Perfect Storm

[wabmester]

It's time again for me to embrace my inner bear.

I was looking at the housing inventory data. We just got a nice spike in several markets. After a few months of declining inventory, it looks like we've already passed the peak of last summer, and it's only March!

So, I said to my wife, "Look, Honey, a perfect storm is brewing in housing. Inventory is spiking just as credit is being tightened." (I've read that the new lender underwriting guidelines might knock a million potential buyers out of the market.)

So, she asked me if it's time to go back to work.

Hmm, I said. If one wanted to get a job, this would be a good time to get one while employment demand is still high. But we should be OK. Even if this spilled over to the larger economy and the stock market dropped by 50%, we have a large cushion.

The only thing that would really sting is a housing crash followed by a stock market crash followed by high inflation. That would hurt. And given the current state of globalization, it'd probably hurt world-wide. But we'd probably recover after 20 years or so.

In 20 years, I'll be 65 -- the traditional retirement age. Ugh.

Not a prediction. Just some late-night musings at the Wab home....

 

[CyclingInvestor]

Wow, sounds like a lot of work. I just try to stay invested in the most
reasonably priced of my list of well-managed companies.

I used to try to have opinions of all this economic data also, but I found
it made no difference to my actual investments, so I lost interest. My
friends find it incomprehensible that I am now living on my investments
(my dividends, actually), but I have no interest in CNBC, where the markets
may be headed, what the next hot area is, etc. I do follow business
developments in the companies I invest in, of course.

 

[REWahoo]

Wab, I think you're becoming an optimist. You left out the bird flu pandemic, asteroid strike, and detonation of a nuke in a major population center by Islamic extremists.

 

[newyorklady]

well, the mayan calendar ends 2012 so maybe we only have to worry about five more years of withdrawals. there is always a siver lining.

 

[W2R]

The only thing that would really sting is a housing crash followed by a stock market crash followed by high inflation. That would hurt. And given the current state of globalization, it'd probably hurt world-wide. But we'd probably recover after 20 years or so.

wab, I think about such scenarios too. I don't fret or worry about them, since they are unlikely, but so I think it is valuable to think (in advance) about what my strategy might be under such a situation. Things happen now and then and if/when they do, I want to be able to roll with the punches and bounce back.

A housing crash wouldn't bother me as much as some people, since I live in the south and intend to retire to the midwest.

I think that I can survive a stock market crash if I don't have to withdraw anything for up to ten years after the crash. I will keep enough out of the stock market to accomplish that, if necessary, and still live pleasantly. Usually the recovery is faster than ten years, but I am not sure what I would do if a crash lasted longer.

Inflation is scarier. Most of my fixed income has a cap on inflation adjustments, so the question is, what to do if inflation is very high for a decade or so? I am trying to set up more in fixed income than I need for a bare bones existence. My goal is twice the absolute minimum that I need to survive (not including long term expenses like a new roof or new car). I don't think we really know in this country how bad inflation can really be, and probably my strategy for inflation would be laughable in some other countries.

Another part of the doomsday scenario would be a huge tax increase to fund some huge program or other that would not benefit me. Ugh!! It could happen.

If the economy went to H*ll in a handbasket as I've outlined so far, almost EVERY ER'd boomer and many others would be competing for the "Welcome to Wal-Mart" parttype jobs, so don't expect it to be easy to get any work at all except a full time career position.

I am NOT going back to work after ER....I am NOT going back to work after ER....I am NOT going back to work after ER....

 

[cute fuzzy bunny]

Wab, I think you're becoming an optimist. You left out the bird flu pandemic, asteroid strike, and detonation of a nuke in a major population center by Islamic extremists.

You forgot Godzilla...the black death...the red death...etc, etc...

 

[Delawaredave]

I get "perfect storm" panic attacks all the time.

The two ugliest US financial "storms" were obviously the 30's depression and 70's inflation.

I think (hope !) the world is much "smarter" now and devastating events like above are much less likely than they used to be. Reasons:
- Globalization of our investments reduces "one economy" risks
- Better economy controls by the Fed
- Better information sooner on problems
- Better accounting and transparency in companies
- More diverse economy

I think a "decade long market goes sideways" period is very possible.

But I don't think a "soup line meltdown" is possible.

And besides, I don't mind soup............

 

[unclemick]

Recently I've been watching 'The Dark Ages' and Barbarian week on the History channel here on local cable.

Hey! This is the ER forum - we're not tooo old to sack Rome - Right?

heh heh heh heh heh heh heh heh heh heh heh - get your Fantasy Sword off the internet before inflation runs the price up! Battle axes are good clean fun also. 8)

 

[dex]

You also forgot the world population explosion from about 6.7 billion now to 10 billion in 2050 - so this decline will only be a blip in the big picture.


WAB - OVER 4,000 POSTS SERVED!


Name: wab
Posts: 4061 (3.413 per day)
Position: Thinks s/he gets paid by the post
Date Registered: December 06, 2003, 01:30:17 AM
Last Active: Today at 04:28:41 AM

 

[poboy]

http://tinyurl.com/2rjhnx

The remaining 73 percent, he said, “are morally, intellectually or physically” unfit for service. “It’s the lowest it’s been in more than 10 years.”

If you want to feel really good about the future, this should cheer you up.

 

[calmloki]

Recently I've been watching 'The Dark Ages' and Barbarian week on the History channel here on local cable.

Hey! This is the ER forum - we're not tooo old to sack Rome - Right?

heh heh heh heh heh heh heh heh heh heh heh - get your Fantasy Sword off the internet before inflation runs the price up! Battle axes are good clean fun also. 8)

Right! The problem is.... We IS Rome!

 

[tryan]

Weeellll, there's nothing wrong with setting aside a gallon of water, a flash light and some canned goods.

For me that means "sell one more (2 if possible), service some debt, get a little less house rich". Just had a tenant give notice so things are falling into place well. 8)

 

[citril]

Right! The problem is.... We IS Rome!

Does Vanguard have a Barbarian index fund yet?

 

[bssc]

http://tinyurl.com/2rjhnx

If you want to feel really good about the future, this should cheer you up.

Yes but I suspect that morally unfit includes those that are gay.

 

[wabmester]

I used to try to have opinions of all this economic data also, but I found it made no difference to my actual investments, so I lost interest.

Now that my investments are paying my salary, I figure it's my job to monitor economic conditions. I never make portfolio changes with the assumption that my predictions are accurate, but I'll occasionally try to guard against relatively high perceived risks.

This year looks to be high risk for housing. Not 100% certainty, but high enough to make my ears perk up. I would like to increase my real estate exposure, but I'm not going to do it today.

Anyway, you're right. This is really about something else. I got my cast off yesterday! Now I can start biking, running, and sailing again. Worries be gone!

 

[Spanky]

Now I can start biking, running, and sailing again. Worries be gone!

Sounds like a good idea -- who knows when the entire western coastline may sink, an asteroid hits earth, an alien missile with explosive power that could wipe out the entire planet strikes, or the sun blows up unexpectedly....... etc.

 

[REWahoo]

I got my cast off yesterday! Now I can start... sailing again.

So...now that you have your cast off you can cast off? (Ain't the English language great!? )

 

[cute fuzzy bunny]

Now I can start biking, running, and sailing again.

Could you do any of that stuff before you had the cast put on? Dont believe those commercials...

 

[audreyh1]

The only thing that would really sting is a housing crash followed by a stock market crash followed by high inflation. That would hurt. And given the current state of globalization, it'd probably hurt world-wide.

I tend to think that a housing crash followed by a stock market crash, globally, would cause deflation.

So at least that knocks it down to 2 out of 3.

Audrey