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Old 02-22-2009, 08:35 AM   #21
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I think it is different. Dow Chemical cut its dividend for the first time in 100 years, baby boomers like me cutting back and retired, manufacturing base gone,still cost way too much to buy a house. I just saw a letter from my former company, they have instituted draconian cash conservation controls, they are scared s---less.
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Old 02-22-2009, 09:13 AM   #22
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Dow Chemical cut its dividend for the first time in 100 years
This is really sad for me to see. My Dad worked for Dow for 42 years (he started working there in 1931!) and my hometown is where Dow is headquartered. It's a bad time to lose a job and have to relocate.

My Mom is going to notice the difference in her dividend checks, it was a huge cut.
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Old 02-22-2009, 09:22 AM   #23
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A lot of folks who have traditionally depended on one solid stock for a significant portion of their income are starting to feel the pain. Depending on the results of one company has been widely recognized as not a good plan, but many people just stuck with what they knew/what they'd been told.

Likewise, people who thought dividend investing (over a large number of companies) would insulate them from the ups/down of the economy are finding that isn't a bulletproof plan either. The returns are less volatile than some other methods of investing, but it's not foolproof.
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Old 02-22-2009, 10:09 AM   #24
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So by "different this time" you mean different from the Depression of 1807? Or maybe the Depression of 1837? Or of 1873? Or of 1893? Or 1930?

Some differences I can think of . . . FDIC insurance so when banks fail depositors aren't wiped out, accommodative monetary policy so the Government doesn't compound the problem, unemployment insurance so people who lose their jobs can maintain some economic stability, higher standards of living so losing a job doesn't mean starving to death, etc. etc.

So look, it is different this time . . . it's better.
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Old 02-22-2009, 10:19 AM   #25
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If the current market collapse is "different this time," then there's something to worry about. If it isn't different this time, even if it's as bad as the great depression, there's less to worry about (in the past the market has always bounced back).

So, do you think it's different this time (e.g. peak oil, overpopulation, things got too far out of whack) or not (e.g. hangover from irrational exuberance, normal housing price cycles, naughty bankers)?
The main difference between now and other times in history is the amount of leverage that corporations have put up. This is a direct result of the buyout financing binge of the 1980's and the ability of computers to model profitable buyout opportunities and hedge funds to take advantage of these models by borrowing huge amounts of money for LBO's to then reemerge as new "efficient" companies, though now with little room for error in the execution of their plan. Therefore there are far far fewer AAA rated companies than any time in history as competitor companies had to leverage as well to compete and get stock market price growth.

Companies have been labeled fools if you didn't go out and borrow money to buy back your stock.

Therefore as the economy goes into a slowdown similar to those times corporations are not having the ability to have "solid" assets to back their long term plans. Companies do not have the funds to buy their own stock as they did in 1987 when that financial problem was forestalled to today. A sign of this is the record decline in dividends as companies just don't have the funds to pay them shows the financing problems are real not imaginary. And that earnings have been overinflated over the past years due to the leverage in corporate America provided unsustained growth.

Golden examples of this are GE and DOW. They are both now so overextended they are in need of the government to bail them out, whether by loan guarantees for GE or the government to upend contract law as for DOW, instead of going out and picking up cheap companies and setting themselves to come out of this situation flying, they are turning to the US goernment and Warren Buffet to save them.

So we end up in a situation where the US govenrment lends/invests hundreds of billions to corporations with a capitalization of less than 25 billion because they are "too big to fail".

And instead of the world's future growth coming from a free and relatively debt free country to help crawl out of the economic morass from a populations overextention as the United States was in 1929, now we are counting on a corrupt regime in China for the world's growth.


USATODAY.com - As company priorities shift, fewer get AAA debt rating


What will happen only time can tell, it may have fallen far enough already, but I am reminded of what I read about the great depression , "At every corner we thought we had come out of the worse time in history when in reality it was only beginning, it appeared happened so quickly but yet in slow motion."

Letting it fall and having something to invest whenever this ends will result in being able to set yourself up quite well for life.
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Old 02-22-2009, 10:29 AM   #26
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A lot of folks who have traditionally depended on one solid stock for a significant portion of their income are starting to feel the pain. Depending on the results of one company has been widely recognized as not a good plan, but many people just stuck with what they knew/what they'd been told.
I agree. I think in my Dad's case he was concerned about paying capital gains as he bought long before there were tax sheltered accounts. I'm sure he also felt Dow was a really stable company and thought of it more as a bond than a stock.

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Likewise, people who thought dividend investing (over a large number of companies) would insulate them from the ups/down of the economy are finding that isn't a bulletproof plan either. The returns are less volatile than some other methods of investing, but it's not foolproof.
The only really good plan seems to be live below your means; if nothing else, I'll be used to living on less. There aren't too many good places to be invested right now.

Emotions aside, I'm watching how all the asset classes are responding to this. Right now, and what I've expected for a while, buying international funds haven't provided much in the way of zigging when the US is zagging. Also, having 5% in say gold isn't enough to put much of an impact on the overall portfolio.

I'm especially going to watch how a 50/50 mix of Wellington/Wellesely does in this meltdown. Eventually I'll roll my 401k into an IRA and I like the idea of simplicity.
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Old 02-22-2009, 10:52 AM   #27
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Great post, Running_Man.
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Old 02-22-2009, 11:08 AM   #28
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Living my life in my own little world for 51 years I have noticed and believe; there was crap in the past, there's crap now and more than likely there will be crap in the future.
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I think things always feel "different this time."
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So by "different this time" you mean different from the Depression of 1807? Or maybe the Depression of 1837? Or of 1873? Or of 1893? Or 1930?
The more I read history, the more I conclude that it's never different this time.

Including this time.
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Old 02-22-2009, 11:24 AM   #29
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There are a few things that in my mind make me think it's different this time:

1. Baby boomers will be retiring in the next 10 years getting rid of their equities to finance their lifestyle. There will be way more sellers than buyers.
2. More disclosure is great, but there are no longer any unknown gems. I'm reading Buffet's biography and he talked about buying companies for 1/3rd their cash on hand in the open market. Opportunities like this don't exist.
3. With the plethora of new financial products out there, housewives can trade like pro traders (with shorting, derivatives, etc)...something that was unthinkable in the past. This creates this see-saw market action...any rally will just get pummelled eventually with all the "day traders".
4. Possible double digit inflation coming in 2011 (trillions printed by us gov't) will absolutely destroy the stock market if it comes to fruition.
5. If you think it can't be different this time, see returns in Japan the last 20 years. US fiscal policy has almost mirrored that of Japan in the late 80's and early 90's. Why should the results be different here?
6. Fewer companies/organizations are participating in defined benefit plans as they see the massive liabilities they can create. Given the poor job market, employers will realize there is little benefit to offer these plans that have only downside risk to them. These defined benefit plans are one of the larger purchasers of stocks so again we have a deterioration in demand of equities.
7. M&A activity has been huge the last 20 years so that companies can become more and more efficient. At some point you are only left with a number of large companies in each sector that will cannibalize their respective margins.
8. There are fewer and fewer great innovations/innovators compared to the previous century. Things like transportation, technology, etc have made great leaps and bounds. Really the only innovation that can/will come this next century is in energy improvements (ie greener cars) and technology. At some point there will be nothing new and revolutionary to invent. Just think of everything you use on a daily basis that was invented in the last century. Someone/some entity made a fortune on that invention which ultimately benefited shareholders. I wouldn't consider things like an IPOD a great invention like a phone/photocopier/airplane,etc...it's a gadget and nothing more. YOu will see more and more gadgets and less true innovation.
9. There are no big economic stimuli out there. What I mean is that the war in the 40's created jobs, manufacturing and agricultural improvements created jobs in the 50's and 60's. Technology really took off in the 80's with the advent of the PC's. The 90's could be considered the decade of housing, etc. Right now we have nothing driving the economy.
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Old 02-22-2009, 11:29 AM   #30
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3. With the plethora of new financial products out there, housewives can trade like pro traders (with shorting, derivatives, etc)...something that was unthinkable in the past. This creates this see-saw market action...any rally will just get pummelled eventually with all the "day traders".
It's been my belief that these "ultra short" ETFs are WMDs when it comes to the markets. I believe the SEC should ban them. I can't fault anyone for using them while they are available, but it used to take a certain amount of effort and sophistication to short stocks, let alone entire sectors and the entire market. Now anyone can do it with a click or two and a $9.95 commission.
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Old 02-22-2009, 11:37 AM   #31
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Right now, and what I've expected for a while, buying international funds haven't provided much in the way of zigging when the US is zagging.
I think increased globalization (the US is 25% of the world's market, and California is the eighth largest economy in the world) has an impact. When our domestic economy melts down, other economies that have $ invested with us suffer as well.

I think in a more normal environment with stable economies, international would provide the reverse correlation most of us look for.

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Old 02-22-2009, 01:02 PM   #32
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This thread brings to mind the dramatic device often used in ending 19th century Russian plays: Actor stands alone on stage, curtain closes behind him, spotlight on his face, he looks off into the future.
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Old 02-22-2009, 02:25 PM   #33
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8. There are fewer and fewer great innovations/innovators compared to the previous century. Things like transportation, technology, etc have made great leaps and bounds. Really the only innovation that can/will come this next century is in energy improvements (ie greener cars) and technology. At some point there will be nothing new and revolutionary to invent. Just think of everything you use on a daily basis that was invented in the last century. Someone/some entity made a fortune on that invention which ultimately benefited shareholders. I wouldn't consider things like an IPOD a great invention like a phone/photocopier/airplane,etc...it's a gadget and nothing more. YOu will see more and more gadgets and less true innovation.
The internet, mobile communications, robotics, artificial intelligence, bio-engineering, nano-technology . . . we've just scratched the surface of all that can still be accomplished. If anything innovation seems to be accelerating rather than slowing down.

Too many pessimists out there.
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Old 02-22-2009, 08:26 PM   #34
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accountingsucks, I agree with most of your points, except this one:

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8. At some point there will be nothing new and revolutionary to invent.
It's been predicted before, too:
“Everything that can be invented has been invented.”
Charles H. Duell, Commissioner, U.S. Office of Patents, 1899
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Old 02-23-2009, 10:41 AM   #35
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8. There are fewer and fewer great innovations/innovators compared to the previous century. Things like transportation, technology, etc have made great leaps and bounds. Really the only innovation that can/will come this next century is in energy improvements (ie greener cars) and technology. At some point there will be nothing new and revolutionary to invent.
What is your basis for this? I think the exact opposite.

Don't forget that ~ 1900 many thought the biggest problem facing American cities was the waste and pollution from huge numbers of horses - manure, flies, stench and dead horses in the street.

They could not have imagined that in just 30 years, some of those breeds of horses would almost be extinct. The changes that have happened will drive changes we cannot even imagine. Who would have thought how pervasive the internet would be in our lives just 20 or 30 years ago?

We are on the edge of doing amazing things with genetic engineering. I wouldn't sell that, or some unkown thing short.

-ERD50
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Old 02-23-2009, 11:19 AM   #36
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.... Who would have thought how pervasive the internet would be in our lives just 20 or 30 years ago?

....
Very few, but I do remember a conversation about 30 years ago: - soon everyone will have their own computer. - who would want that? - everyone.

We didn't believe him.
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Old 02-23-2009, 12:49 PM   #37
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Very few, but I do remember a conversation about 30 years ago: - soon everyone will have their own computer. - who would want that? - everyone.

We didn't believe him.
True, but origianlly we envisioned a computer as primarily something to do calculations. It is much more an enhanced telephone and rapid response communication system in the most common usages.

People like to communicate with others.

Ha
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Old 02-23-2009, 03:41 PM   #38
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Trombone Al and the rest of the contributors,

Thanks for this topic. Gave me some things to ponder and reminded me to reread Atlas Shrugged.

"This situation was created by excess greed leveraged by excess stupidity."

"I'm a pessimist by trade and someday I'll be right. Hope it's not this time."

"Letting it fall and having something to invest whenever this ends will result in being able to set yourself up quite well for life."
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Old 02-23-2009, 08:46 PM   #39
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"Letting it fall and having something to invest whenever this ends will result in being able to set yourself up quite well for life."
Problem is, by the time it is clear that it is the end, it'll probably be too late to set yourself up. You only really know in the rear view mirror.

I think the best you can do (w/o a crystal ball) is to just maintain whatever AA you are comfortable with, adjust along the way, and hope that any future bad times are not significantly worse than the past ones.

-ERD50
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Old 02-23-2009, 10:21 PM   #40
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As far as the market is concerned, long bull and bear markets ended when almost everyone was convinced that "it really is different this time", then they discovered it wasn't.
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