The market that goes from suck to blow...

soupcxan · 03-23-2005, 05:34 PM

Three bad days in a row, across nearly all of the asset classes. There go all my YTD gains and we're back in the red. I really do try to not let the bear get the better of me, but does anyone else have horrible visions of the 1970s rising rates/stagnant economy, or the long dismal decline of the Nikkei?

I really wouldn't mind some paper losses if I had enjoyed a few years of the 1980-90s paper gains, but everything I put in the market is "new" money, so I feel the losses more. To me, -$1000=a week at work, disappeared. Sometimes I think peoples' expectations of the market are so unrealistically high right now that the only place it can go is down.

brewer12345 · 03-23-2005, 05:47 PM

Patience, grasshopper. There is no free lunch. If you want higher returns, you have to be prepared to put up with more volatility. Make sure you are appropriately diversified and don't spend every waking moment looking at each trade. All there is to it, really. As a matter of fact, you should be rooting for things to tank for a wile so that you can buy assets on the cheap.

03-23-2005, 05:50 PM

Quote:

Three bad days in a row, across nearly all of the asset classes. There go all my YTD gains and we're back in the red. I really do try to not let the bear get the better of me, but does anyone else have horrible visions of the 1970s rising rates/stagnant economy, or the long dismal decline of the Nikkei?

I really wouldn't mind some paper losses if I had enjoyed a few years of the 1980-90s paper gains, but everything I put in the market is "new" money, so I feel the losses more. To me, -$1000=a week at work, disappeared. Sometimes I think peoples' expectations of the market are so unrealistically high right now that the only place it can go is down.

Yup, If you are buying stocks and still working, the last thing that you want is a bull market. Ideally the market will continue to tank all your working years and then the day you retire you have a 20 year Bull run.

You are in the drivers seat man. Hope for the bear if you are buying!

Stephen_C · 03-23-2005, 06:02 PM

Yeah, its tough out there!

The market can be rational and irrational at the same time. Right now its trying to find its way through the possible outcomes regarding the FOMCs recent, and relatively modest, change in sentiment. And the concerns of what a possible uptick in inflation would mean. While this sorting of the possible outcomes is in itself a rational process, the reaction in many sectors is irrational in that it is likely over done.

We have enjoyed a period of falling interest rates which has engendered both a reasonable economic rebound, and provided fertile ground for owning dividend or interest paying investments. Housing has boomed in this environment. Credit defaults have been amazingly low. Basically a succession of nearly sunny days.

The Fed is working to take back their interest rate reductions, and the inflation dragon has reared its head. GM's report has brought fears of increasing credit defaults. Potential outcomes:

1. Fixed income investments fall in value. Not just domestic but international also as investors see a diminished return vs competing US investments. (We have certainly seen this occur in dramatic fashion over the past couple of days. Are we at a bottom yet? Falling knives, anyone?
2. Credit costs rise due to concerns of heightened risk of default. High yield funds will again get hit as new higher rate bonds/loans etc are issued.
3. Refi rate of homes will fall, diminishing $$ available for consumers to buy the newest shiny thing on wheels.
4. The yield curve has flattened. The carry trade (borrow short at low rates and invest long at high rates) is beginning to unravel, reducing demand for high yield stuff (bonds, mortgages etc.)
5. Higher US rates will support the dollar, rendering international investments less attractive.

Whether the market today and yesterday over reacted, and what we see out there is good value or not, will be determined over time. But certainly the market will continue to worry about the above (and other issues), and will continue to rationally and irrationally react.

For me, right now, cash is king. I'll wait until Mr. Market has taken its lithium and calmed down.

best,
Steve

soupcxan · 03-23-2005, 06:24 PM

I appreciate the encouraging words...but I'm not sure I buy the conventional wisdom that someone in the accumulation phase should root for a market decline. Yes, 1987 and 2002 have shown us that we would do well to buy in during a large correction, but will that always be the right thing to do? It would seem to be little consolation to a buy-and-hold Nasdaq investor who was buying in during the run up and then tried to catch the falling knife on the way down. Or the same sort of investor in 1929...

I know, I know...the most dangerous words are "it's different this time." But if valuations are excessively high by historical standards and this portents a decade of poor returns, maybe it ISN'T different this time - which is the problem.

If the market keeps declining every year (or remains flat why inflation erodes purchasing power), I'll never get to ER regardless of how much I save.

As brewer knows...all I want is inflation plus 4% at the least possible risk. No more, no less.

brewer12345 · 03-23-2005, 06:57 PM

Holy sh!t, you are right! The sky really is falling! Sell everything and buy immediate annuities!

Kidding of course. Soup, you need to grow a tougher skin. The markets go through such gyrations all the time. Think of this as normal. The trick is to figure out when the baby is being thrown out with the bathwater and act accordingly. No it isn't easy, but panicking in the midst of a market lurch has killed more portfolios than buying something on the cheap a little early.

I would say that Stephen's gloomy predictions are plausible, but how about this one:

- The Fed raises rates enough to hold back inflation, but doesn't choke the economy.

- Credit spreads widen, but companies borrow anyway because they see good investment opportunities and are running out of unused production capacity.

- Consumers benefit from a strong labor market as companies hire to staff their shiny new plants (see above). The new facilities are efficient, so unit labor costs are held in check, but average wages rise. Consumers continue to spend on houses, cars, walk-in humidors, and all the other retail crap they love to buy.

- The dollar appreciates somewhat, but the rising US economy pulls other major economies along with it.

- The yield curve temporarily flattens as the Fed raises rates, but then reverts to a normal, upward sloping curve as corporations become more eager borrowers to finance their capacity investments.

- Equity markets do well as demand is strong and inflation is held in check.

I'd suggest that my scenario is just as plausible as Stephen's. Is it more likely? Nobody knows. Probably bits of both will happen. Since we cannot reasonably forecast what will happen, stay diversified so that you catch at least a little of whatever is rising and you don't get hurt too bad by whatever is falling. Be patient. You have decades ahead of you.

cute fuzzy bunny · 03-23-2005, 07:14 PM

Since I'm not planning on selling anything for at least 3-5 years, and I'm coming into some cash I'd like to do something with other than CD's, the market can fall like a paralyzed falcon as far as i'm concerned...

Stephen_C · 03-23-2005, 07:27 PM

Whoaa, Brewer. I must not have been clear. In short, my view is that right now the markets are reacting and perhaps overreacting to Greenspan. And I listed some potential outcomes that the market is now trying to assess. I certainly hope your outline of an up, up and away future comes true!!!

Good buys there may be right now, but my first rule of investing is capital preservation. Investing in the current market maelstrom is too high risk for me at current return levels, at least with regard to bond funds, loan funds etc. Look at the dumping of EDF today, a good fund with a good history. I'll wait and either let the price come to me (to compensate for the risk), or wait until the risk maelstrom settles and accept a lower return for lower risk.

Steve

wildcat · 03-23-2005, 07:34 PM

Let's all take a timeout and relax. Everything will be okay. If you are getting impatient you can always take everything out and head to Vegas for a chance at instant returns.

Marshac · 03-23-2005, 07:47 PM

I plowed my 401k into lotto and keno tickets after a hot tip from a fortune cookie... 44, 5, 33, 11, 27, 63

If I used Roth money for those tickets, will I still owe taxes?

Jarhead* · 03-23-2005, 08:16 PM

Quote:

As brewer knows...all I want is inflation plus 4% at the least possible risk. No more, no less.

Soupcxan: It is my impression that you are a very young guy.
Trust me, I know how you feel. In 1966, I was married with two small children. Wife was homemaker.
From 1966 to 1980, the S&P 500 had a cumulative annual return of -2% per year measured against inflation.
The only real defense that allowed you to come out somewhat whole was a job.
Are we in jeoprady of that scenario again. Who knows?
You may have to work longer than you planned on, but there are worse things.
As Cut-Throat mentioned, if you dollar cost average, and can muster up the necessary courage (Not easy to do, if we head into an extended period of stock and bond malaize), to stick with it you'll probably be alright.
I will confess that after 6 or 7 years of negative returns, during the l966 to 1980 period, I bought a side business and some individual rental houses, etc. for my side income. (Very few folks in that period of time were stock investors.). IRA"s, 401's etc. hadn't been available until much later.
In any case, after 20 years of a robust stock and bond market as we have had, in my opinion, it's going to be tough sledding for a while.
Hang in there on your job, and enjoy being young and healthy. If you do that, you'll be fine. (You'll probably find opportunities in the future that won't have anything to do with the stock Mkt.)

laurence · 03-23-2005, 09:12 PM

I'm 30 just starting to really get the ball rolling on the accumulation phase, and I agree this market is ideal for me. The economy is growing and the market is trading flat, all the while I'm plowing almost 3 grand a month into our portfolios. Valuations are only going to get better in that scenario. I look forward to the year we have a bull run and I watch my net worth double in 2 years

. At this point I focus on how many shares I own, keeps me from getting too emotional with the gyrations....

cute fuzzy bunny · 03-24-2005, 12:00 AM

Quote:

In 1966, I was married with two small children.

In 1966 I was getting in trouble for pulling the pigtails of our next door neighbor, Joanie Capone. Later that year I got kicked out of catholic school for persistently kissing another kindergartener...Cynthia something-or-other. Truth be told, she was the serial kisser, but I took the fall.

Sorry Jarhead...

uncledrz · 03-24-2005, 01:13 AM

Soup

Brewer 12345 and c-t have given good advice. The market self adjusts so you have to expect ups and downs. Asset allocation and a steady investment program, written plan, follow the plan.

Interesting story. Years ago my parents had a friend who was a multi-millionare, very wealthy and this was in the 50's. When asked how she acculumate such a fortune her response was:

"Very slowly"

Uncledrz

BUM · 03-24-2005, 03:33 AM

I'm in the "Soup" too. I feel your pain. YTD numbers suck. And DW doesnt say much but I keep getting THAT LOOK. You know the eyes that can burn holes in your chest? Eyes that say you do know what the %^&* you're doing, right?

Time to do SOMETHING. Recommendation:

1. Do the brew - Brewer12345 makes some good points. Lets give it a week or so and see where the improvement (if any) comes from and where the opportunities are.

2. A declining market, even a weeklong sag, deserves a "dirty market timers" eye since DCA is so important to us new money guys.

3. We need a Talisman - A sign, a symbol something. The ER lifestylers have their dryer sheets. What do the stratagists have? In the interim it almost Easter. Time for a resurrection.

TH for gods sake... Bring back the bunny!!!!!!!!!!

BUM

03-24-2005, 04:49 AM

Quote:

Time to do SOMETHING. *Recommendation:

A couple things come to mind -

Recency - Short term periods less than 10 years mean little to nothing.

And as Unclemick and I have said - Our most Brilliant moves have been to do nothing.

Spanky · 03-24-2005, 04:54 AM

It might still a good time to increase holdings of energy and natural resource ETF funds since demand should continue to rise.

My two cents worth.

Eagle43 · 03-24-2005, 05:46 AM

I ain't going nowhere. Staying in the Vanguard Index Funds. I had a slicer/dicer/wheeler/dealer just yesterday tell me to get out of REITS, get out of intermediate bond index funds (go short-term)Buy energy funds, buy commodities, buy gold, blah, blah blah. This same guy was crying in December when his puts and holds and short-selling were all taking it in the shorts. Outsmarting the market is his life, but I wonder if he's really winning.

I should not need the money for 3-5 years, I just reinvest dividends anyway, so a small bear doesn't scare, and actually helps. I think market is reacting to Greenspan and to oil with possible inflation.

I have been brilliant since 1993 by doing nothing. I'm still ahead. I intend to stay the course.

Bookm · 03-24-2005, 05:57 AM

Quote:

It might still a good time to increase holdings of energy and natural resource ETF funds since demand should continue to rise.

Maybe, but there's been a whole lotta shakin' goin' on in that sector the last month. I like what this and PM can do for one's portfolio, though - very low correlation with most other corners of the market. Most certainly be prepared for the volatility of the individual holding, but it has potential to smooth out the total package.

Bookm

HnE · 03-24-2005, 06:11 AM

Whenever you worry, go read anything by Bogle. It always seem to help me.

Here is a snip from one of Mr. Bogles recent talks.

"Successful investing is pretty simple. Just do a few simple things right, and avoid making stupid mistakes. So let me close with three rules you should follow, whatever strategy you pursue.

The right things: First, in investing, realize that you get what you don't pay for. Whatever future returns the markets are generous enough to deliver, few investors will succeed in capturing 100% of those returns, simply because of the high costs of investing-all those commissions, management fees, investment expenses, yes, even taxes-so pare them to the bone.

Second: Don't do something, just stand there. Own American business . . . not one company or industry, but a broadly diversified portfolio of lots of companies and industries. Buy such a portfolio, never sell, and hold it forever.

Third, Stay the course. Invest for the long term-decades, even a lifetime-and start as soon as you can. No one knows what stocks will do tomorrow, or even wh

03-23-2005, 05:34 PM	#1
soupcxan Full time employment: Posting here. Join Date: Aug 2004 Posts: 761	The market that goes from suck to blow... Three bad days in a row, across nearly all of the asset classes. There go all my YTD gains and we're back in the red. I really do try to not let the bear get the better of me, but does anyone else have horrible visions of the 1970s rising rates/stagnant economy, or the long dismal decline of the Nikkei? I really wouldn't mind some paper losses if I had enjoyed a few years of the 1980-90s paper gains, but everything I put in the market is "new" money, so I feel the losses more. To me, -$1000=a week at work, disappeared. Sometimes I think peoples' expectations of the market are so unrealistically high right now that the only place it can go is down.

03-23-2005, 05:47 PM	#2
brewer12345 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Mar 2003 Posts: 9,248	Re: The market that goes from suck to blow... Patience, grasshopper. There is no free lunch. If you want higher returns, you have to be prepared to put up with more volatility. Make sure you are appropriately diversified and don't spend every waking moment looking at each trade. All there is to it, really. As a matter of fact, you should be rooting for things to tank for a wile so that you can buy assets on the cheap. __________________ “When you realize that you are one of the rare few who observe moral principles in their relationships with others, there is a temptation to sink into amorality, not out of conviction or pleasure but simply to avoid further pain, because there is no greater suffering than being an angel in hell, whereas a devil feels at home wherever he goes.” – Martin Page, How I Became Stupid

03-23-2005, 06:02 PM	#4
Stephen_C Dryer sheet wannabe Join Date: Jan 2004 Posts: 11	Re: The market that goes from suck to blow... Yeah, its tough out there! The market can be rational and irrational at the same time. Right now its trying to find its way through the possible outcomes regarding the FOMCs recent, and relatively modest, change in sentiment. And the concerns of what a possible uptick in inflation would mean. While this sorting of the possible outcomes is in itself a rational process, the reaction in many sectors is irrational in that it is likely over done. We have enjoyed a period of falling interest rates which has engendered both a reasonable economic rebound, and provided fertile ground for owning dividend or interest paying investments. Housing has boomed in this environment. Credit defaults have been amazingly low. Basically a succession of nearly sunny days. The Fed is working to take back their interest rate reductions, and the inflation dragon has reared its head. GM's report has brought fears of increasing credit defaults. Potential outcomes: 1. Fixed income investments fall in value. Not just domestic but international also as investors see a diminished return vs competing US investments. (We have certainly seen this occur in dramatic fashion over the past couple of days. Are we at a bottom yet? Falling knives, anyone? 2. Credit costs rise due to concerns of heightened risk of default. High yield funds will again get hit as new higher rate bonds/loans etc are issued. 3. Refi rate of homes will fall, diminishing $$ available for consumers to buy the newest shiny thing on wheels. 4. The yield curve has flattened. The carry trade (borrow short at low rates and invest long at high rates) is beginning to unravel, reducing demand for high yield stuff (bonds, mortgages etc.) 5. Higher US rates will support the dollar, rendering international investments less attractive. Whether the market today and yesterday over reacted, and what we see out there is good value or not, will be determined over time. But certainly the market will continue to worry about the above (and other issues), and will continue to rationally and irrationally react. For me, right now, cash is king. I'll wait until Mr. Market has taken its lithium and calmed down. best, Steve

03-23-2005, 06:24 PM	#5
soupcxan Full time employment: Posting here. Join Date: Aug 2004 Posts: 761	Re: The market that goes from suck to blow... I appreciate the encouraging words...but I'm not sure I buy the conventional wisdom that someone in the accumulation phase should root for a market decline. Yes, 1987 and 2002 have shown us that we would do well to buy in during a large correction, but will that always be the right thing to do? It would seem to be little consolation to a buy-and-hold Nasdaq investor who was buying in during the run up and then tried to catch the falling knife on the way down. Or the same sort of investor in 1929... I know, I know...the most dangerous words are "it's different this time." But if valuations are excessively high by historical standards and this portents a decade of poor returns, maybe it ISN'T different this time - which is the problem. If the market keeps declining every year (or remains flat why inflation erodes purchasing power), I'll never get to ER regardless of how much I save. As brewer knows...all I want is inflation plus 4% at the least possible risk. No more, no less.

03-23-2005, 06:57 PM	#6
brewer12345 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Mar 2003 Posts: 9,248	Re: The market that goes from suck to blow... Holy sh!t, you are right! The sky really is falling! Sell everything and buy immediate annuities! Kidding of course. Soup, you need to grow a tougher skin. The markets go through such gyrations all the time. Think of this as normal. The trick is to figure out when the baby is being thrown out with the bathwater and act accordingly. No it isn't easy, but panicking in the midst of a market lurch has killed more portfolios than buying something on the cheap a little early. I would say that Stephen's gloomy predictions are plausible, but how about this one: - The Fed raises rates enough to hold back inflation, but doesn't choke the economy. - Credit spreads widen, but companies borrow anyway because they see good investment opportunities and are running out of unused production capacity. - Consumers benefit from a strong labor market as companies hire to staff their shiny new plants (see above). The new facilities are efficient, so unit labor costs are held in check, but average wages rise. Consumers continue to spend on houses, cars, walk-in humidors, and all the other retail crap they love to buy. - The dollar appreciates somewhat, but the rising US economy pulls other major economies along with it. - The yield curve temporarily flattens as the Fed raises rates, but then reverts to a normal, upward sloping curve as corporations become more eager borrowers to finance their capacity investments. - Equity markets do well as demand is strong and inflation is held in check. I'd suggest that my scenario is just as plausible as Stephen's. Is it more likely? Nobody knows. Probably bits of both will happen. Since we cannot reasonably forecast what will happen, stay diversified so that you catch at least a little of whatever is rising and you don't get hurt too bad by whatever is falling. Be patient. You have decades ahead of you. __________________ “When you realize that you are one of the rare few who observe moral principles in their relationships with others, there is a temptation to sink into amorality, not out of conviction or pleasure but simply to avoid further pain, because there is no greater suffering than being an angel in hell, whereas a devil feels at home wherever he goes.” – Martin Page, How I Became Stupid

03-23-2005, 07:14 PM	#7
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	Re: The market that goes from suck to blow... Since I'm not planning on selling anything for at least 3-5 years, and I'm coming into some cash I'd like to do something with other than CD's, the market can fall like a paralyzed falcon as far as i'm concerned... __________________ Many an optimist has become rich by buying out a pessimist

03-23-2005, 07:27 PM	#8
Stephen_C Dryer sheet wannabe Join Date: Jan 2004 Posts: 11	Re: The market that goes from suck to blow... Whoaa, Brewer. I must not have been clear. In short, my view is that right now the markets are reacting and perhaps overreacting to Greenspan. And I listed some potential outcomes that the market is now trying to assess. I certainly hope your outline of an up, up and away future comes true!!! Good buys there may be right now, but my first rule of investing is capital preservation. Investing in the current market maelstrom is too high risk for me at current return levels, at least with regard to bond funds, loan funds etc. Look at the dumping of EDF today, a good fund with a good history. I'll wait and either let the price come to me (to compensate for the risk), or wait until the risk maelstrom settles and accept a lower return for lower risk. Steve

03-23-2005, 07:34 PM	#9
wildcat Thinks s/he gets paid by the post Join Date: Feb 2005 Posts: 1,896	Re: The market that goes from suck to blow... Let's all take a timeout and relax. Everything will be okay. If you are getting impatient you can always take everything out and head to Vegas for a chance at instant returns. __________________ "These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"

03-23-2005, 07:47 PM	#10
Marshac Full time employment: Posting here. Join Date: Aug 2004 Posts: 904	Re: The market that goes from suck to blow... I plowed my 401k into lotto and keno tickets after a hot tip from a fortune cookie... 44, 5, 33, 11, 27, 63 If I used Roth money for those tickets, will I still owe taxes?

03-23-2005, 09:12 PM	#12
laurence Moderator Emeritus Join Date: Feb 2005 Location: San Diego Posts: 4,787	Re: The market that goes from suck to blow... I'm 30 just starting to really get the ball rolling on the accumulation phase, and I agree this market is ideal for me. The economy is growing and the market is trading flat, all the while I'm plowing almost 3 grand a month into our portfolios. Valuations are only going to get better in that scenario. I look forward to the year we have a bull run and I watch my net worth double in 2 years . At this point I focus on how many shares I own, keeps me from getting too emotional with the gyrations....

03-24-2005, 01:13 AM	#14
uncledrz Full time employment: Posting here. Join Date: Mar 2005 Posts: 548	Re: The market that goes from suck to blow... Soup Brewer 12345 and c-t have given good advice. The market self adjusts so you have to expect ups and downs. Asset allocation and a steady investment program, written plan, follow the plan. Interesting story. Years ago my parents had a friend who was a multi-millionare, very wealthy and this was in the 50's. When asked how she acculumate such a fortune her response was: "Very slowly" Uncledrz

03-24-2005, 03:33 AM	#15
BUM Thinks s/he gets paid by the post Join Date: Feb 2004 Posts: 1,549	Re: The market that goes from suck to blow... I'm in the "Soup" too. I feel your pain. YTD numbers suck. And DW doesnt say much but I keep getting THAT LOOK. You know the eyes that can burn holes in your chest? Eyes that say you do know what the %^&* you're doing, right? Time to do SOMETHING. Recommendation: 1. Do the brew - Brewer12345 makes some good points. Lets give it a week or so and see where the improvement (if any) comes from and where the opportunities are. 2. A declining market, even a weeklong sag, deserves a "dirty market timers" eye since DCA is so important to us new money guys. 3. We need a Talisman - A sign, a symbol something. The ER lifestylers have their dryer sheets. What do the stratagists have? In the interim it almost Easter. Time for a resurrection. TH for gods sake... Bring back the bunny!!!!!!!!!! BUM __________________ In a panamax down by the river.

03-24-2005, 04:54 AM	#17
Spanky Thinks s/he gets paid by the post Join Date: Dec 2004 Location: Minneapolis Posts: 2,784	Re: The market that goes from suck to blow... It might still a good time to increase holdings of energy and natural resource ETF funds since demand should continue to rise. My two cents worth. __________________ May we live in peace and harmony and be free from all human sufferings.

03-24-2005, 05:46 AM	#18
Eagle43 Thinks s/he gets paid by the post Join Date: Jan 2005 Posts: 1,653	Re: The market that goes from suck to blow... I ain't going nowhere. Staying in the Vanguard Index Funds. I had a slicer/dicer/wheeler/dealer just yesterday tell me to get out of REITS, get out of intermediate bond index funds (go short-term)Buy energy funds, buy commodities, buy gold, blah, blah blah. This same guy was crying in December when his puts and holds and short-selling were all taking it in the shorts. Outsmarting the market is his life, but I wonder if he's really winning. I should not need the money for 3-5 years, I just reinvest dividends anyway, so a small bear doesn't scare, and actually helps. I think market is reacting to Greenspan and to oil with possible inflation. I have been brilliant since 1993 by doing nothing. I'm still ahead. I intend to stay the course. __________________ Resist much. Obey Little. . . . Ed Abbey Disclaimer: My Posts are for my amusement only.