OK, I'll say it

[barbarus]

From the way people post about the market, I get the impression most here have little comprehension of how bad off the economy really is. Very few investors can accurate time the rise and fall of equities prices, especially day-by-day, but even a simple barbarian, (vis. moi), can see that there are unprecedented dislocations occurring and there is little in the short term to change the situation for the better.
Normally, buy&hold is about the best we ordinary folk can do, but the financial world is grievously threatened right now.
Down is a heckofvalot more likely than up and for some time as well

I'm intensely interested in the perceptions of ya'll. What do you guys think is going on? I just can not grasp how anyone can see good times just down the road. What forces that will counter the fundamental problems? Why are things really not that awful?

The world is certainly not ending. The sun's gonna rise in the morning. Flowers will still bloom and kittens frolic in the meadow, but economically, dark clouds gather.

I'd appreciate some enlightenment on what my fellow readers are perceiving.

 

[Urchina]

Investing in the 2008 market does seem like treading water with anvils tied to each foot, at times.

No fun, sure, but when you're done you'll have amazing thighs (assuming you don't either give up or go under, of course).

 

[Alan]

From the way people post about the market, I get the impression most here have little comprehension of how bad off the economy really is. Very few investors can accurate time the rise and fall of equities prices, especially day-by-day, but even a simple barbarian, (vis. moi), can see that there are unprecedented dislocations occurring and there is little in the short term to change the situation for the better.
Normally, buy&hold is about the best we ordinary folk can do, but the financial world is grievously threatened right now.
Down is a heckofvalot more likely than up and for some time as well

I'm intensely interested in the perceptions of ya'll. What do you guys think is going on? I just can not grasp how anyone can see good times just down the road. What forces that will counter the fundamental problems? Why are things really not that awful?

The world is certainly not ending. The sun's gonna rise in the morning. Flowers will still bloom and kittens frolic in the meadow, but economically, dark clouds gather.

I'd appreciate some enlightenment on what my fellow readers are perceiving.

From 1900 to 2000 the British Empire collapsed, the country was devasted by 2 world wars the economy in tatters, rationing in place up to 1955 etc, yet the quaility of life for the average Brit improved 7 fold. I thought I had it rough growing up economically but it was so much better than my father, grandfather and great grandfather who I knew very well. (btw, I was born and raised in a small coal mining town in NE England and didn't move to the USA until I was 32)

I guess I am just a positive thinking person, but I'm confident that things will sort them selves out, and I just plan on indexing the world and not worrying about the things that are outside of my control.

 

[mb]

From the way people post about the market, I get the impression most here have little comprehension of how bad off the economy really is. Very few investors can accurate time the rise and fall of equities prices, especially day-by-day, but even a simple barbarian, (vis. moi), can see that there are unprecedented dislocations occurring and there is little in the short term to change the situation for the better.
.

Sorry, can't provide much enlightenment. I'm in the dark more often than most but I will throw out some rather random thoughts and questions.

Is there a particular set of metrics that you would use to characterize/quantify the economy? For example if you use housing foreclosures then I suppose that it is pretty easy to justify your conclusion with regard to the state of the economy but if you use say unemployment rates then maybe you come to a different set of conclusions.

Of course almost everyone on this board follows the economy/their investments to some extent and indeed the news from that perspective is pretty bad but from my interaction with family, friends and colleagues I don't see the symptoms. No one that I know has lost their job. No one that I know has lost their house. No one that I know has lost so much money that it has changed their life style significantly. I'm in Silicon Valley and during the dot.com bust there was a huge decrease in rush hour traffic because of all the down-sizing. Fortunately or unforunately, the current traffic is as bad as ever. Of course that may all be a function of where I live. The west side of Silicon Valley was not a bubble area.

I recall that in one of Peter Lynch's books where Wall Street and the financial sector were having problems and the feeling in "his world" was that everything was falling apart. But one day he was driving his car in the "real world" and realized that things weren't as bad for the "average guy" and decided to invest based on that observation and made a lot of money.

The market is pretty efficient at pricing in information? If you think that the market is going to go down then you must think that known information is not being discounted properly or that some really bad news that no one else knows about is on the horizon? What events do you anticipate that the market does not already know about will drive the market down even more?

MB

 

[youbet]

I'm glad I haven't made the commitment to fully retire yet.

I'm glad I still have a business going......mmmmmm.....and a job that provides enough cash flow to keep me afloat.

One of the benefits of staying semi-retired is to be able to test the ER waters while still having the ability to ramp up the earned income if needed.

Two comments, both of which prior posters have already touched on.......

1. If you're glad you're still working, then positively you haven't reached an overall financial status (all sources of RE income) that would support the no earned income lifestyle you desire with no/little probability of failure. So, yep, it's good you're not RE.

2. In one of the most interesting threads I've read on this forum, the issue of variation in the values retirement portfolios can take over time despite the fact they are destined to "survive" was discussed. For example, a Firecalc run which indicates your portfolio (at some AA and withdrawal rate) would have survived 99% of the time when tested historically may also indicate an extremely wild ride along the way. Coming to grips with the fact that I'll likely see breath taking dips and dives along the way, despite the fact my RE portfolio is likely to survive, is key to sanity when living primarily on investment income.

Edited to add: The current market is causing me some stomach churning, but not enough to make me wish I was still working.

 

[dm]

I retired at the peak last October. I would not give up my time since then. The only difference is if I was still working, I would still be adding to my stock portfolio, and would probably be down more money. If things were to get really bad I would just do like everyone else would have to do, cut back. If there was really another great Depression or our money was worthless I dought that I would still have a job anyway.

I can go several years without having to sell any stocks. And if they are all still down at least I wont have to sell as much as I wont have to pay any taxes. And this is to maintain my current spending. If things are still bad in 5 years I imagine I will have cut back on some vacations and other extras.

 

[rs0460a]

Uhhh, under that thinking.... you are at the table until you die... then someone else gets to count your money...

True (since it's all going to charity )...

- Ron

 

[dm]

Now I'm off to the golf club for a party. I'll do my best to keep the economy going for the wage slaves there.

 

[MichaelB]

Not me

I'm glad I haven't made the commitment to fully retire yet.

OK...I’ll say it too. I’m still so glad I left when I did.

From the way people post about the market, I get the impression most here have little comprehension of how bad off the economy really is.

I am very clear on how the economy is, here in the US and in much of the rest of the world. Including extended family, I have more relatives now looking for work or living at the financial edge than at any other time in my life.

Maybe it’s because I spent most of my adult life living and working abroad, where there is real hardship and despair. The only thing new in today’s market and economy is the extent of financial and political hubris. But this too shall pass.

Here and elsewhere there is opportunity to work as never before. The better paying jobs are more demanding and competitive, but they are out there. The capital markets around the world also offer more opportunities than ever before – it’s just that it isn’t easy and there is lots of risk. – and noise, and confusion, and fear.

But it's not about the money. No, I’m still so happy I left when I did because I got my life back. Since then I have learned much – like the value of having realistic goals, options and a “plan B”.

Still retired, lovin’ it and lookin' forward to more

Michael

 

[Dawg52]

From the way people post about the market, I get the impression most here have little comprehension of how bad off the economy really is.

Really? I got the impression that there are a lot more concerned about the market and economy than not. There are some post indicating they have several years of cash to get them through a rough period, but I don't see that as being overly optimistic. Maybe you are referring to something else.

 

[bamsphd]

We were just 5% away from "our number" at the peak last fall.

Do you change your "number" each year to take into account you are 1 year closer to no taxes, 1 year closer to Medicare, inflation factor etc? just curious as we don't have a "number" as such. I update the budget on what I expect we need to live on and then run claculators such as Firecalc.

We pay our bills out of a single checking account. Every few months, I update a spreadsheet with all the deposits we have made into the checking account each month. That is a close approximation of our spending which requires adding maybe two numbers a month instead of dozens of numbers, and I've been too cheap to repurchase Quicken yet again. I then adjust for any taxes we have paid, and for a few other expenses that should significantly change in retirement (things we expense, medical savings accounts, etc). The spreadsheet has a column that sums the last 12 months, giving our current yearly basic spending. Alas, that column almost always increases, both from inflation, and from new luxuries once sampled.

I take that number, add an estimate of our taxes in retirement, an allowance for health insurance, an allowance for car replacement, and a long-term house maintenance allowance. The grand total is my quick approximation of "our number" with minimal changes to our lifestyle.

When 4% of our portfolio is greater than that estimate of "our number," I expect to revisit all the popular retirement calculators, and to double check all my allowance calculations, to reassure myself it really is time to FIRE.

The reality is that we "could" retire now, but we would need to be more frugal than we have been over the past few years. Since I would like to be less frugal instead of more frugal, I'll at least hold out for a 4% withdrawal rate.

In truth, given our combined life expectancy, a 4% withdrawal rate is pretty aggressive by FireCalc standards. However, I still have retirement scenario notes that pre-date the Trinity study, which assumed a 10% withdrawal rate should be sustainable. Ah the bliss of youth. Right now, I'm just not willing to use a number below 4%. I would rather adjust spending if 4% proves too aggressive. I did try to convince myself that 2% inflation adjusted, plus 3% of portfolio value would do it, as discussed on this board awhile back. However, I ultimately decided that exceeded my risk tolerance. So for now I'm stuck on 4%.

All the years I've been planning for retirement, my safe withdrawal rate assumptions have kept going down, my "number" has kept going up, and my portfolio has been trying to catch up, with occasional down drafts. For awhile before I married, I had enough to retire as a single person, I just couldn't also fund my girlfriend/now-wife's retirement as well. She didn't think she should keep working for a few decades after I retired. Unfortunately, she didn't even have an IRA until I gave her one for Xmas.

At this point, the portfolio swings really dominate our net worth situation. We are still adding some money each year, but it is hardly material. The increases in "our number" also keep us working. If we had skipped a vacation last year, we might be retired now. However, while I was willing to LBYM on a temporary basis, now we are wrestling with "the rest of our life." So we will keep working to avoid drawing down the portfolio during the current bear market, and hope the next bull will propel us into retirement.

 

[copyright1997reloaded]

.
Down is a heckofvalot more likely than up and for some time as well

If you truly believe this, and are willing to act on that commitment, you can make yourself a heck of a lot of money. Just go 100% short instead of 100% long, and don't just do it in US $ funds, as the $ is also very suspect in that scenario.

I think what makes this scarier than other bear markets is the financial system aspect, that is it is a big difference between the dot.com era where companies with no real products went under and the underlying fear that we have if our financial system underpinnings (think Fannie, Freddie) become insolvent.

I guess the question is how this relates to other times in the past, for example the savings and loan crisis.

 

[Bikerdude]

.

I am comforted by having at least 8 years in cash to cover living expenses, and that could probably last 12 to 16 years with part-time work. That is a big cushion I think and it gives me comfort. Holding this much cash was part of my plan, a plan to deal with a bad case scenario.

Good planning. Bad case, 1966-1982 = 16 yrs.

 

[cyclone6]

I'm intensely interested in the perceptions of ya'll. What do you guys think is going on? I just can not grasp how anyone can see good times just down the road. What forces that will counter the fundamental problems? Why are things really not that awful?

I agree with you completely, Barbarus. Things are coming apart quickly. IndyMac bank closed today (and yes, folks are making light of it in another thread - although I think its not the least bit funny), the DOW down 22%, Freddie and Fannie on the ropes, Lehman about to implode, the dollar sinking again..

Yes, I think the DOW goes back to 14000 by years end!

Seems to me people here can't see the forest through the trees. (Oh, its just IndyMac bank - the FDIC will cover it). The govt will bail out Freddie and Fannie - with over 5T in held or "covered" loans.

Our financial system is finally cracking after nearly three decades of unsustainable government and personal debt. As I said last year, when the DOW was setting new highs and I was scared to death to invest (never did, other than a market-neutral fund and international bond) we have lived far beyond our means for far too long...

Now its unwinding. I'm not so worried about when to jump back into the market these days - I'm more worried about preserving what I have. I even question how many bank failures must occur before the FDIC says "sorry, but we never anticipated this..."

I hope I'm wrong, but this just smells awful. IndyMac closed on Friday. Is there any big news pending Fannie or Freddie?

Helicoper may spark a big rally with another 1/2 point cut Monday morning of course, that would send the dollar further tumbling), but they've already expended most of their powder, and it will be short lived.

Enough of my bloviating. Nobody answered Barbarus's question: other than blind faith buy-and-hold, what can you possibly see that portends a sustained stock market rally?

 

[Notmuchlonger]

I agree with you completely, Barbarus. Things are coming apart quickly. IndyMac bank closed today (and yes, folks are making light of it in another thread - although I think its not the least bit funny), the DOW down 22%, Freddie and Fannie on the ropes, Lehman about to implode, the dollar sinking again..

Yes, I think the DOW goes back to 14000 by years end!

Seems to me people here can't see the forest through the trees. (Oh, its just IndyMac bank - the FDIC will cover it). The govt will bail out Freddie and Fannie - with over 5T in held or "covered" loans.

Our financial system is finally cracking after nearly three decades of unsustainable government and personal debt. As I said last year, when the DOW was setting new highs and I was scared to death to invest (never did, other than a market-neutral fund and international bond) we have lived far beyond our means for far too long...

Now its unwinding. I'm not so worried about when to jump back into the market these days - I'm more worried about preserving what I have. I even question how many bank failures must occur before the FDIC says "sorry, but we never anticipated this..."

I hope I'm wrong, but this just smells awful. IndyMac closed on Friday. Is there any big news pending Fannie or Freddie?

Helicoper may spark a big rally with another 1/2 point cut Monday morning of course, that would send the dollar further tumbling), but they've already expended most of their powder, and it will be short lived.

Enough of my bloviating. Nobody answered Barbarus's question: other than blind faith buy-and-hold, what can you possibly see that portends a sustained stock market rally?

Cyclone,

How is your ammo,fresh water, and food supply going? Im doing fairly well here. Have a enough ammo to hold out for a few weeks of sporadic fire fights . Water is good if we ration properly. However we cant take on too many stragglers. Food is good to go. Lots of animals in the neighborhood. Hang tough my comrade.

 

[copyright1997reloaded]

Enough of my bloviating. Nobody answered Barbarus's question: other than blind faith buy-and-hold, what can you possibly see that portends a sustained stock market rally?

[Disclaimer: I have some of the same feelings about the melting financial system as you and am concerned that things could get a lot worse...but]

I remember a great quote (and I wish I could remember from who), that goes along the lines that in the stock market it is easier to talk about and see the things that can go wrong than the things that can go right.

When I started investing in 1978-1980, there were so many things wrong: inflation, high unemployment, the post-vietnam era, nuclear arms race, botched up embassy hostage rescue,... Does anyone remember Business Week's famous "The Death of Equities" cover from 1979?

 

[harley]

Very few investors can accurate time the rise and fall of equities prices, especially day-by-day, but even a simple barbarian, (vis. moi), can see that there are unprecedented dislocations occurring and there is little in the short term to change the situation for the better.
.
.
.
I'm intensely interested in the perceptions of ya'll. What do you guys think is going on? I just can not grasp how anyone can see good times just down the road. What forces that will counter the fundamental problems? Why are things really not that awful?

I personally don't see anything unprecedented going on. I don't know how old you are, and I'm not a depression survivor or anything, but even in my 30 years of investing I've seen financial institutions fail, real estate markets drop and stagnate, equities go down and stay down for a while, stars align, and a total eclipse of the sun. O0

And then when I wasn't looking, things got better.

This situation sucks, as have all previous crappy situations. People who took big chances get hurt, and people who trusted greedy companies and politicians to take care of them get hurt. Others manage to deal, some profit, and truly the vast majority just walk on.

Harley

 

[cyclone6]

Cyclone,

How is your ammo,fresh water, and food supply going? Im doing fairly well here. Have a enough ammo to hold out for a few weeks of sporadic fire fights . Water is good if we ration properly. However we cant take on too many stragglers. Food is good to go. Lots of animals in the neighborhood. Hang tough my comrade.

My fresh water is fine - I own no ammo - and my stomach is freshly fed with a nice steak dinner tonight. Of course, the same could be said for many in Argentina, Russia, Thailand...and of course, that 3rd-world rat hole, Japan.

I wonder how many of them said "don't worry, be happy", or better yet - "buy and hold" before they saw themselves wiped out.

Comrade.

When I started investing in 1978-1980, there were so many things wrong: inflation, high unemployment, the post-vietnam era, nuclear arms race, botched up embassy hostage rescue,... Does anyone remember Business Week's famous "The Death of Equities" cover from 1979?

Several huge differences. In the 70's we still had some semblance of caring about fiscal balance. That was before "tax cuts are always good" and " deficits don't matter". Deficits do matter - as do delinquncies - as the banks and brokerages are finding out now.

Plus, even in the late 70s, we were a net exporter. Yep, back then we actually produced and sold goods the rest of the world wanted and paid for. Imagine that - a net influx of foreign money to support our industries and standard of living. Now we require 700B/yr to buy our treasuries, and directly finance our opulent lifestyles.

Our debts are past due, and the collection agencies are calling...

...too bad many of them are American banks, brokerages and investment banks that are bound to find out that we can't pay, and they are insolvent.

I don't want to argue this any further. Its much more fun to talk about workplace BS...

 

[Frugality_of_Apathy]

...too bad many of them are American banks, brokerages and investment banks that are bound to find out that we can't pay, and they are insolvent.

I wouldn't be surprised to find out that some banks end up owing more money than they can pay; to themselves, through an intermediate bank.

 

[Notmuchlonger]

"I don't want to argue this any further. Its much more fun to talk about workplace BS.."

Promise?

 

[copyright1997reloaded]

Our debts are past due, and the collection agencies are calling...

...too bad many of them are American banks, brokerages and investment banks that are bound to find out that we can't pay, and they are insolvent.

I don't want to argue this any further. Its much more fun to talk about workplace BS...

I'm not arguing, just trying to discuss possibilities, and that it isn't all one sided, and that the future is complex and unknown.

If you think we are, as a nation, insolvent, what are you doing about it? Have you gone completely to cash? If so, what currency? (As the government may try to print our way out of this.) Are you short the market? What are you doing?

Do you think that that US can go down quick, big time, without taking the rest of the world with it?

 

[DblDoc]

This thread desperately needs Uncle Mick....

DD

 

[laurence]

My fresh water is fine - I own no ammo - and my stomach is freshly fed with a nice steak dinner tonight. Of course, the same could be said for many in Argentina, Russia, Thailand...and of course, that 3rd-world rat hole, Japan.

I wonder how many of them said "don't worry, be happy", or better yet - "buy and hold" before they saw themselves wiped out.

Comrade.



Several huge differences. In the 70's we still had some semblance of caring about fiscal balance. That was before "tax cuts are always good" and " deficits don't matter". Deficits do matter - as do delinquncies - as the banks and brokerages are finding out now.

Plus, even in the late 70s, we were a net exporter. Yep, back then we actually produced and sold goods the rest of the world wanted and paid for. Imagine that - a net influx of foreign money to support our industries and standard of living. Now we require 700B/yr to buy our treasuries, and directly finance our opulent lifestyles.

Our debts are past due, and the collection agencies are calling...

...too bad many of them are American banks, brokerages and investment banks that are bound to find out that we can't pay, and they are insolvent.

I don't want to argue this any further. Its much more fun to talk about workplace BS...

On another thread, I posted a graph of national debt as a % of GDP, essentially we are well within our "trading range" for debt over the last 100 years. It's funny to me that people are able to factor in nominal vs. real dollars in their own FIRE calculus but not with the national debt.

This doesn't seem as bad as the S&L crisis of the late 80's, or the stagflation of the late 70's (which I barely remember being born in '74).

I'm betting long and strong, I think the next 24 months are the best buying we are going to see in 20 years in the stock market. And I'm putting my money where my mouth is!

 

[ladelfina]

laurencewill, if you are looking at the debt of the US gov., that is one thing. What's also out there is personal debt (particularly mortgages and HELOC). In the '70s/'80s debt was something like 80% of a person's yearly salary on average, and now it's 135% or more (and some other countries' citizens are worse).

In 1974, Federal Reserve data show that US mortgage plus other consumer debt totaled $627 billion. By 1994, the total debt had risen to $4,206 billion, and by 2004, it reached $9,709 billion.

Rick Wolff, "Personal Debts and US Capitalism"

1974 US personal debt/GDP = $627b/$1,500b = .42
1994 = $4,206b/$7,072b = .57
2004 = $9,709b/$11,685b = .83

see a trend?

U.S. household debt up the most in 20 years - MarketWatch

2005 = $11,500b/$12,434b = .93

USATODAY.com

2007 = $13,825b/$13,841b = effectively 1:1

GDP numbers from here:
http://research.stlouisfed.org/fred2/data/GDPA.txt

Now, you can think that will continue, or not. I say "not".

In researching this, I came across a statement that indicates just how we take this debt expansion for granted:

The growth of home mortgage debt, including home equity loans, cooled to an annual rate of 3%

Household net worth drops by $1.7 trillion - Jun. 5, 2008

A 3% annual rate of debt growth is "cooling"!
but this is 3% on top of last year's 3% or whatever... this is exponential growth and cannot logically continue.

 

[MichaelB]

National debt

Those interested in the national debt may find this documentary interesting I.O.U.S.A. Official Website. Get all the info here!