Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Volker, Greenspan and Donner, Too
Old 08-29-2005, 09:06 PM   #21
Recycles dryer sheets
 
Join Date: Jun 2005
Posts: 213
Re: Volker, Greenspan and Donner, Too

()
Thanks for the primer. I guess I have problems in application. Trying to get an overall risk profile for my portfolio is difficult. I tend to focus on the factors that stick out or adding up risk factors until it becomes overwhelming.

Also up till now, I have been building up my fund portfolio. That was just basically looking at macro factors and deciding asset allocations. Now I am planning on buying individual securities for income. I am studying up on individual stock valuation. Which will mean synthesizing macro and micro risk factors.

Mike
__________________

__________________
mikew is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Volker, Greenspan and Donner, Too
Old 08-29-2005, 10:04 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Volker, Greenspan and Donner, Too

Glad it was helpful.

Perhaps an example or two helps. A while back I was undecided about buying a couple of asset classes...REITS, Energy and Emerging markets as all were "sky high" and had big run-ups.

Over the last two years, those are my three best returning asset classes.

Do I keep balancing and draining money off of them into other areas, principally the ones that everyone is afraid of? You bet.

Balance. Take your lumps when they show up.

I saw an interesting article recently that trumpeted dividend paying stocks as "The New Bonds". Not a bad idea...buy a broad spectrum of stocks that pay you regardless of where the share price goes. Say hello to the norwegian widow at the mailbox while you're picking up dividend checks. Pay 5 or 15% tax on those dividends until '07 when it drops to zero. Maybe you have some upside in share price. Maybe you dont. Look back on it in 10 years and see what happened,...unless the favorable tax treatment is repealed or modified in which case reconsider. Rinse and repeat.
__________________

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-29-2005, 10:47 PM   #23
Dryer sheet aficionado
 
Join Date: Apr 2004
Posts: 26
Re: Volker, Greenspan and Donner, Too

Good discussion. I tend to agree with Donner. The market enviroment has become too risky for my hard-earned dollars, particulary when I consider, to paraphrase Mr. Hussman below, "this is all the dough I am ever going to make."

Quote:
If you're an index die-hard, dollar-cost averaging into stocks, you can be comfortable staying with your plan - particularly if your existing wealth is small relative to your expected future savings. But if you've got all your dough invested in stocks, and it's all the dough you're ever going to make, think twice. Then think three times. Both theory and historical evidence are against the proposition that stocks will be a very rewarding investment for long-term investors committing a lump-sum to the stock market at current prices. It's a point I've made often in recent months, but I can't imagine how it could be over-emphasized.
http://www.hussman.net/wmc/wmc050829.htm

There is a distinction, in my view, between market timing and avoiding unnecessary risk. I don't view Donner's approach as advocating market timing; rather I view it as a wake-up call, i.e., there is no longer sufficient upside potential in the markets to to justify risking a large portion of your nestegg . . . particularly if you are not in the postion to recovery if things go badly.

Robert
__________________
Do or Do Not, There is No Try.<br />When 900 years old you reach, look so good, you will not.&nbsp; - Yoda
robert is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-29-2005, 10:58 PM   #24
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Volker, Greenspan and Donner, Too

Some of you touched on it, but the key here is where you are in your accumulation/distribution phase. As a 31 year old accumulator with at least 14 years left before I begin distribution, I'm betting on equities in the long run because:

a) I've only accumulated 10% of what I need to retire (in constant 2005 dollars)

b) If the market tanks in the next 5 years it will just be a sale for me.

c) If I go conservative, I can garantee only one thing; I won't reach my ER goal!

If I had my 2 mil and paid off house, I'd be sitting about 50/50 in my portfolio, way more risk than Donner advises, but certainly money off the table compared to 90/10 that I currently have.

I do have a fixed 20 year mortgage that costs me about 1% above the rate of inflation, that's my nod to safety.
__________________
laurence is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-29-2005, 11:57 PM   #25
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Laurence
b) If the market tanks in the next 5 years it will just be a sale for me.
Just curious, but how long would it have to tank before you started to question this wisdom? I only ask because 5 years clearly wasn't long enough for Japan's recovery, and we consume a lot more oil than they do. So, if you believe the "peak oil" theory, believe that retiring boomers will be an economic anchor, and believe that our wacky fiscal policies will bite us in the ass, there's a chance you might also believe in a long-term secular bear market.
__________________
wabmester is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 10:21 AM   #26
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by wabmester
Just curious, but how long would it have to tank before you started to question this wisdom? I only ask because 5 years clearly wasn't long enough for Japan's recovery, and we consume a lot more oil than they do. So, if you believe the "peak oil" theory, believe that retiring boomers will be an economic anchor, and believe that our wacky fiscal policies will bite us in the ass, there's a chance you might also believe in a long-term secular bear market.
Well, I definitely believe our wacky fiscal policies are endanger our posterior, I'm not so sure about the effects of the former (I believe they will affect, I can't say the magnitude), but my portfolio is heavy in value and dividend bearing stocks, definitely learned from my "buy anything that ends it .com!" phase. But let's say the market goes through gyrations and I'm flat on returns come a decade from now once adjusted for inflation. How much better would I have been holding a portfolio of 50% gold 50% cd ladder? Now the stock market may go the way of the great depression, but at that point I'll have bigger worries, like finding a job. I think inflation is the most likely bad case scenario for the next decade. So I guess maybe I should dabble in commodities and/or gold as a hedge? I just figured those plays are over my head as a relative neophyte to investing.

So what would you do, Wab? Here is where I am now:

20% Wellington
10% Vanguard Value Viper
30% S&P 500 index
20% small cap value
20% global

I figure if I go more conservative, I push off retirement by up to a decade, so 25 years should be enough to balance out a wacky stock market anyway. I'm always open to input/insight, it's why I hang around.
__________________
laurence is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 11:58 AM   #27
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
Re: Volker, Greenspan and Donner, Too

Not much I can do really. Continue to DCA into index funds. Maybe I should look more into some short-term bond exposure. My riskier plays are very small bets. Only hold one individual stock at this time and it is a small bet. Only hold one real risky non-diversified MF and it is a small bet. Everything else is in index funds and I try to maintain a small cash position.

My time horizon is even longer than L's.

One comment on the boomer drag. Many of you fail to account for the huge gen after Xers. Good times = large gen. Regardless I don't buy the generation/bad demographics argument.
__________________
"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"
wildcat is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 12:39 PM   #28
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Volker, Greenspan and Donner, Too

OK, let's first try to enumerate some of the factors that could weigh on the economy (ignoring the "unknown unknowns," which are often the biggest risk).

I) Fiscal policy

1) Easy money from the fed = asset bubble, inflation
2) Trade deficit = net outflow of capital, less to invest domestically and less domestic production
3) Enormous treasury debt = increasing tax burden, higher interest rates

II) Demographics

1) Fewer workers = smaller tax base, lower economic output, higher wages, inflation
2) More Retirees = increased SS/pension burden, less consumer activity, asset liquidation (or at least, less investment inflow)

III) Peak Oil

1) less cheap energy = lower economic output, inflation, reallocation of real estate (suburban ghost towns, higher density cities)

Of these three categories (and I'm sure there are more), the one that everybody seems to worry about is fiscal policy, and that seems to me the easiest to fix.* *The dollar has already weakened, inflation has already increased, and these are the trends needed to address our trade deficit.* * The fed has already tightened the money supply considerably.* *So, all that's left is deflation of the asset bubble (mostly real estate) and an increase in taxes.* * I would expect both to happen in the mid-term (fewer than 5 years), but in the short-term (and who knows how long that will last), these things are bullish.

The demographic trend is harder to correct.* *If we have more babies now (we're not) and increase immigration (we're decreasing it), then in 20 years, we might be OK.* *There will be a hit on the ecomony, but it's probably not going to be as big as the hit Japan and Germany are taking, for example.* * And we're already seeing how Japan is dealing with their demographics: people are simply working longer.

If we really hit peak oil, that means we'll have to lower consumption and find alternative energy.* *Neither is easy to do in the short term, so this is probably the biggest risk, but nobody really knows if we've hit peak oil yet.

All of these risks lead to inflation.* *All of them lead to asset revaluation.* *And these are just the known issues.* *Maybe China decides to start empire building again.* *Maybe the terrorists get bolder.* *Maybe global warming causes H2O to become our most expensive commodity.* *Who knows.

What can you do to hedge?* *Keep working!* *Your own skills are your most valuable commodity.* *Buy oil futures if you think we've hit peak oil.* *Buy TIPS and other inflation hedges.* *Buy real estate in mixed-use urban areas (if you think we're headed towards European-style living conditions).* * Buy short-term bonds.* *And figure that somehow we'll make it through all of this, and buy some stock too.* * *You have to decide for yourself what the likelihood of the various outcomes are and invest accordingly.

Obviously, some people think there's close to 100% chance that we'll make it over these bumps unscathed over the long-term, and for them a large stock exposure makes sense.* *Personally, I'm 30% stocks because that represents both my (lack of) confidence in knowing the future and my tolerance for equity risk.
__________________
wabmester is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 12:59 PM   #29
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Volker, Greenspan and Donner, Too

Thanks for the well thought out response, Wab. So we agree that inflation keeps coming up on the magic 8 ball. As far as higher oil prices affecting the economy, I read somewhere that the cost of energy as a percentage of per unit production is still much lower than it was circa 1980, due to increased efficiency. I understand peak oil theory would view this as a minor influence, but how soon will the peak arrive? TIPS-ack, I get them, but again, the return is so low, I miss all my goals anyway. You have your nest egg, so asset protection should be top priority. I have barely begun to build a nest (barely nosed over 100k) so I feel compelled to roll the dice. In the interest of full disclosure, I have about 20k on top of that sitting in a MM, trying to find something to buy, because nothing seems of value. The growth of the 100k in investments is driven by 401k contributions, due to the company match.
__________________
laurence is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 01:06 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Laurence
Thanks for the well thought out response, Wab.* So we agree that inflation keeps coming up on the magic 8 ball.* As far as higher oil prices affecting the economy, I read somewhere that the cost of energy as a percentage of per unit production is still much lower than it was circa 1980, due to increased efficiency.* I understand peak oil theory would view this as a minor influence, but how soon will the peak arrive?* TIPS-ack, I get them, but again, the return is so low, I miss all my goals anyway.* You have your nest egg, so asset protection should be top priority.* I have barely begun to build a nest (barely nosed over 100k) so I feel compelled to roll the dice.* In the interest of full disclosure, I have about 20k on top of that sitting in a MM, trying to find something to buy, because nothing seems of value.* The growth of the 100k in investments is driven by 401k contributions, due to the company match.
I know this is not really a popular viewpoint, but I would say that generally if one feels "compelled to roll the dice", he shouldn't.

Their are of course crises where you must do just that , because you may not survive to play another day. But investment choices roll around often. Lately we have had unusually low volatility, which gives the impression that choices must be made from the currently available menu. History says his is very likely to prove untrue. There will be new menu before long; so what is the rush?

Haha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 01:36 PM   #31
Full time employment: Posting here.
 
Join Date: Aug 2004
Posts: 909
Send a message via ICQ to Marshac Send a message via AIM to Marshac Send a message via Yahoo to Marshac
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by HaHa
There will be new menu before long; so what is the rush?
I'm hungry now. When is lunch?
__________________
Marshac is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 01:39 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Marshac
I'm hungry now. When is lunch?
Oh man, I don't know. I'm only now getting around to breakfast-pork cube steak seasoned with Italian herbs, eggs over easy, cantaloupe and coffee.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 01:39 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Laurence
Thanks for the well thought out response, Wab.* So we agree that inflation keeps coming up on the magic 8 ball.* As far as higher oil prices affecting the economy, I read somewhere that the cost of energy as a percentage of per unit production is still much lower than it was circa 1980, due to increased efficiency.* I understand peak oil theory would view this as a minor influence, but how soon will the peak arrive?* TIPS-ack, I get them, but again, the return is so low, I miss all my goals anyway.* You have your nest egg, so asset protection should be top priority.* I have barely begun to build a nest (barely nosed over 100k) so I feel compelled to roll the dice.* In the interest of full disclosure, I have about 20k on top of that sitting in a MM, trying to find something to buy, because nothing seems of value.* The growth of the 100k in investments is driven by 401k contributions, due to the company match.
The only thing I keep coming back to as an inflaion hedge is commodity exposure. *If you are working, you are already largely protected from inflation in unit-labor costs (not that it has been an issue in recent years). *So what is exposed is commodity price inflation. *So go get you some natural resources funds or something like PCRIX/PCRDX. *Just don't overdo it.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 01:57 PM   #34
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by brewer12345
The only thing I keep coming back to as an inflaion hedge is commodity exposure. If you are working, you are already largely protected from inflation in unit-labor costs (not that it has been an issue in recent years). So what is exposed is commodity price inflation. So go get you some natural resources funds or something like PCRIX/PCRDX. Just don't overdo it.
Sounds fair enough, I'll do some DD.

Ugh, lunch was a frozen salsbury steak...no time to make a real one, another benefit of ER.
__________________
laurence is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 02:08 PM   #35
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Location: Minnehaha
Posts: 2,375
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Laurence
Sounds fair enough, I'll do some DD.

Ugh, lunch was a frozen salsbury steak...no time to make a real one, another benefit of ER.
Ah, steak(even if it is only ala Salsbury) for lunch....I'm on the Boca burger diet... :P
__________________
MinnesotaEats - www.goodfoodmsp.com
Danny is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 02:46 PM   #36
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
Re: Volker, Greenspan and Donner, Too

Question -

I only have bond exposure via GIM. Intl' exposure at that. I think it is a better place to be in terms of risk/reward. I have PCRIX which has done nicely as a hedge. However, no US short bond exposure at all. Mostly diversified equities, both US and Intl'. Some cash. Anyone think I should have exposure to US short bonds given a looooooooooong investment horizon? To me it is just not a great place to be even though it is the best way to play domestic bonds.
__________________
"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"
wildcat is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 03:39 PM   #37
Full time employment: Posting here.
 
Join Date: Aug 2004
Posts: 909
Send a message via ICQ to Marshac Send a message via AIM to Marshac Send a message via Yahoo to Marshac
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by brewer12345
The only thing I keep coming back to as an inflaion hedge is commodity exposure. *If you are working, you are already largely protected from inflation in unit-labor costs (not that it has been an issue in recent years). *So what is exposed is commodity price inflation. *So go get you some natural resources funds or something like PCRIX/PCRDX. *Just don't overdo it.
What about deflation?
__________________
Marshac is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 03:44 PM   #38
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by Marshac
What about deflation?
Could somebody explain the argument for deflation to me? I thought the main causes of deflation were over-production and tight money supply. We have corps hording cash (so over-production isn't likely), and we have a fiat currency. Where's the deflation risk?

Obviously, we can have deflation in some limited sectors (like SUVs), but I just can't see anything that points to overall deflation.
__________________
wabmester is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 03:52 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Re: Volker, Greenspan and Donner, Too

Quote:
Originally Posted by wabmester
Could somebody explain the argument for deflation to me?*
Sure Wab, here it is: "* * * * * * * * * * * * * * * * * * * *."

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Volker, Greenspan and Donner, Too
Old 08-30-2005, 03:55 PM   #40
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Re: Volker, Greenspan and Donner, Too

The last period of true deflation was the great depression, no? And at the point it kicked in, things already really stunk...
__________________

__________________
laurence is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
U.S. Government Rigging The Equity Markets? Donner FIRE and Money 57 09-15-2005 04:01 PM
Comes Sir Alan Greenspan Donner FIRE and Money 20 03-03-2005 09:44 AM

 

 
All times are GMT -6. The time now is 08:55 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.