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Old 06-07-2011, 08:14 AM   #41
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Brewer, where did the colossal crash of 1973-74 come from?


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Mostly OPEC
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Old 06-07-2011, 08:28 AM   #42
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I think the pain from the losses in í08 is still fresh and this is causing folks to fear another crash. Many of the problems being discussed are legitimate but that doesnít mean they canít be dealt with or that a major market decline is a likely outcome.

Confirmation bias is a major risk when the mood turns.
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Old 06-07-2011, 08:56 AM   #43
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I assume you are not retired with good income.Some of us retired people might be less sanguine about a possible major correction.
I'm not ERed, but the only thing I'll do differently when I stop wor*king is to increase the amount of cash I hold from 6 months expenses to 3 or 4 years.

My approach is to have a 50/50 AA in index funds, pay off debt....mortgage is almost gone and to use rental income for half my expenses. Other income comes from bonds and dividend paying stocks and eventually SS and a small pension. Having a few years in cash will allow me to ride out severe down turns
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Old 06-07-2011, 01:15 PM   #44
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If you understand that and you're still not happy with negative volatility (nobody complains about positive volatility) then you need a different asset allocation.
Or a pension.
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Old 06-07-2011, 01:35 PM   #45
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Or a pension.
Or a SPIA.
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Old 06-07-2011, 01:49 PM   #46
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I think the pain from the losses in ’08 is still fresh and this is causing folks to fear another crash.
This is undoubtedly true, and compounded by the fact that this 'recovery' is anything but from most folks' perspective. By the measures most people care about - jobs, incomes, and home prices - we haven't recovered at all. The lone bright spots are stock prices and corporate profits. But even here, there is a pervasive feeling that market gains have been artificially manufactured via massive fiscal and monetary intervention. This is certainly fertile ground for the pessimists.

For my part, I'm a whole lot less optimistic than I was. Domestically, the forces of fiscal and monetary stimulus are spent. Fiscal policy is going to become a significant drag (1%+ of GPD) over the next year and a half. Any 'austerity' will add to that drag. I don't expect monetary policy to tighten any time soon, but that is the direction of the next move almost regardless of what happens on the ground. Meanwhile the private sector doesn't seem like it is ready to take over. Internationally, developing nations recognize they have an inflation problem and are starting to turn their attention to fighting that - which could spell trouble for global growth.

I don't expect the U.S. economy to fall into recession, but I do think we're poised for a continuing period of sub-par growth. I'm not sure how corporate profits continue to expand indefinitely under that scenario. But then again, I've been surprised at how well they've managed thus far.

I'm entirely happy with the more than doubling in price of things I bought two years ago. Now is not a time to be greedy.
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Old 06-07-2011, 01:52 PM   #47
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Or a SPIA.
Unfortunately, the worst time to buy an SPIA is usually the same time as stocks are tumbling, as the "flight to quality" suppresses the interest rates and causes SPIAs to be very costly. For that reason the roll your own SPIA approach has its drawbacks compared to a traditional pension, where the risks are spread across all participants in all generations instead of making you at the mercy of your age and/or retirement date.

Someone cashing out 401K/IRA stock in 1999 and buying an SPIA did fabulously. Same in 2009, not so much. With a pension it really didn't much matter whether you retired in 1999 or 2009, all else being equal.
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Old 06-07-2011, 02:24 PM   #48
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Because if that were true, I'd expect to see the left using the deficit as a reason to push Cap & Trade because of the massive revenues that could be generated by auctioning off carbon credits. I'd expect them to be pushing single-payer health care to control costs. And, of course, higher marginal rates. If one were really radical, they could call for 100% of deficit reduction to come from increased revenue.
Some folks might remember the tooth-and-claw fight for single payer, it was clearly a loser from the start but the fight continued. The scars will need to heal over and the new "reform" will need to fail before there's a window for attempting that again.
Carbon credit auctions as a means to raise taxes: Even the green ideologues are smart enough to shelve this plan for now.
So, where are the liberal bitter-enders taking a stand in the budget battle? It's clearest in the calls to "tax the wealthy" (the line for "wealthy" is conveniently adjustable). Or the refusal to discuss Medicare and other entitlement reform.
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On the other side . . . If one were really radical, they could call for 100% of deficit reduction to come from spending cuts.
Those radicals at the CBO keep publishing projections like those contained in the Heritage chart below. This makes people believe that the level of planned future spending is way above historic norms and is what needs to be addressed. Then, those killjoys in Greece have to go and make such a mess of things. If the US just had a German big brother to give us a friendly lecture then bail us out when we spend a little too much, I guess we could stay on the present path. Europe is providing an ugly and inconvenient case study of the "benefits" of high taxation and government spending. "Nothing to see here, move along . . ."
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Old 06-07-2011, 03:09 PM   #49
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If the US just had a German big brother to give us a friendly lecture then bail us out when we spend a little too much, I guess we could stay on the present path. Europe is providing an ugly and inconvenient case study of the "benefits" of high taxation and government spending. "Nothing to see here, move along . . ."
If you worked for government, wouldn't you be able to find lots of reasons to go on spending and increase taxes?

I would!

Ha
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Old 06-07-2011, 04:49 PM   #50
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I am in the housing market as both a buyer and a seller, and I am well aware of the mess. That said, we are finding our way toward the bottom as it is now noticeably cheaper to buy rather than rent in both the market where I am buying and the market where I am selling.

Perhaps we just have different expectations on jobs: I expect a long, slow recovery as is typical of what happens after a credit crash. I also expect ocasional blips and stalls along the way. The key to happiness is low expectations...
It's definitely a healthy thing for you, personally,that your "expectations" of the job market are positive and let's all hope that people get back to work, especially in the higher paying jobs.

I work with engineers in Mexico that make 22k/yr for US firms such as Intel and Continental Auto. Are those jobs coming back to the US at 100k per engineer? Not sure about that.

Here is an official web site that lists average engineering salaries in Mexico. Keep in mind, the figures are monthly but in pesos which is about 10:1

http://www.empleo.gob.mx/wb/BANEM/BA...mejor_pagadas_


Expectations have a lot to do with the problem itself in that many Americans expected their houses to continuing going up in value, took equity loans, and now wondering what hit them.
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Old 06-07-2011, 04:59 PM   #51
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Expectations have a lot to do with the problem itself in that many Americans expected their houses to continuing going up in value, took equity loans, and now wondering what hit them.
You cannot fix stupid.
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Old 06-07-2011, 06:43 PM   #52
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This is undoubtedly true, and compounded by the fact that this 'recovery' is anything but from most folks' perspective. By the measures most people care about - jobs, incomes, and home prices - we haven't recovered at all. The lone bright spots are stock prices and corporate profits. But even here, there is a pervasive feeling that market gains have been artificially manufactured via massive fiscal and monetary intervention. This is certainly fertile ground for the pessimists.
I think we have a bifurcated recovery and a large part of the US economy is doing well, gainfully employed, spending and saving. Another much smaller part is in a depression, impaired by excessive negative equity, under or unemployed without marketable skills. Broad policy options don't work here.

Economic performance is in part self-fulfilling. A little less fearmongering and more real political leadership would go a long way right now.
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Old 06-07-2011, 07:27 PM   #53
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One practical issue for an investor is finding a country that's doing better than the US (where investor's rights are reasonably safe).

Eh?
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Old 06-07-2011, 07:49 PM   #54
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I think we have a bifurcated recovery and a large part of the US economy is doing well, gainfully employed, spending and saving. Another much smaller part is in a depression, impaired by excessive negative equity, under or unemployed without marketable skills. Broad policy options don't work here.

Economic performance is in part self-fulfilling. A little less fearmongering and more real political leadership would go a long way right now.

Bifurcated recoverty? My attitude about this "recovery" is like a scardey cat. Yeah, I too could use less fearmongering, but geez....

I'm working on my "survival plan" and wondering how long I'll have to "stay down there".

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Old 06-07-2011, 07:54 PM   #55
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What is amazing to me is how quickly the dominant refrain has switched from positive to negative in just about every media outlet, online discussion, etc. Its like watching someone flip a switch.
You aren't kidding! Welcome to all news, all the time, from everywhere. Not helpful, but no putting the genie back in the bottle.
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Old 06-07-2011, 07:59 PM   #56
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You aren't kidding! Welcome to all news, all the time, from everywhere. Not helpful, but no putting the genie back in the bottle.
Genie? Bottle?? Sorry Middy, couldn't help myself...

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Old 06-07-2011, 08:09 PM   #57
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Europe is providing an ugly and inconvenient case study of the "benefits" of high taxation and government spending. "Nothing to see here, move along . . ."
Southern Europe is in a mess because they over spent and didn't have enough tax revenue, mostly due to evasion and poor enforcement. It's a similar state of affairs in the US, although the low revenue side of things has been due to Government policy of tax cutting. In the case of the UK it's pure overspending....
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Old 06-08-2011, 12:25 AM   #58
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Unfortunately, the worst time to buy an SPIA is usually the same time as stocks are tumbling, as the "flight to quality" suppresses the interest rates and causes SPIAs to be very costly. For that reason the roll your own SPIA approach has its drawbacks compared to a traditional pension, where the risks are spread across all participants in all generations instead of making you at the mercy of your age and/or retirement date.
Someone cashing out 401K/IRA stock in 1999 and buying an SPIA did fabulously. Same in 2009, not so much. With a pension it really didn't much matter whether you retired in 1999 or 2009, all else being equal.
Good point.

I put up that post mainly in response to the (perceived, perhaps in error) implication that I occasionally get along the lines of "Sure, I'd do that too if I had a COLA pension"...

I think everyone should annuitize a portion of their ER income in order to have a safety net from which to properly assess those other investment decisions. For some, Social Security may be enough. For others, a bare-bones survival budget that's one step above Little Friskies. For a few, perhaps their entire portfolio.
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Old 06-08-2011, 04:42 AM   #59
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Nobody knows for sure what is going to happen.

I intend to remain invested in equity (Strategic Allocation). However, since I am getting ready to FIRE, I have been doing a lot of thinking about my allocation and over the last year have made some adjustments.


Those adjustments are part of the overall longer-term plan.

I have done some tactical moves with fixed assets because of interest rates.

I also have about 20% of the overall portfolio positioned in one way or another to offset US inflation if it moves above long-term norms.... but it is nothing fancy!
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Old 06-08-2011, 06:38 AM   #60
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I think we have a bifurcated recovery and a large part of the US economy is doing well, gainfully employed, spending and saving.
I've never heard that before. It sounds like something that would be true whenever unemployment is below 50% . . . 'well, most people are doing well.' I'm not convinced.

And whether an additional policy response is needed, or even appropriate, is almost beside the point. We're not getting one. And what we have already in the pipeline is moving from an economic thrust to an economic drag. The part of the US economy that is doing well doesn't look well poised to pick up the slack.
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