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Old 05-24-2011, 06:39 PM   #41
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Anyway, my expectation is not for a substantial decline. My "expectation" derives from that under these circmstances in the past, returns going forward were modest, but risks considerable. This is quite different from calling for a large decline.
IMO holding is different from new buying, and there are different burdens of proof.
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My expectation is also modest equity returns. But I see that not as many years of low numbers but instead as lots of volatility. In that case it would make sense to lower risk when equity prices are high. Sell, pay taxes, and wait for buying opportunities.

I also think that many of us have an aversion to paying tax that is in part emotional and clouds our investing judgment.
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Old 05-24-2011, 07:01 PM   #42
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My expectation is also modest equity returns. But I see that not as many years of low numbers but instead as lots of volatility. In that case it would make sense to lower risk when equity prices are high. Sell, pay taxes, and wait for buying opportunities.

I also think that many of us have an aversion to paying tax that is in part emotional and clouds our investing judgment.
So are you saying that you have gone to 0% or near 0% equity? It is not really clear to me what you are saying, or what you are in fact doing.

I sometimes have a hard time understanding what people are saying about investing. On the one hand, there is a belief in efficient markets. A strong desire and more than a little success at paying very low tax rates. A belief that one cannot reliably pick one investment over another. I believe that you may have said in a post above that one must keep to his plan. This of course might mean anything from day trading to rebalancing into an invariant AA once per year.

How about some reciprocal sharing here? What are you doing, and how does this relate to your market view as advanced above?

Ha
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Old 05-24-2011, 07:20 PM   #43
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Exactly what I did....I had a somewhat different plan at first...I bought 3 rental properties in 2005, all new properties in the $175K range...The idea was to rent them out to support the mortgages over 8-10 years and then sell them all to fund my retirement home....Well, 5 years on, I have paid them all off and have recently purchasing my retirement home on Lake Travis....But, with a low interest rate, carryover losses (depreciation, mortgage interest) of 100K, and the new mortgage interest, I am reaping a much tax base and paying no taxes on $41K in rental income...So, for the moment, I will carry the new mortgage funded by rental income for awhile...
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Old 05-24-2011, 07:56 PM   #44
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The implication of his analysis is a current unfilled demand of 8.5 million housing units ($1.7T @ 200K per unit). I am doubtful.
It does sound like a lot. I haven't dug into his analysis. I just posted it because the comments here reminded me that I had seen it.
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Old 05-24-2011, 08:11 PM   #45
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it seems far more likely that we'll have reduced demand for new and bigger houses, folks will probably learn to like what they have longer.
I agree. I think the trend of continually trading up in hopes of the big cash payout at the end is correcting. At least in the short-term, we may see more multi-generational (or multi-family, as I've seen slightly represented in many 'big house' developments) that'll further suppress demand for new inventory.

On the other hand, more and more people are willingly owning two houses (gotta have the cottage up north!) that maybe there is a recovery coming

I did have a fun discussion with our Realtor in Minneapolis just after the crash, though. He thought that if one could get investors together to buy up tracts of fire-sale cheap housing close to the city center and rehab it into medium-density gated communities, one would make a killing.
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Old 05-24-2011, 09:35 PM   #46
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I am off to Vegas next week where my intention is to buy a rent property or two, with the distinct possibility of adding a few more in the next year.

It is interesting that during the 2000 real estate was the equivalent of growth stocks it was all about appreciation. Now days in many markets real estate is equivalent to a dividend or value stock, the growth prospects aren't all that exciting at least in the short-term, but the yield is quite decent near 10%
I couldn't do that. My criteria for a rental property was to live on the premises and buy in a place where there was mature housing stock, not much new construction and a strong rental market. I also only wanted to rent to a single person or a couple to minimize the effort. I bought in an expensive neighbourhood which has made renting easy and given me good capital appreciation. I'm down 10% from the highest price, but the house is still worth twice what I paid for it in 1997.
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Old 05-24-2011, 11:21 PM   #47
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Remember how well that worked in early 2008?

Anyway, accurate information cannot be harmful, one can always use it or not. And, as a matter of history, Hussman was not saying the "same thing" in March of 2009 that he is now saying. Although he did accurately point out that valuations, while better than earlier, were not anywhere close to some prior long term lows.

IMO this history remains to be written.

Ha
Touche.

I have the same problem with Hussman that I have with Bill Gross: they have a product to sell and spend most of their time talking their book. So I don't spend a lot of time taking them seriously because they are plainly biased. See also: Meredith Whitney (stop laughing)

I guess I have a hard time worrying about the total market because I don't own the total market. I mostly own companies trading at 3 to 6X EV/EBITDA, hard asset owners trading at less than liquidation value, and bond CEFs trading at silly discounts to NAV. When something I own gets to what I feel is an extended valuation, I sell it.
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Old 05-24-2011, 11:28 PM   #48
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I guess I have a hard time worrying about the total market because I don't own the total market. I mostly own companies trading at 3 to 6X EV/EBITDA, hard asset owners trading at less than liquidation value, and bond CEFs trading at silly discounts to NAV. When something I own gets to what I feel is an extended valuation, I sell it.
That sounds like a very sound program. Handy to be able to just ignore the general market too.

Ha
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Old 05-24-2011, 11:30 PM   #49
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That sounds like a very sound program. Handy to be able to just ignore the general market too.

Ha
Did not say I could ignore it. As I am still working I simply bear the general market risk. If I really wanted to shut that down I would spend money and buy hedges, most likely puts. Thus far I have chosen not to do so, but I might eventually change my mind, especially if the hedge is attractively priced.
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Old 05-25-2011, 09:23 AM   #50
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What is QE2?
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Old 05-25-2011, 09:40 AM   #51
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What is QE2?
"Quantitative Easing 2." The US Fed's second round of easy money. It's about to end and folks are a bit concerned about the impact on equities once the artificial boost stops. "Quantitave Easing" sounds much more measured and analytical than "Quick! Throw in gobs of money to keep things moving until the economy turns around! I'll not let the ship hit the rocks on my watch, the next guy can worry about the bill!"
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Old 05-25-2011, 09:54 AM   #52
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"Quantitative Easing 2." "Quantitave Easing" sounds much more measured and analytical than "Quick! Throw in gobs of money to keep things moving until the economy turns around! I'll not let the ship hit the rocks on my watch, the next guy can worry about the bill!"
I think that is a reasonable description. It actually may make sense if one is truly headed towards the rocks. May or may not hit them later, but at least not hit them now for sure. I kind of hate all the Fed borrowing going on but as it is explained, it really may be necessary. Hard for me to follow all the arguments but at least its pitched as a way to avoid 'hitting the rocks'.
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Old 05-25-2011, 10:00 AM   #53
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Old 05-25-2011, 10:14 AM   #54
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So are you saying that you have gone to 0% or near 0% equity? It is not really clear to me what you are saying, or what you are in fact doing.
I sometimes have a hard time understanding what people are saying about investing. On the one hand, there is a belief in efficient markets. A strong desire and more than a little success at paying very low tax rates. A belief that one cannot reliably pick one investment over another. I believe that you may have said in a post above that one must keep to his plan. This of course might mean anything from day trading to rebalancing into an invariant AA once per year.
How about some reciprocal sharing here? What are you doing, and how does this relate to your market view as advanced above?
Ha
Sorry Ha. I wasnít trying to be obtuse, just general. Sometimes talking about specific and personal choices around here invites unwelcome and obnoxious comments. Iíll answer your questions more directly.

I think someone should change their portfolio allocations only if that is part of an investment plan and only if it is done in a proactive and disciplined way, not a reaction to news. In other words, sell now if that is part of a strategy developed in the past based on specific criteria which are now being met.

My equity allocation is currently at 30% (2/3 of that is in US blue chip equities). I have taken it down in steps over the past year. It will stay at that level unless 1) global growth regains a positive trend, or 2) equity prices reset to historical trend based on shiller PE10 type values. I would consider taking it down further only if I felt a recession was to occur and equity prices were at current high levels. Last year I used up the last of my í08 losses, and this year I will pay taxes for the first time since í07.

The reason for the 30% equities is because that is the level that allocation models such as firecalc show to be the minimum needed for long term portfolio survivability. My greatest risk now is global equity prices move substantially higher and stay there, and this would be a lost opportunity.
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Old 05-25-2011, 04:28 PM   #55
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Here Comes Another GDP Downgrade

Hitting a soft spot in the economy. We're going to have some headwinds going forward from the roll-off of fiscal and monetary stimulus. Hold on to your hats.
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Old 05-25-2011, 04:40 PM   #56
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Old 05-26-2011, 08:43 AM   #57
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Hard for me to follow all the arguments but at least its pitched as a way to avoid 'hitting the rocks'.
I like the alternative approach . . . "Quick, steer into the rocks!! We need to sink the ship fast so we can get busy building a new ship from the wreckage that floats back up to the surface."
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