allocation guy, but I'm becoming a convert to the "X years of safe investments" school of thought. Given enough time, the markets will recover (and if it doesn't over the time horizon of a very long-term investor, we may have bigger problems than our 401Ks). But I think most people would be well-served -- especially as they get to within 5-10 years of retirement -- to have 10+ years of anticipated withdrawals in less volatile investments. That would seem to provide some insurance against not being able to retire "on schedule" because the markets tanked a few months before you were about to clock out for the last time.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 03-07-2009, 01:17 PM   #142
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I think the future inflation rate is going to be a bigger factor of whether I can retire in four years or not. My pension won't get a COLA until I'm 62, but I can retire at age 56.

At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.
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Old 03-07-2009, 01:27 PM   #143
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At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.
As much as this ride is making me want to vomit, I tend to agree.

One thing I did see the other day: Even if all the financials in the S&P 500 went to zero, the index would only drop about another 10%.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 03-07-2009, 03:58 PM   #144
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At this point, I'd rather ride the market to zero than sell out. I think the best return over the next five years will be in the stock market.
If history is any guide, that's the way it worked in the past. Even in the Great Depression, there was a stock recovery from 1933-36 that took the market back to the price level of 1929 when adjusted for inflation/deflation in that period. That is part of the reason FIRECalc shows decent performance during the period 1929-36.
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Old 03-07-2009, 04:06 PM   #145
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If history is any guide, that's the way it worked in the past. Even in the Great Depression, there was a stock recovery from 1933-36 that took the market back to the price level of 1929 when adjusted for inflation/deflation in that period. That is part of the reason FIRECalc shows decent performance during the period 1929-36.
Also, given that we've had so many Depression references lately, it should be pointed out that the best single year in the history of the Dow was in 1933 -- the bounceback off the lows of 1929-32 despite being in the midst of the Great Depression.

I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 03-07-2009, 04:15 PM   #146
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I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.
Well let's have that 60% recovery now! Not after another 50% decline.
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Old 03-07-2009, 04:17 PM   #147
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I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.
Yep Ziggy, I think you have the data right. That year the market was extremely volatile, April up 37%, May up 21%, June up 13%, July down 10%, etc.

There may be hope for us after all .
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Old 03-08-2009, 10:57 AM   #148
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Do what we always have advised other countries to do. What we advised Japan to do but it didn't. Temporarily nationalize the banks. Don't bailout the banks and reward the owners for imprudence. Don't let them limp along and become zombie banks like in Japan. Take the insolvent banks over and sell them at the market value immediately to private investors. With the clean balance sheets they will be able to make loans again to qualified borrowers. Work out the bad crap through a Resolution Trust type organization.
Martha, others apparently agree with you*:

WASHINGTON (Reuters) -- The United States should let some big troubled banks fail rather than commit more federal funds to prop them up, two key congressional Republicans said Sunday.

Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the United States should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

"Close them down, get them out of business. If they're dead, they ought to be buried," Shelby told ABC's "This Week" program. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."


Shelby says government should 'bury' some big banks - Mar. 8, 2009



* FWIW, so do I.
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Old 03-08-2009, 11:21 AM   #149
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According to Vanguard's Asset Allocation graph, I am now 26.6% in stocks. I figured that I just want a large enough base to live on in retirement--like forever. So, maybe I'm sort of close to that. Could have had it if I had moved out of stocks earlier (probably like many on this board). Hopefully, TIPs along with my energy fund will protect me somewhat from inflation.

It seems to me that asset allocation is way over-rated. Probably works well in good times, but, wow, look what happened in the last several months. Everything I owned sort of fell off the cliff together--kind of like each sector was holding hands with each other on the way down--and it's been a long way down. And, I can't tell if the bottom is yet in sight. Maybe if I opened my eyes I could see the bottom.
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Old 03-08-2009, 11:57 AM   #150
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Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the United States should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

"Close them down, get them out of business. If they're dead, they ought to be buried," Shelby told ABC's "This Week" program. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."
I think the current approach just keeps the uncertainty and water torture going. Either nationalize the zombies or kill 'em, I think. Either way eliminates a lot of the uncertainty. I don't like the idea of government pursuing actions specifically to prop up the stock market, but in this case I think there's such a crisis of confidence that it seems necessary, because a continued plummeting will cause many of the problems to get exponentially worse.
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Old 03-08-2009, 02:34 PM   #151
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"Close them down, get them out of business. If they're dead, they ought to be buried," Shelby told ABC's "This Week" program. "We bury the small banks. We've got to bury some big ones and send a strong message to the market."
Lets just take one bank. Citigroup. Currently they have almost $800B of debt and preferred outstanding. That debt would become nearly worthless in a bankruptcy. It would be like extracting all of TARP in one single day. That default blows a hole in the balance sheet of other large insurance companies, pension funds, and banks. Do they have the capital to survive that hit? Close them down too?

Then lets move on to Citigroup's other $1,000,000,000,000.00 in liabilities. How many companies and countries get taken down when Citi defaults on those? To put this in perspective, Citigroup's liabilities are roughly the size of Italy's GDP.

Remember when folks thought it might be O.K. to let Lehman go? Before money market funds started breaking the buck, before the comercial paper market shut down, and before our entire financial system faced a "run on the bank." Well Citigroup is 3 times larger than Lehman.

Bank of America, the next big bank in line for Shelbyville, is only about 7% smaller than Citigroup.

The financial world ends the day we decide to take Mr. Shelby's advice.
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Old 03-08-2009, 02:38 PM   #152
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. I used to be more of a strict asset allocation guy, but I'm becoming a convert to the "X years of safe investments" school of thought.

But I think most people would be well-served ... to have 10+ years of anticipated withdrawals in less volatile investments.
But doesn't a "strict asset allocation" do the same thing? I think it's just different ways to view it.

For example, with very rough numbers, say you picked a 50-50 AA and planned to stick to it. Well, when the market drops, a rebalance means pick off some of the fixed investments, so use that for your living expenses.

Using the 4% SWR, net worth is 25x expenses, so a 50-50 gives you 12.5 years of less volatile investments to draw on. That is a simplified example ignoring inflation and returns, just trying to get the point across.

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I think the market gained something like 55% in 1933 -- probably closer to 60% with dividends. Imagine throwing in the towel in mid-1932 and missing THAT recovery.
Yes, I think that is the REAL danger of market timing versus Buy & Hold. With B&H you are in. With timing, the danger is being out at the wrong time. Probably the main reason I'm able to hold on in this stinkin' rot of a market

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Old 03-08-2009, 03:42 PM   #153
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I simply will not sell. My question is when to pile more cash in.
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Old 03-08-2009, 03:48 PM   #154
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I simply will not sell. My question is when to pile more cash in.
FWIW, my tent is pitched in this camp also.
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Old 03-08-2009, 03:51 PM   #155
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I simply will not sell. My question is when to pile more cash in.
Ditto.
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Old 03-08-2009, 04:01 PM   #156
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Good for you. I used to be more of a strict asset allocation guy, but I'm becoming a convert to the "X years of safe investments" school of thought. Given enough time, the markets will recover.
That's where I have been from the start of my investment strategy, although frankly I hoped never to see the event in my lifetime where my portfolio took such a bad hit that rebalancing to my target AA would mean going below my "X year of safe investments" threshold.

Keeping that "X years of safe investments" pushed my stock allocation down last time I rebalanced, and will do so again if I get brave enough to put one more years expenses into equities at this level since my allocation is way out of balance again.

So now I'm kind of wondering whether I should just stick with this new lower stock allocation that I have been "forced" to when the market recovers.

Who knows how long I may be mulling over that question? It's kind of mute until we start to recover.

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Old 03-08-2009, 04:19 PM   #157
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Lets just take one bank. Citigroup. Currently they have almost $800B of debt and preferred outstanding. That debt would become nearly worthless in a bankruptcy. It would be like extracting all of TARP in one single day. That default blows a hole in the balance sheet of other large insurance companies, pension funds, and banks. Do they have the capital to survive that hit? Close them down too?

Then lets move on to Citigroup's other $1,000,000,000,000.00 in liabilities. How many companies and countries get taken down when Citi defaults on those? To put this in perspective, Citigroup's liabilities are roughly the size of Italy's GDP.

Remember when folks thought it might be O.K. to let Lehman go? Before money market funds started breaking the buck, before the comercial paper market shut down, and before our entire financial system faced a "run on the bank." Well Citigroup is 3 times larger than Lehman.

Bank of America, the next big bank in line for Shelbyville, is only about 7% smaller than Citigroup.

The financial world ends the day we decide to take Mr. Shelby's advice.
You don't have them go under, you nationalize them and then sell them. If there is a negative value, then the government either helps contribute capital or it pull out some of the debt and deals with that.

Bankruptcy isn't an appropriate model because much of the bank debt needs to be paid. But the bailout should not be through dribbling cash to current owners. The owners have to go. That was the problem with Japan. Sweden successfully nationalized and then re-privatized almost immediately, IIRC.
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Old 03-08-2009, 04:47 PM   #158
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You don't have them go under, you nationalize them and then sell them.
I believe that's what Shelby and McCain are saying, without actually using the N word. Essentially what the FDIC does when a bank 'fails'.
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Old 03-08-2009, 04:49 PM   #159
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You don't have them go under, you nationalize them and then sell them. If there is a negative value, then the government either helps contribute capital or it pull out some of the debt and deals with that.

Bankruptcy isn't an appropriate model because much of the bank debt needs to be paid. But the bailout should not be through dribbling cash to current owners. The owners have to go. That was the problem with Japan. Sweden successfully nationalized and then re-privatized almost immediately, IIRC.
Anybody know if the credit default swaps (written on Citi) have to be paid if the government takes over Citigroup or are they wiped out.
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Old 03-08-2009, 04:58 PM   #160
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Anybody know if the credit default swaps (written on Citi) have to be paid if the government takes over Citigroup or are they wiped out.
THey'd need to be paid, but it would be a more-or-less trivial event since their bonds would be worth almost what treasuries are.

CDS pay Notional-Recovery, with Recovery being the value of the bond at the time of default. (therefore the bond holder is made whole). Once the gov't takes over Citi, it counts as a credit event, but the bonds shoot up in value, because its the gov't on the hook not Citi.


Fannie and Frddie worked the same way.



Bill Gross made over $1B on the Freddie/Fannie default by hoovering up their bonds when he saw naitonalization coming.
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