Run don't walk from this market

[brewer12345]

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.

 

[MichaelB]

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.

 

[Eder]

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?

 

[Purron]

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".

YouTube - ‪dr. strangelove - survival plan‬‏

 

[Midpack]

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.

 

[Purron]

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...

YouTube - ‪I Dream of Jeannie opening‬‏

 

[nun]

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....

 

[Nords]

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.

 

[chinaco]

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!

 

[Gone4Good]

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.

 

[Gone4Good]

Some folks might remember . . .

What follows is a bunch of rationalizations for why one side is pushing policy goals who's primary objective is not deficit reduction in the name of deficit reduction while the other side is not. If folks really cared about the deficit, they'd be working toward common ground on that issue instead of pushing the most divisive portions of their platform.

 

[BigNick]

Southern Europe is in a mess because they over spent and didn't have enough tax revenue, mostly due to evasion and poor enforcement.

That's true of Greece, and to some extent Portugal. But Spain's problems are mostly caused by a housing bubble, and Italy's debt is in pretty good shape. Ireland isn't in Southern Europe, but you can include it in the "basket cases we heard about in 2010", and there, the main problem was that bailing out massive banks with international operations is easier with a population of 300 million (US) than 3 million (Ireland) or 300,000 (Iceland).

 

[MichaelB]

If folks really cared about the deficit, they'd be working toward common ground on that issue instead of pushing the most divisive portions of their platform.

For example, the Bowles Simpson recommendations. It is still not clear why this has not been pursued more actively.

 

[ziggy29]

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"...

Well, I think it's certainly true that if one has a COLA'd pension that is sufficient for their lifestyle, it's easier to take as much (or as little) market risk as you are comfortable with. Neither low returns due to being overcautious nor a market crash will cause you to hit the streets eating dog food.

It's all cyclical in a sense and the pendulum takes drastic swings over time. In the late 1990s, a pension was often seen as boring and not a necessity; a job with "stock options" was the sexy thing and not a lot of people suffered "pension envy." (Hey, if I hit it big with options, who needs a pension??) Today with the market providing 10 years of zero return, job angst leading to people w*rking longer because of fears of not enough personal savings (bad times tend to make people think they need more to retire) and other factors, suddenly a pension (and retiree health insurance, I suppose) are *the* benefits on almost everyone's "wish list". Boom times make people greedy and unafraid of risk; bad times make people yearn for security even at the expense of potential riches. But again, much of the problem today is that "buying a pension" is a terrible deal because of low rates that have the cost of "buying an income stream" at nosebleed levels. Even folks who have some personal retirement savings who would prefer to convert to a pension don't really have that option unless they want to buy at historically high prices.

Maybe in 1998, some folks who chose public sector employment envied those who got in on a dot-com startup with the potential to become a stock option multimillionaire. Today, the opposite is more likely to be true and these same people are probably thankful for the choices they made.

 

[ziggy29]

If folks really cared about the deficit, they'd be working toward common ground on that issue instead of pushing the most divisive portions of their platform.

They could all start -- both sides, *all* sides -- by putting everything on the table rather than insisting that some things be left off before they'll even negotiate. Doesn't matter whether it's tax increases or spending cuts in pet programs; it ALL needs to be on the table.

 

[MichaelB]

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.

This is more like the economy has fully recovered and this is as good as it gets. That’s good for about 85% of the population and it won’t get any better for the rest.

 

[ziggy29]

This is more like the economy has fully recovered and this is as good as it gets. That’s good for about 85% of the population and it won’t get any better for the rest.

I am of the firm belief that most of the "recovery" (mostly in corporate profits, not individual success or security, but I digress) was due to a short period of cheap oil. Oil prices dropping by 60% was the ultimate "stimulus package". I think that boosted the economy far more than ANY government action could have ever accomplished. But that train has left the station. Next stop, IMO, Doubledipsville.

 

[MichaelB]

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.

A cola pension has drawbacks as well, especially for someone looking forward to 3 decades (or more) of potentially declining loss of relative standard of living that result from the use of hedonic methodology to calculate CPI. A mix of pension and/or annuity plus investment portfolio is a very good idea, and I don't recall seeing it recommended in any of the literature on investing.

 

[ziggy29]

A cola pension has drawbacks as well, especially for someone looking forward to 3 decades (or more) of potentially declining loss of relative standard of living that result from the use of hedonic methodology to calculate CPI.

Agreed. I don't think people of modest means living on CPI-linked income streams feel like they've come close to "keeping pace" with the cost of the essentials they buy. Sure, the cost of big screen TVs and cruise vacations are falling (which help lead to a "flat" CPI), but if most of what you are buying is food, energy, health care and education, the CPI is a joke.

A mix of pension and/or annuity plus investment portfolio is a very good idea, and I don't recall seeing it recommended in any of the literature on investing.

Actually, this is "old school" stuff -- remember the "three legged stool" approach of SS, pensions and personal savings? IMO, there's really one standout model for this, one which clearly emphasizes all three legs of the stool -- Uncle Sam's own FERS plan.

 

[MichaelB]

I am of the firm belief that most of the "recovery" (mostly in corporate profits, not individual success or security, but I digress) was due to a short period of cheap oil. Oil prices dropping by 60% was the ultimate "stimulus package". I think that boosted the economy far more than ANY government action could have ever accomplished. But that train has left the station. Next stop, IMO, Doubledipsville.

Interesting idea. So you don't think it "trickled down" because of low tax rates and all that interest free money loaned to the banks?

Doubledipsville? Nah. I think it's Muddlesville. But we will get to watch the emerging world grow.

 

[TromboneAl]

You aren't kidding! Welcome to all news, all the time, from everywhere. Not helpful, but no putting the genie back in the bottle.

Re flipping a switch from positive news to negative, I don't think it's related to 24/7 coverage, but to the fact that middle of the road news doesn't sell commercials.

 

[ziggy29]

Re flipping a switch from positive news to negative, I don't think it's related to 24/7 coverage, but to the fact that middle of the road news doesn't sell commercials.

Nailed it. It's a pretty safe bet that the "news" media sees the success of Jerry Springer and decides it's good for ratings in covering news (particularly political news). Measured, fact-based and dispassionate coverage of politics and current events doesn't get ratings. Bombastic, no-holds-barred opinion and spin, on the other hand, does. This ain't Cronkite's news media any more, and I don't think we're better for it.

 

[HFWR]

For example, the Bowles Simpson recommendations. It is still not clear why this has not been pursued more actively.

Both sides are going to point fingers and yell "neener neener", because blaming the other guy, and staying or getting into power, is more important than governance...

 

[HFWR]

And now for something really different...

Federal Reserve Beige Book: Economy still chugging along - Jun. 8, 2011

Despite a few signs that economic growth is slowing, the report covering the Fed's 12 districts reported the recovery is actually chugging along at a solid pace.

 

[brewer12345]

And now for something really different...

Federal Reserve Beige Book: Economy still chugging along - Jun. 8, 2011

Shhhh.... Didn't you get the memo? Its all bad news, all the time. We will let you know when we flip the switch in the other direction.