How far will you ride the market down ?

[ls99]

Perusing a newspaper, while quaffing coffee, one of Pittsburgh's. There was an article about full tankers at anchor, holding tanks in the US full. Brokers still trying to maximize profits in spite of the glut.

A few days ago read that gas prices are going to be jacked up again.

Not particularly worried about either problem. Just reminds me of the days of gas lines at the pump, while tankers were offshore at anchor. Helicopters flying in crew changes and food.

I know the reasons are different. Just wanted to get in the oblique reference to "this time it is really different"

 

[cashbalancetrouble]

Real capitulation occurs when you get off the bus after your stop and get back on one going the other direction and then get off.

I would get off at 10,500 and stay at home.

 

[ls99]

Real capitulation occurs when you get off the bus after your stop and get back on one going the other direction and then get off.

In past life in the lightrail business, I noticed people who bought day passes and did just that, repeatedly. And on multiple days. Week after week.

Guess they had to do something to call it a life.

 

[armor99]

Of course I was thinking about this today.
There is a saying that applies to what is happening: "The market teaches you to lose."
What that means is that we learned to "buy the dips", "buy and hold", "this time is different".

If/When the buy and holders get out - that will signal a bottom to me.

Having said all that; the plan I am formulating in my head is:
1. The money invested in stocks is dead money - I don't know where the bottom is and I don't need the money now. Yes, it hurts and I feel stupid about it. But I don't know if I sold now, what criteria I would use to get back in. So this money might be in the market for many years.
2.I have various ways of looking as my situation.
A. I have enough money in cash to last many years
B. I have 6 years to a very small pension (if the company survives) and 8 years until social
security - that should help.
C. Interest and Dividends almost cover my expenses so I'm treading water in some respect.

This is not easy to watch years of work, savings evaporate.

=====
I posted a link by a person that does technical analysis noting that he can see the s&p at 350 by mid to late 2010. I will be watching. If there is some sort of significant rally, I may sell my stock holding and see if his predictions occurs.

Currently, I still see Vanguard High Yield Corp. Bonds as a good investment.

Also, I think there will come a time when the US$ will peak and that would be the time to buy foreign currencies - Australian $, Canadian $, possibly Euro.

I'm not sure if any of my comment help anyone else but, I hope it does.

Great post!!! Thanks for injecting some well thought out rational reasoning into the mix. I think you are very correct. The markets WILL come back eventually. As long as your retirement horizon is long enough away, then you probably have nothing to worry about. If people like ourselves... prudent, savers, responsible, and educated about retirement cannot win... and win BIG in 20+ years, then the rest of society is completely doomed in just about every way. And if that comes to pass... all of the money you saved will probably be fairly useless anyway.

 

[haha]

In past life in the lightrail business, I noticed people who bought day passes and did just that, repeatedly. And on multiple days. Week after week.

Guess they had to do something to call it a life.

At least their hobby took them out of the house.

Ha

 

[Rich_by_the_Bay]

The discussion begs the question: when you would consider going back to work, if you are currently FIREd and, say, under age 65?

My gut says best to go back before you have to start selling stocks low, if only to be in the game when stocks finally go up, and to bump the income stream to minimal adequacy -- maybe part-time so you still feel retired. Much past mid 60s and those jobs might be harder to find. I see absolutely no indignity or sense of failure in that (though frustration might be there). Hell, you might enjoy it in small doses.

My dilemma is kind of the other side of the coin - hanging on longer at work to wait this monster out, but not wanting to wait forever if it just lurks and squander the best years of retirement, time with the distant grandkids, etc. For now, I can't bear the thought of FIREing into this chaos.


<groan>

 

[Frugality_of_Apathy]

Would seriously consider shorting the US$ at some point but too ignorant to know how.

Simple just take out a really huge low interest loan then stick that money in something like gold or unicorn figurines. When the dollar tanks you convert back to dollars and pay off the loan plus keep the excess.

That's really all shorting is. Having someone pay you for stocks(or whatever) at today's rate and then having you give them that thing at a later date. With a loan They are just paying you in today's dollars for some of tomorrow's dollars.

 

[Moemg]

The discussion begs the question: when you would consider going back to work, if you are currently FIREd and, say, under age 65?



<groan>

I think first we have to see how many would even be able to find a job that paid reasonably . I know I could find a part time job that paid decently but that is the medical profession . Everybody is not as lucky . If my choice was sell stocks ( or as Khan says sell a kidney ) or return to work . I think I'd opt to become an ebay power seller .

 

[Khan]

I think first we have to see how many would even be able to find a job that paid reasonably . I know I could find a part time job that paid decently but that is the medical profession . Everybody is not as lucky . If my choice was sell stocks ( or as Khan says sell a kidney ) or return to work . I think I'd opt to become an ebay power seller .

After age 60 or so is selling a kidney (or one's body) a viable option?

 

[Moemg]

After age 60 or so is selling a kidney (or one's body) a viable option?

Depends on what shape your kidney is in ?

 

[Martha]

Yeah, I agree. The "mark to market" appears to be a "catch 22". If they value assets high then the government will have to pay more to bail out the really bad banks. But there will seem to be less banks to bail out even though some of them will still be bad.

Do what we always have advised other countries to do. What we advised Japan to do but it didn't. Temporarily nationalize the banks. Don't bailout the banks and reward the owners for imprudence. Don't let them limp along and become zombie banks like in Japan. Take the insolvent banks over and sell them at the market value immediately to private investors. With the clean balance sheets they will be able to make loans again to qualified borrowers. Work out the bad crap through a Resolution Trust type organization.

 

[Rich_by_the_Bay]

After age 60 or so is selling a kidney (or one's body) a viable option?

You're good til age 65 if all else is well. So you still have time for the market to recover.

 

[Bikerdude]

Depends on what shape your kidney is in ?

Aren't most kidney shaped.

 

[haha]

After age 60 or so is selling a kidney (or one's body) a viable option?

Selling your body is always an option. However, the price may not be what you are looking for.

Ha

 

[Zoocat]

I still have about 50% of my total allocation in equities and there it will stay unless I feel it necessary to convince my trust manager to sell 10% and buy bonds. I had some cash after selling equities in Sept and Oct and have been DCA back into Vanguard Total Index. I'm not happy at all that I did that! I should have waited longer. Oh well. I'm still where I want to be as far as my total allocation.


I am wondering about the constant reference to the valuation of the market being really good at this point (usually by equity managers on CNBC). Isn't valuation related to earnings? What if our economy is undergoing a needed deleveraging and earnings do not improve back to 2007 levels? Then isn't the market valuation going to be much lower? I just don't see how relevant it is to compare the valuation now to what was when we don't know what our economy is going to look like in one year, much less five or ten.

 

[Gpond]

All the bottom calls today I thought I was at spring break in Coco Beach.

Heard many calls of a start of a 1000 DOW point rally - EASY.

YouTube - Queen Fat Bottom Girls

DOW Futures -50.

Hall marks of a bear market - out of no where rallies producing out of no where bottom calls. Rinse, repeat.

 

[youbet]

The discussion begs the question: when you would consider going back to work, if you are currently FIREd and, say, under age 65?

My gut says best to go back before you have to start selling stocks low, if only to be in the game when stocks finally go up, and to bump the income stream to minimal adequacy -- maybe part-time so you still feel retired. Much past mid 60s and those jobs might be harder to find. I see absolutely no indignity or sense of failure in that (though frustration might be there). Hell, you might enjoy it in small doses.

My dilemma is kind of the other side of the coin - hanging on longer at work to wait this monster out, but not wanting to wait forever if it just lurks and squander the best years of retirement, time with the distant grandkids, etc. For now, I can't bear the thought of FIREing into this chaos.


<groan>

Rich,

What AA are you visioning the FIRE'd person has that only a couple of yrs into the downturn they have nothing left but equities and are now forced to sell low?

I'm 2.6 yrs into retirement, pretty pissed at the current situation, scratching trips and home improvements off the budget, but years away from needing to sell equities. And, at least by the tone of your posts, your portfolio would last even longer before liquidating equities would be necessary. Aren't you one of those bucket guys where you'd have enough cash to last for 3 to 4 times your expected lifetimes?

BTW, I spent today (as I do every Wednesday) with my oldest grandson. He'll be 8 Friday. He has cerebral palsey and I pick him up from school and take him to Easter Seals for OT and ST and then we just go hang out. I have a kayak for him now and as soon as it starts warming up we'll be paddling. I think the two handed motions involved in paddling a kayak will help him with his weaker right side....... We're quite the pals.....

It's all prioritization Rich. Think about it.
__________________

 

[haha]

I am wondering about the constant reference to the valuation of the market being really good at this point. Isn't valuation related to earnings? What if our economy is undergoing a downsizing and earnings do not improve back to 2007 levels? Then isn't the market valuation going to be much lower? I just don't see how relevant it is to compare the valuation now to what was when we don't know what our economy is going to look like in one year, much less five or ten.

You make a very good point. P/E ratios using current earnings are not low at all. It is assumed that earnings will recover to former long term levels, though not necessarily to recent very high profit margins. All this talk of attractive valuations is based on return-to-the-mean. But here is no physical law that requires that things return to the mean. At the time of the First World War Russia had active securities markets. But the Bolshevik Revolution of 1917 and their subsequent success in the Russian Civil War changed all that. Things did not return to the mean, to say the least.

The US for a very long time has enjoyed a very stable trend growth rate in S&P earnings of about 6%, with sometimes dramatic excursions above and below that figure. If conditions change enough, I suppose that might change, and likely not for the better.

Economics and business are more or less self-righting. The killer is untoward political change.

Ha

 

[REWahoo]

Rich, in case you missed it, Youbet has just signed on as our newest member of your fan club.

 

[ziggy29]

You make a very good point. P/E ratios using current earnings are not low at all. It is assumed that earnings will recover to former long term levels, though not necessarily to recent very high profit margins. All this talk of attractive valuations is based on return-to-the-mean. But here is no physical law that requires that things return to the mean. At the time of the First World War Russia had active securities markets. But the Bolshevik Revolution of 1917 and their subsequent success in the Russian Civil War changed all that. Things did not return to the mean, to say the least.

The US for a very long time has enjoyed a very stable trend growth rate in S&P earnings of about 6%, with sometimes dramatic excursions above and below that figure. If conditions change enough, I suppose that might change, and likely not for the better.

My gut feeling is that even after recovery "normal" earnings won't return to 2007 levels. Too much illusory, debt-fueled wealth has evaporated. Having said that, "normal" earnings (when they return) will still rebound quite sharply from what's expected in 2009. Some people have suggested that the entire S&P 500 could have negative earnings in 2009, though that would be because of ridiculous losses in a small percentage of the businesses in that index.

If "normal" earnings return to (say) 80% of 2007 levels after recovery, the current level of the S&P 500 would have a P/E a little below the historical norm, but not drastically below. But if you think about it, it shows the overvaluation in 2007; the market is down 50% from the high of October 2007 and yet a 20% drop in earnings from 2007 would leave only a modestly below-average historical P/E. That said, unless you expect a "full recovery" back to 2007 levels, the current market is only slightly undervalued. The bottoms of 1974 and 1982 were considerably better buying opportunities and stocks were much cheaper than even today based on many fundamental measures. Having said that, slightly undervalued is a much better entry point than way overvalued...

And we'll get something close to mean-reversion, IMO, as long as the social and political structure remains more or less orderly through this mess. Eventually. Though I don't think I'll ever find myself planning on a 6-7% real return from stocks over the long term any more. It could happen, but I'm convinced that a lot of the big gains of the last 60+ years were an anomaly based on the post-WW2 economic bubble and the debt incurred to sustain it after it petered out.

 

[Bikerdude]

Do what we always have advised other countries to do. What we advised Japan to do but it didn't. Temporarily nationalize the banks. Don't bailout the banks and reward the owners for imprudence. Don't let them limp along and become zombie banks like in Japan. Take the insolvent banks over and sell them at the market value immediately to private investors. With the clean balance sheets they will be able to make loans again to qualified borrowers. Work out the bad crap through a Resolution Trust type organization.

Makes sense to me. There has to be a reason its not being done. Concern over the markets direction does not seem to be it.

 

[haha]

But if you think about it, it shows the overvaluation in 2007;

When you say you, are you referring to me or some indefinite you?

If you are talking to me, reread my post. I make no prediction whatsoever about the future, only mentioned what has been true, in the US, over the past 100+ years.

In general, I don't need to predict the future. I am fairly indifferent to whether the market rebounds or not. Best for me would be if some sectors that I own rebound strongly, and others that I have under represented would sit there. Some of my holdings require a reasonable but not necessarily strong economy. Others will do well no matter what. I live off my taxable portfolio earnings. My IRA just sits there. My only worries are in it, and I do hope they get well. (ISM/OSM mostly) I have had 6 dividend decreases out of 35 or so equities, and more than that have increased.

My main vulnerability is to negative (for me) political change. I think Señor POTUS would be happy to deliver that but he may not get to.

But many on this board are pure total return asset allocators, and unless they have other sources of income, or a very small equity allocation, they do need the major averages to come back.

ha

 

[youbet]

Rich, in case you missed it, Youbet has just signed on as our newest member of your fan club.

Respectfully signed on as the newest member of his fan club.......

 

[Rich_by_the_Bay]

What AA are you visioning the FIRE'd person has that only a couple of yrs into the downturn they have nothing left but equities and are now forced to sell low?

I'm 2.6 yrs into retirement, pretty pissed at the current situation, scratching trips and home improvements off the budget, but years away from needing to sell equities. And, at least by the tone of your posts, your portfolio would last even longer before liquidating equities would be necessary.

Well, with a 50% drop in a 60:40 AA, less 2 or 3 years of SWR, and maybe a few celebration toys it wouldn't take long.

I'm not in the situation I described above - it was a question for those a few years into FIRE, facing the situation REWahoo (4 years in and understandably concerned about having to adjust at the end of 09 if the recession continues) and others described. Just trying to hear their real-world decisions and plans. This thing sneaked up fast and hard on folks in that scenario.

FWIW, I'm at about 40:60 AA these days, much like many in this group. We all have our stories, but I'm not yet in the "made-in-the shade" crowd you seem to have assumed. But I am grateful for what I have, and my day will come. Just probably not this year . Glad you are able to hang in there and reduce expenses without worrying about selling off for a while. Tough times.

Oh... and welcome to the fan club. T-shirts available for $12.99 + postage.

 

[youbet]

Oh... and welcome to the fan club. T-shirts available for $12.99 + postage.

Thanks. And don't undervalue that grandyoungin' time vs. the value of portfolio padding........ Just saying......