The market isn't as bad as it seems?

[ziggy29]

For a change, maybe it would be good for people to think about whether they NEED something before they buy it (rather than just WANTING it). Does anyone really NEED a 52 inch LCD TV? Do we as a society really NEED 60 different kinds of tomato sauce at the grocery store? Half the reason we are in this mess is people confused wanting something with being able to afford it, and never even asked themselves if the desired item was really necessary.

Which is why this bucket of cold water could -- and I stress, *could* -- be very good for us long term. As I mentioned before, many people who lived through the 1930s had their outlook on money and finance changed for the rest of their lives -- don't buy what you can't afford and pay cash for, live frugally and below (or at least no more than *at*) your means, all that.

If this winds up painful enough, as much as it sucks to live through...I suspect at least some people will learn this lesson and we'll be stronger for it -- in the long run.

It really comes down to how bad it gets and how long it lasts. If the credit markets begin functioning before long and this turns out to be just a big speed bump, not much will change.

 

[al_bundy]

Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.

Hmm, stuff costs less, money is worth more, and we might get a nice return from both stocks and bonds. Whats not to like again?

the market is pricing 1930s or 1990's japan right now. people will dream of the good old 1970s if we get sustained deflation

 

[al_bundy]

This is small comfort to those of us like myself who started working and investing in the last 10 years. We continued to buy into a rising market through automatic contributions, and are now seeing any gains wiped out plus substantial losses on our original investment. Even with a decent bond allocation, total return is way negative, plus the destruction in purchasing power due to inflation only compounds the problem (i.e. stocks decline 15%, minus an additional 3-5%/year from inflation). It's pretty gloomy.

Someone who has held a consistent portfolio for +10 years is probably doing ok in the grand scheme of things. But I don't think that's the reality for most investors.

Amazon.com: Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance): John J. Murphy: Books

i started playing with this last year. 2007 didn't do so well. this year i'm not perfect but portfolio is down only 10% YTD and i'm waiting for the coming rally to sell before the next fall. even 1930 had a rally that regained a lot of the losses. and it also teaches you to recognize when you are near a bottom so you don't sell out of desperation only to see the market rally

also check out Elliott Wave. i've been reading about it only for a week, but i think the theory has a lot of validity.

 

[slouch]

At times like this I look to hasthemarketcrashedyet.com for market timing advice.

 

[al_bundy]

http://www.hsdent.com/tgca_pr.pdf

 

[Purron]

Which is why this bucket of cold water could -- and I stress, *could* -- be very good for us long term. As I mentioned before, many people who lived through the 1930s had their outlook on money and finance changed for the rest of their lives -- don't buy what you can't afford and pay cash for, live frugally and below (or at least no more than *at*) your means, all that.

My grandmother told me stories about the 30s. She remembered the dust bowl, bank failures, and Bonnie and Clyde coming through town. Grandma never got over it and really never did trust banks. She used to keep a mayonnaise jar of cash in her deep freezer "just in case" and had small accounts in every bank in town. Grandma also preached frugality and despised wastefulness. She recycled everything and even used flour bags to make clothing.

 

[Dawg52]

http://www.hsdent.com/tgca_pr.pdf

Old Harry also predicted the DOW would reach the 35,000-40,000 range back in the 90's. Page 2 of the below link.

Harry Dent Forecasts Dow 20,000 by the Year 2009 - Are We in a New Bull Market? - Associated Content

 

[harley]

We've had a few discussions about deflation. Certainly a long period of severe deflation would be a bad thing. But we havent had deflation in almost a hundred years and the conditions for a prolonged deflationary period dont seem to be evident.

Do you earnestly think that americans will go on a savings binge and hoard cash for 3-5+ years? Do you think that once the credit crunch is behind us that companies will stop spending money and start filling up their cash reserves instead? Do you think that people and companies will start feeling awkward about bankruptcies and stop declaring it, choosing instead to wallow in the holes of debt they can never hope to emerge from?

I'm not seeing it. Hole in the road, liquidity problems clear up, economy picks up a little, jobs pick up a little, market starts heading back up, a couple of years from now we'll all be laughing about being so worried that the world was going to end. And complaining that we didnt snap up equities when they were so cheap.

Can the moderators go back and unarchive the forums from 1929-~1939? I'd like to compare what people where saying back then to what's going on now.

 

[OAG]

If I read this right (and I'm curious, not criticising), you are completely in cash/CDs? If so, does that mean you have enough money to live on making just a percent or 2 above inflation? Or maybe a decent COLA pension to make up the difference?

I'm 52, married, and no pension. I hope we each live somewhere between 30 and 50 years more. I don't see any possible way to make it using cash vehicles, and I've got quite a nice chunk of money. I would really appreciate it if you could give me an overview of your retirement strategy, so I can see if there's anything there I can us. Thanks.

Actually, I was responding to the time frame in the quoted post, in reality I have been virtually all CD's since 1979 (age 38 then). I do have COLA'd Military Retirement (since 1979) and potentially at age 70 SS in two more years (I did take SS at age 62 but paid it back this year). The age 70 retirement plan for both DW and I is 30% Interest, 32% Retired Pay and 38% SS (70% COLA'd). BTW the older one gets the less important inflation becomes.

 

[cute fuzzy bunny]

Can the moderators go back and unarchive the forums from 1929-~1939? I'd like to compare what people where saying back then to what's going on now.

I can do you 3/4 as good as that.

Check this out:

http://www.early-retirement.org/forums/f28/possible-deflation-scenario-14102.html

Outsourcing and the 2000-2002 market was going to lead to imminent deflation and depression.

Ahhh...late 2003/early 2004, when we'd all had our pants scared off for a couple of years and thought the world would never be the same.

Go into fire and money, and at the bottom change it to 'ascending' and 'from the beginning'. You'll get to see us all worrying the edges of our skirts pondering how we were ever going to climb out of the depths of disaster, and what fresh hells awaited us just around the corner.

 

[tmm99]

FIRECalc includes all the 'stuff' that has happened in the US markets going back to 1871. This link explains how it works and how far back FIRECalc goes.

Thank you REWahoo for pointing me to the right direction. I feel much better now (well, unless of course, the market goes down even more than it did during the Great Depression...)

tmm

 

[youbet]

Thank you REWahoo for pointing me to the right direction. I feel much better now (well, unless of course, the market goes down even more than it did during the Great Depression...)

tmm

Except that the Great Depression was not the worse time for retiree portfolio survival! Do some firecalc runs and use the option to download a spreadsheet of the outcomes. You'll see that the late 60's and early 70's were worse....... And, of course, data from the horror of 2007 through 2017 that brought all retirees to their knees isn't included yet......!

 

[Meadbh]

Iceland (the country) has approached Russia for a loan, to stave off bankruptcy.

I think this is pretty serious.

 

[al_bundy]

Old Harry also predicted the DOW would reach the 35,000-40,000 range back in the 90's. Page 2 of the below link.

Harry Dent Forecasts Dow 20,000 by the Year 2009 - Are We in a New Bull Market? - Associated Content

his book from a few years ago said he was wrong and that the money went to commodities and housing instead. i don't believe everyone of his predictions, but he's probably halfway right. he did predict the 90's boom when everyone thought the US was done and gone and he did predict the 2000's boom unlike most of the doomsayers.

 

[cute fuzzy bunny]

Iceland (the country) has approached Russia for a loan, to stave off bankruptcy.

I think this is pretty serious.

I read the article about that. They were leveraged into european companies to a rate of about 7-8x their GNP.

Not a good idea.

 

[FUEGO]

Iceland (the country) has approached Russia for a loan, to stave off bankruptcy.

I think this is pretty serious.

Not to belittle the seriousness of Iceland asking Russia for a loan, but they only have 300,000 people and a small economy. California (about 150 times the population of Iceland) asking for a loan recently is more scary in my opinion. But I'm still not worried!

 

[haha]

I think from the Oct 07 top the Dow has lost 33%. In the 73-74 bear, the final bottom was at 577, off 45% from the early Jan 1973 top. Remember that during this time interest rates were rising, inflation was getting up a good head, there was the first Arab oil embargo and Nixon was forced to resign. A lot of scary stuff. If the Dow bottomed at -45% from the last October high, we would get to just below 8000.
http://www.fiendbear.com/bear1973.htm

The last week has showed me that anything is possible, so I wouldn't want to say that this or worse could not happen. However, the Dow was much more overvalued in Jan 1973 than it was in Oct 2007. If you look back into the older threads you will see that many posters in Oct 2007 argued that the Dow was at median valuations, or even cheap.

Of course we don't hear much of that when the bottom is falling out. And I grant that it is hard to allow for what appears to be unusual credit stress all over. But remember the 1997 Asian meltdown? Many said that Korea, Thailand, Taiwan etc. would never recover. Their banking system was corrupt and often insolvent, and most of these countries had large external debts, often in dollars. I believe taht this crash brought down several governments, most prominently Sukarno in Indonesia.

I bought every single-country NE Asian closed end fund I could find, often at huge discounts. I didn't have any way of knowing what was really happening over there, but I thought that if the US with its coddled whiny population can make it, the Asians could make it squared.

I sold when they had doubled, way too early.

So although I am today down big time and I wish I weren't, it will be essentially unprecedented if it just keeps falling without any break or even some big rallies.

I have no clue whether these rallies will be the bottom or not, that is a problem to look at when we get there.

Ha

 

[cute fuzzy bunny]

I sold when they had doubled, way too early.

Fortunes were made by selling too soon...

 

[2B]

I've had my asset allocation adjusted from 60/40 to 50/50 over the last six weeks. The end of August is my traditional rebalancing time and I was just barely under my 60% equity level. I decided that I would maintain my cash/fixed $$ amount and not rebalance.

I guess that makes me somewhat of a market timer but the reason wasn't to time the market. I decided that the cash level was adequate for a bare bones retirement. Why be aggressive with that? Equities have become dedicated to luxuries and travel.

On a related note, I may be joining you retirees. There have been some job cancellations. There was one person hired by another firm that was told not to come because they had lost some jobs. There's a rumor that one of the big E&C firms in Houston is about to have a "small" layoff.

 

[al_bundy]

I think from the Oct 07 top the Dow has lost 33%. In the 73-74 bear, the final bottom was at 577, off 45% from the early Jan 1973 top. Remember that during this time interest rates were rising, inflation was getting up a good head, there was the first Arab oil embargo and Nixon was forced to resign. A lot of scary stuff. If the Dow bottomed at -45% from the last October high, we would get to just below 8000.
Dow Industrials: 1973-1974 Bear Market

The last week has showed me that anything is possible, so I wouldn't want to say that this or worse could not happen. However, the Dow was much more overvalued in Jan 1973 than it was in Oct 2007. If you look back into the older threads you will see that many posters in Oct 2007 argued that the Dow was at median valuations, or even cheap.

Of course we don't hear much of that when the bottom is falling out. And I grant that it is hard to allow for what appears to be unusual credit stress all over. But remember the 1997 Asian meltdown? Many said that Korea, Thailand, Taiwan etc. would never recover. Their banking system was corrupt and often insolvent, and most of these countries had large external debts, often in dollars. I believe taht this crash brought down several governments, most prominently Sukarno in Indonesia.

I bought every single-country NE Asian closed end fund I could find, often at huge discounts. I didn't have any way of knowing what was really happening over there, but I thought that if the US with its coddled whiny population can make it, the Asians could make it squared.

I sold when they had doubled, way too early.

So although I am today down big time and I wish I weren't, it will be essentially unprecedented if it just keeps falling without any break or even some big rallies.

I have no clue whether these rallies will be the bottom or not, that is a problem to look at when we get there.

Ha

over the last year i've seen a chart that shows NYSE leverage going back to the late 1960's. 1973, 2000 and 2007 were the peaks in leverage and it took 2 years of a bear market to deleverage from the peaks.

 

[W2R]

I've had my asset allocation adjusted from 60/40 to 50/50 over the last six weeks. The end of August is my traditional rebalancing time and I was just barely under my 60% equity level. I decided that I would maintain my cash/fixed $$ amount and not rebalance.

I guess that makes me somewhat of a market timer but the reason wasn't to time the market. I decided that the cash level was adequate for a bare bones retirement. Why be aggressive with that? Equities have become dedicated to luxuries and travel.

Interesting! We are apparently thinking along the same lines. My 45:55 (equities:fixed) AA has changed to 38:62. I probably would have rebalanced had my equity allocation gone up instead of down, but I am loathe to rebalance right now. My reasoning is as follows.

If the market completely crashes, I still have enough in cash to last for several decades at my present level of spending so my plans to ER next year would not be endangered. That matters a lot to me.

If the market takes off and we begin a substantial bull market, I have enough in equities to maintain my buying power and then some. What's more, I really don't care if I double my money or not at this point. I am doing fine.

On a related note, I may be joining you retirees. There have been some job cancellations. There was one person hired by another firm that was told not to come because they had lost some jobs. There's a rumor that one of the big E&C firms in Houston is about to have a "small" layoff.

Sorry to hear that, especially if you get laid off before your planned ER date. On the other hand, maybe you would get a severance bonus of some sort that would make the experience of being laid off more welcome.

 

[ziggy29]

I probably would have rebalanced had my equity allocation gone up instead of down, but I am loathe to rebalance right now. My reasoning is as follows.

Same boat here, and it's interesting: almost everyone I know who keeps an asset allocation is saying the same thing: they know logically and mechanically it's time to rebalance -- but they can't emotionally get themselves to reach for the falling knife.

 

[W2R]

Same boat here, and it's interesting: almost everyone I know who keeps an asset allocation is saying the same thing: they know logically and mechanically it's time to rebalance -- but they can't emotionally get themselves to reach for the falling knife.

You have to actually WANT more money to take a risk to get it. Honestly, I am happy where I am and don't know what I would do with more money (relative to inflation, naturally). I guess I wouldn't turn down a few extra million if it fell in my lap, but no way am I going to risk my retirement for it.

 

[2B]

Sorry to hear that, especially if you get laid off before your planned ER date. On the other hand, maybe you would get a severance bonus of some sort that would make the experience of being laid off more welcome.

My plan was to wait for my FIL to die. I realize it's kind of morbid but I don't have any reason to "retire" and stay in Houston. Also, DW will think I'm more available to visit him several times per week with her. I plan on moving out of Texas for better climate and recreational opportunities. As you know, the Ozarks are currently on the top of the list. Being a semi-perpetual traveler is also appealing if I can get DW to buy off on it.

I'm probably pretty safe until the end of 1Q09 but you never know. If a lot of jobs get cut, nobody will be safe. So far, it's all rumor and concern. The credit squeeze impacts companies planning new facilities and if a true recession hits hard there won't be any need for additional capacity.

I'm also no worried financially but I would prefer about 1 more year and a better net worth.

 

[audreyh1]

I guess that makes me somewhat of a market timer but the reason wasn't to time the market. I decided that the cash level was adequate for a bare bones retirement. Why be aggressive with that? Equities have become dedicated to luxuries and travel.

I have been rebalancing during this downturn (which has been so parabolic that I am hoping for a V bottom - knock on wood!) but I still have my limits. I absolutely won't let my fixed income allocation (cash+bonds) go below 10 years of (somewhat padded) expenses, so if I reach that point I am out of rebalancing bullets and will just have to hunker down and wait.

10 years of fixed income, I feel for me, is a reasonable time to expect some level of recovery. And that is on top of 2.5 years of cash I have in a short term account. On one hand it seems scary. On the other hand - 12 years is a long time!

Audrey