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Old 10-07-2008, 04:29 PM   #41
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Is this kind of stuff (huge downturn in the market like we are experiencing) calculated into firecalc?

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Old 10-07-2008, 04:33 PM   #42
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Is this kind of stuff (huge downturn in the market like we are experiencing) calculated into firecalc?

tmm
FIRECalc includes all the 'stuff' that has happened in the US markets going back to 1871. This link explains how it works and how far back FIRECalc goes.
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Old 10-07-2008, 04:34 PM   #43
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So if one put $X in the SM in 1990 (buy and hold) the average return for those 8 years was close to 2.5% compounded before inflation? SM investing is too difficult (for me) you would have to "work" to make a significant return above a decent CD ladder (I got an annual average 5.7% compounded APY return before inflation on FDIC CD's for that period; lots less "work"). I do not mean to gloat and this current "downturn" is devastating for too many people.
If I read this right (and I'm curious, not criticising), you are completely in cash/CDs? If so, does that mean you have enough money to live on making just a percent or 2 above inflation? Or maybe a decent COLA pension to make up the difference?

I'm 52, married, and no pension. I hope we each live somewhere between 30 and 50 years more. I don't see any possible way to make it using cash vehicles, and I've got quite a nice chunk of money. I would really appreciate it if you could give me an overview of your retirement strategy, so I can see if there's anything there I can us. Thanks.
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Old 10-07-2008, 04:38 PM   #44
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You guys aren't thinking hard enough. 1987? 1929? Bah. Our current crisis most closely approximates the panic of 1873. When CNN reports an epidemic of equine influenza, you'll know I was right.

Panic of 1873 - Wikipedia, the free encyclopedia
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Old 10-07-2008, 04:54 PM   #45
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You guys aren't thinking hard enough. 1987? 1929? Bah. Our current crisis most closely approximates the panic of 1873. When CNN reports an epidemic of equine influenza, you'll know I was right.

Panic of 1873 - Wikipedia, the free encyclopedia
Hmmm... horses, the 1873 version of the automobile, got sick and ground to a halt. Sky high gas prices have caused slowdowns in how much we drive our autos today (and they make me sick! ). Particularly Ford, producer of the Mustang (a type of horse), is suffering hard in this gas crisis. It's like it is 1873 all over again!!
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Old 10-07-2008, 04:55 PM   #46
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Hmmmm - there seems to be a perfect correlation between down >500 points on the DOW and a presidential debate night. Thankfully - there is only one debate left (after tonight)!

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Old 10-07-2008, 05:29 PM   #47
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Well, if we're fortunate, inflation WILL be a problem. Because if we hit a deflationary cycle, our portfolios are *really* toast.
Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.

Hmm, stuff costs less, money is worth more, and we might get a nice return from both stocks and bonds. Whats not to like again?
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Old 10-07-2008, 05:37 PM   #48
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Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.
Short period being the operative and very key phrase.

When an economy has a prolonged period of deflation, dollars buy more over time. So any discretionary purchase may be put on hold.

We already see this with some high-tech equipment like computers and LCD televisions. Some people think about buying now but if they don't *really* need it, they may decide to wait a while longer because the price keeps coming down.

A period of *prolonged* deflation would introduce that to virtually the entire economy. Any purchase that can be delayed, may well be delayed. With little being bought other than what is absolutely necessary, the economy craters even more. Deflationary death spirals like the Great Depression and the Japan mess of the 1980s-1990s worked this way.

A long period of deflation would be devastating to the U.S. Treasury as well, as its debt grows MUCH faster in real terms when there is (say) 2% deflation year after year instead of 3-4% inflation. Combine that with the Treasury's reduced ability to service the debt because of weak tax revenues caused by a poor economy and high unemployment, and it's even worse. Every obligation the government has -- debt, Social Security, pensions, you name it -- become MUCH more difficult to honor. We're unfortunately a debtor nation, and to an entity deeply in debt deflation is killer.

I know we hate inflation. But it seems to me that if it lasts for much more than a few months, deflation likely to induce the death spiral. And a long period of deflation is much more destabilizing and devastating, IMO, than a prolonged period of mildly high inflation as we thought we were having until the last couple of months.
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Old 10-07-2008, 05:49 PM   #49
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Some people think about buying now but if they don't *really* need it, they may decide to wait...little being bought other than what is absolutely necessary...
For a change, maybe it would be good for people to think about whether they NEED something before they buy it (rather than just WANTING it). Does anyone really NEED a 52 inch LCD TV? Do we as a society really NEED 60 different kinds of tomato sauce at the grocery store? Half the reason we are in this mess is people confused wanting something with being able to afford it, and never even asked themselves if the desired item was really necessary.
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Old 10-07-2008, 05:57 PM   #50
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I know we hate inflation. But it seems to me that if it lasts for much more than a few months, deflation likely to induce the death spiral. And a long period of deflation is much more destabilizing and devastating, IMO, than a prolonged period of mildly high inflation as we thought we were having until the last couple of months.
We've had a few discussions about deflation. Certainly a long period of severe deflation would be a bad thing. But we havent had deflation in almost a hundred years and the conditions for a prolonged deflationary period dont seem to be evident.

Do you earnestly think that americans will go on a savings binge and hoard cash for 3-5+ years? Do you think that once the credit crunch is behind us that companies will stop spending money and start filling up their cash reserves instead? Do you think that people and companies will start feeling awkward about bankruptcies and stop declaring it, choosing instead to wallow in the holes of debt they can never hope to emerge from?

I'm not seeing it. Hole in the road, liquidity problems clear up, economy picks up a little, jobs pick up a little, market starts heading back up, a couple of years from now we'll all be laughing about being so worried that the world was going to end. And complaining that we didnt snap up equities when they were so cheap.
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Old 10-07-2008, 06:03 PM   #51
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For a change, maybe it would be good for people to think about whether they NEED something before they buy it (rather than just WANTING it). Does anyone really NEED a 52 inch LCD TV? Do we as a society really NEED 60 different kinds of tomato sauce at the grocery store? Half the reason we are in this mess is people confused wanting something with being able to afford it, and never even asked themselves if the desired item was really necessary.
Which is why this bucket of cold water could -- and I stress, *could* -- be very good for us long term. As I mentioned before, many people who lived through the 1930s had their outlook on money and finance changed for the rest of their lives -- don't buy what you can't afford and pay cash for, live frugally and below (or at least no more than *at*) your means, all that.

If this winds up painful enough, as much as it sucks to live through...I suspect at least some people will learn this lesson and we'll be stronger for it -- in the long run.

It really comes down to how bad it gets and how long it lasts. If the credit markets begin functioning before long and this turns out to be just a big speed bump, not much will change.
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Old 10-07-2008, 06:46 PM   #52
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Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.

Hmm, stuff costs less, money is worth more, and we might get a nice return from both stocks and bonds. Whats not to like again?
the market is pricing 1930s or 1990's japan right now. people will dream of the good old 1970s if we get sustained deflation
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Old 10-07-2008, 06:48 PM   #53
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This is small comfort to those of us like myself who started working and investing in the last 10 years. We continued to buy into a rising market through automatic contributions, and are now seeing any gains wiped out plus substantial losses on our original investment. Even with a decent bond allocation, total return is way negative, plus the destruction in purchasing power due to inflation only compounds the problem (i.e. stocks decline 15%, minus an additional 3-5%/year from inflation). It's pretty gloomy.

Someone who has held a consistent portfolio for +10 years is probably doing ok in the grand scheme of things. But I don't think that's the reality for most investors.

Amazon.com: Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance): John J. Murphy: Books

i started playing with this last year. 2007 didn't do so well. this year i'm not perfect but portfolio is down only 10% YTD and i'm waiting for the coming rally to sell before the next fall. even 1930 had a rally that regained a lot of the losses. and it also teaches you to recognize when you are near a bottom so you don't sell out of desperation only to see the market rally

also check out Elliott Wave. i've been reading about it only for a week, but i think the theory has a lot of validity.
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Old 10-07-2008, 06:51 PM   #54
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At times like this I look to hasthemarketcrashedyet.com for market timing advice.
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Old 10-07-2008, 07:00 PM   #55
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http://www.hsdent.com/tgca_pr.pdf
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Old 10-07-2008, 07:28 PM   #56
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Which is why this bucket of cold water could -- and I stress, *could* -- be very good for us long term. As I mentioned before, many people who lived through the 1930s had their outlook on money and finance changed for the rest of their lives -- don't buy what you can't afford and pay cash for, live frugally and below (or at least no more than *at*) your means, all that.
My grandmother told me stories about the 30s. She remembered the dust bowl, bank failures, and Bonnie and Clyde coming through town. Grandma never got over it and really never did trust banks. She used to keep a mayonnaise jar of cash in her deep freezer "just in case" and had small accounts in every bank in town. Grandma also preached frugality and despised wastefulness. She recycled everything and even used flour bags to make clothing.
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Old 10-07-2008, 07:31 PM   #57
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Old Harry also predicted the DOW would reach the 35,000-40,000 range back in the 90's. Page 2 of the below link.

Harry Dent Forecasts Dow 20,000 by the Year 2009 - Are We in a New Bull Market? - Associated Content
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Old 10-07-2008, 07:36 PM   #58
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We've had a few discussions about deflation. Certainly a long period of severe deflation would be a bad thing. But we havent had deflation in almost a hundred years and the conditions for a prolonged deflationary period dont seem to be evident.

Do you earnestly think that americans will go on a savings binge and hoard cash for 3-5+ years? Do you think that once the credit crunch is behind us that companies will stop spending money and start filling up their cash reserves instead? Do you think that people and companies will start feeling awkward about bankruptcies and stop declaring it, choosing instead to wallow in the holes of debt they can never hope to emerge from?

I'm not seeing it. Hole in the road, liquidity problems clear up, economy picks up a little, jobs pick up a little, market starts heading back up, a couple of years from now we'll all be laughing about being so worried that the world was going to end. And complaining that we didnt snap up equities when they were so cheap.
Can the moderators go back and unarchive the forums from 1929-~1939? I'd like to compare what people where saying back then to what's going on now.
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Old 10-07-2008, 07:39 PM   #59
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If I read this right (and I'm curious, not criticising), you are completely in cash/CDs? If so, does that mean you have enough money to live on making just a percent or 2 above inflation? Or maybe a decent COLA pension to make up the difference?

I'm 52, married, and no pension. I hope we each live somewhere between 30 and 50 years more. I don't see any possible way to make it using cash vehicles, and I've got quite a nice chunk of money. I would really appreciate it if you could give me an overview of your retirement strategy, so I can see if there's anything there I can us. Thanks.
Actually, I was responding to the time frame in the quoted post, in reality I have been virtually all CD's since 1979 (age 38 then). I do have COLA'd Military Retirement (since 1979) and potentially at age 70 SS in two more years (I did take SS at age 62 but paid it back this year). The age 70 retirement plan for both DW and I is 30% Interest, 32% Retired Pay and 38% SS (70% COLA'd). BTW the older one gets the less important inflation becomes.
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Old 10-07-2008, 07:48 PM   #60
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Can the moderators go back and unarchive the forums from 1929-~1939? I'd like to compare what people where saying back then to what's going on now.
I can do you 3/4 as good as that.

Check this out:

Possible Deflation Scenario

Outsourcing and the 2000-2002 market was going to lead to imminent deflation and depression.

Ahhh...late 2003/early 2004, when we'd all had our pants scared off for a couple of years and thought the world would never be the same.

Go into fire and money, and at the bottom change it to 'ascending' and 'from the beginning'. You'll get to see us all worrying the edges of our skirts pondering how we were ever going to climb out of the depths of disaster, and what fresh hells awaited us just around the corner.
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