Ugly day at the Ponderosa, as the Dow takes a swan dive 300 points, or 3.8%. Nasdaq fell 4%.
Our new 100 Meg line is about to be lit up, so I will be off line for a few.
Blazing speeds when I return.
In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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February 17th, 2009 at 4:09 pm
Ugly? Beauty is in the eyes of the beholder.
February 17th, 2009 at 4:29 pm
Dow closed right on Nov. closing low…7552…a large gap down could lead to a huge mess, a breakaway gap that could run and run.
February 17th, 2009 at 4:44 pm
And my IRA contribution check is still in the mail to Scottrade! =(
February 17th, 2009 at 4:46 pm
Stevo – nobody follows the Dow any more – too few stocks and most of them are dinosaurs. We are some way above the critical SPX 750 level, and above the SPX 784 support that Andy tagged as important this afternoon. So the apocalypse may be delayed. At least for another day. Just trying to see both sides…
February 17th, 2009 at 4:46 pm
7552.60 today, 7552.29 at the November low…. Does this confirm the existence of the PPT?
=)
HCF
February 17th, 2009 at 4:57 pm
No amount of huffing and puffing from this administration can stop the plunge.
February 17th, 2009 at 5:06 pm
Put some ice on it or it will leave a bruise..
And don’t pick at it…you’ll only make it bleed more…
Next time when you are out there with those hooligans at the NYSE, come in when I call you Timmmmmmayyyyyyy…damn it. Don’t make me tell Mr. Obama, he’ll make you wear those t-shirts you made up last year that say, ” I know what I’m doing!”
and no, I won’t read you the story of Goldilocks and the Three Bears with the porridge that was “just right”
go to bed!
February 17th, 2009 at 5:12 pm
I keep hearing “nobody follows the Dow anymore”…yet whenever the market is talked about in the MSM the Dow is mentioned first and foremeost…perception is reality. The marginal seller I see now are panicked 401k investors…and when they ask about how the market did today, they ask about the Dow…99% of the time. But it really makes no difference…the S&P will be 600 soon, how’s that?
February 17th, 2009 at 5:16 pm
@Bruce N Tennessee:
The Front of Timmy’s shirt indeed says: “I know what I am doing!” On the back it says: “I am just not sure when or how!”
I like the fact that both Timmy and the Pres. wear matching t-shirts. They both say: “At least HE knows what he is doing!” with an arrow pointing to the other guy.
Ben has a shirt that says: ” Give me a break! I am printing as fast as I can!”
February 17th, 2009 at 5:21 pm
http://www.nytimes.com/2009/02/18/business/18auto.html?_r=1&ref=business
Chrysler Seeks More Aid and Plans to Slash 3,000 Jobs
“The company, which received $4 billion from the government in December to help it avoid bankruptcy, originally planned to seek $3 billion in April. It now says the vehicle market has deteriorated so dramatically that a total of $9 billion is needed.
But the plan does not call for more plant closings, and only three of the company’s models, which were not immediately named, will be discontinued.”
….OK…help me interpret this one guys…our dreck isn’t selling…the climate is much worse than we thought…we need 250% more than we got the first time…but don’t make us close plants or discontinue some of our awful product line…
Through for the day..maybe back tomorrow..I’d supersize the cash this time if I were Timmmaayyyyyyy..
February 17th, 2009 at 5:31 pm
I blame the short-sellers!
Pat Sajak, can I at least buy an L?
February 17th, 2009 at 5:31 pm
But, but, but: Geithner is going to part The Red Sea (okay, the sea of underwater and foreclosing mortgages) tomorrow.
February 17th, 2009 at 5:34 pm
This ridiculous lack of triage is hurting everyone. We are peeing money away pointlessly here.
WE SHOULD HAVE KILLED OFF CHRYSLER AND CITI TO SAVE THE OTHERS…
If this attitude continues we will all be eating one bean and one grain of rice each.
(Luckily I am long DBA, so that’s good with me…)
Bruce, I will say this. If the government is going to stabilize/reflate/stimulate (and you can argue whether that is in fact a good idea or not), then Krugman is right, they got to reflate big style and they need to stop d**king around. That deflationary spiral is swirling and it is starting to make a giant sucking sound. At some point even the dumbest of Republicans is going to hear it.
This half-way stimulus is the worst of all worlds, it will fail – and then we will end up paying for the failure forever. Whatever Helicopter Ben has been printing needs to get out there fast or this game is going to be over even before the new administration has all of its team on the field.
February 17th, 2009 at 5:45 pm
@Steve Barry,
I definitely agree with you. I was reading Richard Russell’s DOW Theory newsletter this afternoon: “The Dow stubbornly refuses to violate its bear market low of 7552.29″ and that’s when I realized where we closed. I don’t know why I subscribed to his newsletter…he’s been irrationally bullish since I signed up.
We closed on what technically qualifies as a wave 5 (on S&P futures) but I expect it to extend in the morning. It’d be very surprising if Richard didn’t get his confirmation tomorrow.
February 17th, 2009 at 6:05 pm
Oh no, somebody suckered you into the Cogent 100mbps service? Be prepared to drop more often than the DOW!
February 17th, 2009 at 6:08 pm
@mlomker
Richard Russell turned bullish back in ‘07 after having been bearish for quite some time. That was a rather painful mistake. At least he’s been bullish on gold.
February 17th, 2009 at 6:12 pm
Is any regular on this blog really, REALLY surprised that this is happening? Shocked, SHOCKED maybe, but surprised?
February 17th, 2009 at 6:15 pm
NY Times reporting: Breaking News 6:10 PM ET: G.M. to Increase Federal Loan Request by $12 Billion.
Oh goodie: We can throw more money at the bankrupt carmakers and banks. Seems like a great plan to me. Hello, it’s time to wake up O administration. Auto and bank bk/nationalizations will crush the market in the short term, no doubt, but at least we can then get on with truly fixing the structural issues of the economy. The markets will follow accordingly. This slow bleeding only drags out the inevitable, which is the markets are going to go where they’re going to go anyway. Time to stop the game of pretend and face reality. I’m taking my ball and going home.
February 17th, 2009 at 6:18 pm
Mannwich,
No one should be, the regulars have been saying this over and over and over for a year now and more so over the last couple of months.
February 17th, 2009 at 6:19 pm
GM also cutting 47,000 jobs. That should do wonders for the economy. Nobody will be able to afford to buy their cars when they’re done. Time to euthanize these failing companies and get on with it.
February 17th, 2009 at 6:23 pm
How long before S&P breaks 700? I’m hedged till then: 20% long, 20% short, 60% cash.
My longs sucked today. Longs down 7.2% but shorts only up 4.8%. My stocks feel persecuted.
February 17th, 2009 at 6:32 pm
GM should be saved. All manufacturing should be saved. Agriculture too. We should spend the whole of the stimulus making the country more economically independent.
February 17th, 2009 at 6:32 pm
BR,
w/ this: “Our new 100 Meg line is about to be lit up..”
are you edging toward BRIPTV?
February 17th, 2009 at 6:42 pm
this is actually getting easier from a technical perspective. There is only one short term bearish case and it’s pretty bearish:
circa March SP futures:
943 Completed a Major degree Fourth Wave and Fifth Wave begins:
943 – > 797 Wave 1;
797- > 873 Wave 2 finishes at 50% retrace exactly;
And now we begin an unfolding powerful third Wave….
873 ->805 Wave 1 of the Third
805 -> 841 Wave 2 of the Third
841 begins the third of the Third (bad)
Maybe we finished some other small wave and we get a little bounce tomorrow. Any bounce tomorrow should get stopped by the 805/812 zone and then we collapse. Any break back above 818ish tomorrow starts to shoot holes in this most bearish case. This bearish case targets 636 in a very rapid fashion.
The bulls ONLY hope is that the Major Degree Fourth Wave did not finish yet and all of this action down from 943 is only the B wave of a big ABC pattern and we’ll see a decent rally (Wave C) coming. For this to be the case, the bulls really need hold the 783/772 zone and they need to snap this market back very hard.
I’m currently flat the market. I like to get flat in front of key pivots but I’ll be watching closely the action the next 24 hours. The next few days of trading will be CRITICAL, not just whether it goes up or down but “how” it goes up and down…If we get “choppy” sideways grind higher tomorrow then it will not look good at all. The bulls need to see “sharp/powerful” snapbacks.
February 17th, 2009 at 6:54 pm
@Steve Barry,
Don’t disagree with your conclusion but I don’t think this has anything at all to do with 401k selling.
The average balance in a 401k is probably below 50k, especially if they haven’t already sold.
I’m sure I can find a data point that shows that the vast majority of 401k participants never even make investment selections and therefore, most of the time, they default into a retirement date fund such as the Vanguard 2020, 2030 or 2040 so even if they sell those, it’s not all equity getting sold.
Further, when the average 401k investor asks what the market did today, they don’t even know what the hell that means. How many couldn’t even name a third of the stocks in the DOW, my guess is the same 99% you talk about.
600 seems highly probable at this point but not because of 401k selling.
February 17th, 2009 at 6:55 pm
I agree w/ rww- people need to make a living and manufacturing is a big part of that. Toyota, Daimler also posting huge losses and I read that European automakers were looking for loans from the Eurozone as well. We are just in a bad situation the world over- lets don’t throw away a whole industry due to some ideological bent- GM and Ford can make it through after streamlining and reducing their operations to reflect a smaller market share- this includes reducing dealerships and closing plants. If this needs to be done in a BK with the federal government providing DIP financing that’s fine- but lets go forward with the objective of getting these companies back on solid footing.
February 17th, 2009 at 7:10 pm
“GM”= “Gimme More”
February 17th, 2009 at 7:13 pm
to me today the most bearish news was the data coming out of California, and then you hear Kansas can’t make state wage payroll in another two weeks right after the Cal. news. This is becoming exhausting, It wasn’t exactly an unknown, of course this type of thing is expected to be common this year but that news will feed on the fear right now i’m really interested to see where things like retail sales trend in over the next couple of months, when half of the still working population thinks they could lose a job who will spend?
February 17th, 2009 at 7:16 pm
Just a quick comment regarding retirement balances. Most everyone I know is still 100% long in the market. Myself and one friend went to cash, everyone else is hoping and praying. I think there could be lots of selling, my friends have many times more than 50k in there accounts or at least they did.
February 17th, 2009 at 7:21 pm
I suppose this could be a massive head fake, with a snap-back rally heading into options expiration, but it does seem as if we are poised to take the next big step down Real Soon Now.
I notice that gold is nearing the top of its 6-month trading range, it will be interesting to see whether it breaks out to the upside, hugs the high end of the trading range for a while, or surprises everyone and descends toward the lower bound of the trading range — I confess to not having a clue …
I am confident that whatever happens, it will occur in such a way as to frustrate the maximum number of players.
February 17th, 2009 at 7:24 pm
Man oh man….
They keep on pimping out Bob Doll from BlackRock on CNBC… He’s on about 10 times a day now. I swear he is the new Abbey Joseph Cohen.
I don’t think the markets hits a (permanent) bottom until someone in the regular CNBC rotations just loses it on-air and either starts balling or going ape-shit. Anyone would do: Kudlow, Kneale, Caruso-Cabrera, Bob Doll, or preferably Don Luskin.
HCF
February 17th, 2009 at 7:30 pm
New idea for the $30 billion for GM.
GM has 250,000 employees. They are ready to lay off 47,000, so they do that.
For the remaining 210,000 or so, we, the taxpayers, just give each one of them $142,000 or so (total bill is $30 billion) and tell them to go get another job building roads or screwing energy efficient lightbulbs into all the government buildings or whatever other jobs Nany P. is posting lately.
GM is done. The shareholders are wiped out as they should be. The bondholders get nothing, which is what they are expecting. No need to discuss anything with the UAW. We avoid GM coming back in 6 months asking for $30 billion more and in two years telling us they can’t repay any of the debt.
Now back to the plan to give money to people who bought homes they could not afford, all for our own good.
February 17th, 2009 at 7:36 pm
at this point in time i am agnostic in terms of leaning bullish or bearish. perhaps mercenary is more appropriate. although it makes the bears drool and the bulls tremble – WE ALL KNEW THE MARKET WOULD COME BACK TO THESE LEVELS.
did anyone actually think we would not retest the low that was set in november?
enough of the hyperbole – go change your underwear. although painful, i wouldn’t chalk this action up as catastrophic…yet.
the powers that be actually hold some serious cards at this point that could considerably tighten the technical framework of the market. i don’t think their ambiguity is without reason.
February 17th, 2009 at 7:38 pm
The problem with that, Whatthe, is that there aren’t even jobs making coffee or flipping burgers anymore.
This is a depression, folks. Get used to it.
February 17th, 2009 at 7:42 pm
@AT, you summed up two possibilities very well. I subscribe to a number of EW newsletters and 1 supports a rally and 4 support a crash.
There’s an argument to be made for the ABC assumption. Stochs and similar indicators are badly oversold; the problem is that such indicators do not function properly during crashes or euphoria (e.g. pre-election). There’s also the fact that markets rarely retrace 50% during crashes. We had a 23.6% failure on Intermediate wave 4 and that often occurs when there is a sharp move down coming.
@constantnormal, wave theory supports gold plummeting along with the stock market. It’s the whole deflation problem–people are going to sell gold to cover their other losses. Wait to buy at the stock market bottom if you haven’t already. Eventually it should go to the moon–the government is guaranteeing inflation.
February 17th, 2009 at 7:53 pm
The BIG news of the day is that Eastern Europe is exploding, emploding or just going down the tubes. If Eastern goes down, it could take say the rest of Europe etc with it. A really big deal.
February 17th, 2009 at 7:55 pm
I wonder if Kass is still calling for a (then) 20% rally on the back of Obama optimism. For as good as he was in 2008, he has been just as horrible in 2009. He got blinded by his bullish sentiment and was totally wrong and has lost credibility.
February 17th, 2009 at 8:10 pm
Bob Doll is ranting that he wants “some banks to go out of business” think running Blackrock make that talking his book?
Geithner comes out with a plan to finance money managers to buy toxic assets mano-a-mano, they bring in a hard ass to bang heads in Detroit, Obama’s got tax cuts for the middle and lower classes… and that’s socialism? Comical.
The GOP is going to end up looking like they did when they said Clinton’s ‘92 budget would cause a recession.
February 17th, 2009 at 8:16 pm
I’m with Steve through the downhill grind. Though it will be a miserable experience calling the bottom on this one, the market’s headed where it belongs, and by hook or by crook[s]- we get there. Significant turnarounds almost always have some compelling catalyst as a driver. There is NOTHING to spark and fuel a sustained rally here.
February 17th, 2009 at 8:19 pm
Bwahaahaah!
http://gawker.com/5155346/cnbc-anchors-totally-speechless-over-market-crash
February 17th, 2009 at 8:30 pm
ChickenDinner,
guess you haven’t read this:
http://www.thestreet.com/story/10464211/1/kass-fear-and-loathing-on-wall-street.html
@TheWoodsman,
I guess I’d just keep in mind that “everyone I know” isn’t a lot of people in TBP.
The link shows in the FAQ that at the end of 2005 the average balance was 58k, look at where the index was then, consider where it is now and the fact that almost every equity mutual fund out there has a negative 5yr return and there isn’t a lot of money in there today.
http://www.ici.org/401k/faqs_401k.html
I found another link that is more recent as to account for contributions and the balance was 71.5k June 08 BEFORE the mkt really went down, average loss in the last quarter of 08 was probably at or around 25% for those that were invested in funds, and that’s not on top of whatever they lost in september. my guess is if they are still holding on they almost certainly hold company stock as well if you work at a company that is traded and therefore the losses are more than likely even larger.
http://www.marketwatch.com/news/story/workers-ramp-up-401k-contributions/story.aspx?guid=%7B16B30737-E05B-4F8F-8587-987E93E39780%7D&dist=morenews
February 17th, 2009 at 8:41 pm
ChickenDinner…
Some days ago BR posted an article from Bloomberg about all these perma-bears closing up shop and exiting shorts, expecting a rally. I wrote that it was the best SELL signal I had seen in awhile. Bottom pickers in the market is what will drive it to new lows. In vicious bear markets, which is what this is, almost EVERYONE looks bad.
Jesse Livermore,the most famous speculator of all time, was correctly bearish stocks in 1929. He made a lot of money. He flipped bullish after the big decline and ended up losing all his money and later killed himself. So it goes.
Better to be out of the market wishing you were in, than to be in a market wishing you were out.
- AT
February 17th, 2009 at 8:55 pm
mlomker:
Wow. I didn’t know there were 5 EW newsletters! I subscribe to none.
I tried one but it ended up just confusing me and screwd me up.
The big question is obviously: Did big Wave Four end or is it still going?
Here’s the deal. The Big Wave Two lasted 44 trading days. The Big Wave Four, if it ended, lasted 29 trading days, which is some nice “alternation” and the 4 was 66% of 2, which is also a nice “connection” between the corrective phases. If the Wave Four is still ongoing, then it’s getting “long in the tooth.” It needs to reverse really soon and power higher right now. If the upcoming C wave higher matches anything close to the A wave, then we’ll have a Wave Four that will last almost TWICE as long as Wave Two, which would be a very prolonged fourth wave…certainly possible, but getting long. So, it’s no surprise that most of the EW services are favoring the collapse.
The next few days should tell the tale.
February 17th, 2009 at 8:56 pm
@ whatthe:
The numbers we are dealing with boggle the mind. We could just as easily give EVERY GM employee $142k and move on rather than keep this zombie walking… what a great statistic to put this travesty into perspective.
Brings to mind the $1 trillion number …. spending $1 million a DAY since the birth of Christ still doesn’t get us to that staggering number in the year 2009.
Our society has lost touch with the magnitude of what our elected representatives are putting in place.
Whether tomorrow or later in 2009, this market goes lower. My best guess is that SPX 600 seems like a nice round number to drift towards. What fundamental reason does one have to own this market?
February 17th, 2009 at 9:10 pm
jtterlo:
You can come up with similar numbers on the stimulus and the people losing jobs….
Let’s say 5,000,000 people lose jobs…$1Trillion dollars can put $200K onto everyone who lost a job in the last few years…
Indeed…this whole thing is quite pathetic. Send big checks to the people getting fired…They’ll keep paying their bills and feeding their families…one could make an argument that it’s a much sounder fiscal stimulus plan…no need to hire beaurocracies to manage the money…just cut the checks.
February 17th, 2009 at 9:13 pm
@AT, “Wow. I didn’t know there were 5 EW newsletters! I subscribe to none.”
I have all of the subscriptions since I’m a novice and the more EW analyst’s ideas that I read the quicker that I will learn. I’ve also found (statistical) cycle theory to be complementary to EW and it supports a decline as well.
February 17th, 2009 at 9:28 pm
HCF @ 7:24
Luskin may be losing some conviction for the bull case, but he’s going to blame it all on Obama, and not on his own lousy forecasting ability.
February 17th, 2009 at 9:41 pm
@mlomker:
Sorry if it sounded like I was ribbing you. No offense meant at all. I was more surprised that there were 5 EW newsletters out there. In that case, it makes a ton of sense to subscribe and get a sense of what others are looking at.
In re: starting out….the best thing is to have a really good charting system….focus on hourly charts…really try to pick out intraday patterns…focus on only one market, like the SP500. Really stay small and focused and get “a feel.” Then, the best way to learn is to actually do the trading…put the money on the line…that’s the best instructor by far. Stay really small, though, as you learn.
Numero Uno Rule for trading: Know your STOP LOSS level as soon as you enter a trade and adhere to it. Think about LOSS first and PROFITS second.
I’m sure you’re learning all this already….
February 17th, 2009 at 9:46 pm
Good News: Stocks are on sale again today!
Bad News: It’s looking like a Liquidation Sale
February 17th, 2009 at 9:48 pm
@The Woodsman
> Just a quick comment regarding retirement balances. Most everyone I know is still 100% long in the market. Myself and one friend went to cash, everyone else is hoping and praying. I think there could be lots of selling, my friends have many times more than 50k in there accounts or at least they did.
Alas, I fear our friend is right. Most of the people I know, smart people, are still fully invested in equities. They are counting on a V-shaped recovery in the markets. “The market will come back, it always does.” They are like deer in the headlights. They are going to get crushed. And when they finally cash out their shrunken 401ks to retire, if they are lucky, to a trailer park in Florida, then we will know we have hit the bottom. So sad.
February 17th, 2009 at 9:52 pm
who the supplier for the 100mb line?
February 17th, 2009 at 10:03 pm
This is options expiration week. Some of the stuff I’m looking at, there are lots of open interest that would imply 7-10% rally.
I don’t know what to make of GLD, but there are over 200k open calls that are in the money.
Overall I think we are in for triple digit days for the rest of the week.
February 17th, 2009 at 10:34 pm
On Gold…now trades at 25 times price of oil…this is a 2 standard deviation event (should occur about 5% of the time)…a ratio of 30 is a 3 SD event (.27% of the time). For those math challenged out there, I would be careful at such levels. You could go long oil-short gold here.
February 17th, 2009 at 10:43 pm
Estevan Barry:
Looking at the same craziness in re: oil v. gold, but you could have made similar arguments last several weeks. The issue is oil is something with finite storage capabilities, as opposed to gold. If you look out 12 mo.s from now the oil v. gold story is not so compelling. At some point that spread is going to flip VIOLENTLY, but unless you have the cash and storage to take delivery of WTI contracts, then it’s a tough game to play.
February 17th, 2009 at 10:44 pm
Interesting tomorrow…GM can’t get agreement by the UAW or bondholders, and Chrysler has more of an outline of a plan than a fully fleshed out plan…we’ll see.
February 17th, 2009 at 11:06 pm
http://www.marketwatch.com/
GM, Chrysler raise aid ante
Say they now may need $39 billion in U.S. loans to avert bankruptcy
Goodnight all…39 billion is such a nice number…larger than a bathtub, but smaller than the moon….
I just hope they get the taxes to pay for this foolishness from Leftback and Barry…they are the only two I know with many toes left…but I think we’ll all have smaller shoes when this government nightmare is over…If this is Keynes…he was a monster…
February 17th, 2009 at 11:10 pm
re: “Just a quick comment regarding retirement balances” – Buy-n-hold is very much alive and well if dr
Dr. Doom hasn’t even sold – Roubini said his 401k was still all stocks and that he is buy-and-hold (he noted that he he expects 20% more downfall but just isn’t an active investor).
If Doom isn’t selling then who is?
a) retirees – a few have already sold in panic, the rest of the sellers would probably trickle as opposed to pop all at once – a trip to 600 might not even cause more panic.
b) workers who have lost their job – what % of the laid-off actually have large eggs to actually sell?
c) Lost income/equity due to home-price loss= what % of people in this position are a) panicked and b) have much stock to sell
i guess this leaves the dominant selling to active investors, institutions, hedge funds?
Are the hedge funds done bleeding yet?
February 17th, 2009 at 11:49 pm
@gregh, what you’ve described is consistent with a wave 5. Wave 3 (November) is a violent move but 5 is more like boiling a frog. Cycle theory supports the low to come in late March (coinciding with 1st QTR earnings disappointment) and my guess is it’ll be a relatively no-panic slide.
February 18th, 2009 at 12:32 am
I agree that a lot of 401Ks are still long and still 100% invested in stocks or stocks/bonds combination. I am guessing this based on a fairly small but representative sample of mid-rank people I work with at a large corporation (Fortune 100).
Most of them have seen their assets plummet and they are still hanging in based on “Buy and Hold” policy. Some are ready to do some buying in individual accounts. I do not see much panic as such. I think I am more scared than them and I am only 10% in S&P (averaged at about 850) and 90% cash/MM. It is going to take a lot to scare these people. Ignorance is bliss in this case.
I know it is going to hit 700 soon but somehow I cannot bring myself to sell at this point. I was hoping to unload during Obama honeymoon period but it never hit my magic number of 1000.
February 18th, 2009 at 1:16 am
Buy the dips: Cramer, Stein, Kudlow…..
February 18th, 2009 at 6:58 am
Morning:
stimulus bill “bubble” alert…
http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2009/02/18/us/politics/18web-stim.html&OQ=_rQ3D1Q26refQ3Dbusiness&OP=d26fc98Q2FmiLFmb_jos__wAmA338m3AmIOmNomQ3B_YRwRjomIOiLF7owRQ27Q3A(wQ27Y
Signing Stimulus, Obama Doesn’t Rule Out More
By SHERYL GAY STOLBERG
Can’t stop the recession, but we will remember that we made the effort for generations……
February 18th, 2009 at 7:10 am
I’m a retiree, long-term oriented and scared. I have <2% in stocks and am wondering what next. My rationale for selling stocks was that the current situation is a matter of survival, not of making money in the market. (Possibly there is an opportunity for gain for those smarter or more connected to the market.) From many things I read, the current “black swan” situation makes turkeys of all the old familiar technical indicators. So I’m waiting for the current crisis (foreclosures, jobs, etc.) to resolve itself. (It may be a long wait.) In the meantime I may DCA into gold.
February 18th, 2009 at 8:07 am
I’m a retiree, long-term oriented and scared. I have <2% in stocks and am wondering what next.
——–
Why is it always long term?
When I was doing my CFA, even the 80-year old was long term bcause her money was going to her nephews!
The reality is that, unless you are lying on piles and piles of dough, when there are cash flows coming out of your portfolio, thinking long term is dangerous because money that has been spent won’t be there to benefit from the bounce back.
The other issue I have with this focus on increasing equity exposure because it’s always the long term, is that if you absolutely need 75% equities (based on past returns of course) to maintain your
lifestyle during your retirement it’s either that you don’t have enough money to retire in the first place or your lifestyle is too expensive.
My thesis is that if people reduced their equity exposure in the first place, they’d structure their life differently and gain better control.
February 18th, 2009 at 9:02 am
It’s long-term because I don’t plan on dying for 20 more years. Think of a retirement account as frozen perspiration. The current crisis has evaporated a lot of retiree portfolio value resulting in less to spend in the future. A 20 year time horizon indicates that some equity exposure is required. The trick is to reduce loss due to evaporation so as to retain money for future expenses while putting some money at risk to counter inflation. Reminds me of the uncertainty principle of physics.
February 18th, 2009 at 9:23 am
It’s long-term because I don’t plan on dying for 20 more years.
——–
I understand that. I manage my Dad’s money and if you only knew how tough it was to get him into cash a couple years back! He was at 75-80% equity. Every week it was the same conversation:
“But it’s long term, I NEED the 10% long term equity returns”
“Dad, you’re 61. You just started your retirement. You don’t even know what you are going to do. If you lost 30-40% of your portfolio in the next 12 months, how would you feel? How would you react? Would you panic and switch it to cash and miss the rebound? Could you have a heart attack? If you absolutely NEED to be at 75% equity, that means you don’t have enough money. Go find yourself a part time job or change your lifestyle.”
He has more money now than last year. I showed him a spread sheet where he could be in cash for a couple of year and generate 5-6% returns until 90 and he still has more money than he has now.
This obsession with the equity market is a killer. You are basically asking everyone else to work for you. Look around. How many people are working harder than you or have worked harder than you? It works for the top 1%. It has worked for the last cfew decades but it can’t work long term for the majority of the population. As people get richer with a free lunch, they get lazier. We’re there now.
I would not count on the equity market to protect you from inlfation in the next decade. Right now there is 0 expecation of inflation priced into the market. Look at the 70s. When inflation picksu up margins collapse and equities don’t do very well. On top of it, yields are currently at 3%. With inflation, yields would increase and that would make the multiple collapse. So lower multiple with crushed margins = inflation protection?
I’m not sure there’s much hope for investmentportfolios. Lifestyle choices are probably more important right now.
February 18th, 2009 at 9:24 am
for a couple of year and generate 5-6% returns
——
Cash first couple of years.
Diversified port after that.
February 18th, 2009 at 10:42 am
@ leftback
Adding to our DBA, UCO & UNG positions at these levels this morning?
@ mitchn
“to retire, if they are lucky, to a trailer park in Florida”
for most folks, retirement in a trailer park in Florida would be something to look forward to.
February 18th, 2009 at 10:45 am
I agree. I don’t want to invest in equities (as part of a asset allocation portfolio that includes cash and fixed income) until I see more stability. I just hope hope you’re right about the 0% inflation. Of the three basic needs: food, shelter and clothing, only shelter has decreased from a high bubble valuation. I don’t know if food and clothing will decrease as they were not previously valued at inflated bubble asset prices. I might expect a little decrease in prices due to less demand by the jobless and increased saving by previously spendthrift consumers. So lifestyle choices are important right now. I’m fortunate that I was not leveraged in my investments. I understand that credit card companies think of me as a “deadbeat” because I pay off any balance every month.
February 18th, 2009 at 10:54 am
@hawleyl
“I understand that credit card companies think of me as a “deadbeat” because I pay off any balance every month”
Me, too, and it’s more like we are “free-loaders” since we have the utility of card use but our purchases generate no more income (interest, late fees,etc) for the card issuers than the ‘measly’ transaction fees they collect from merchants (which are included in the overhead in the prices we pay).
February 18th, 2009 at 11:41 am
hawleyl:
I think sometime down the road we’ll get inflation ( 6 months, 2 years?) and that currently the market is not pricing it in at all.
Investment portoflios are important for retirees but it’s probably going to be hard to manage them. Most investors have been averaging less than 6% desipte 10% returns in fixed income and stocks over the last 2 decades! I don’t think that is going to change any time soon.
I think retired investors or those close to retirement should invest theit time and energy into choosing a lifestyle they can afford with long term 4-5% annual returns. That is under their control, the markets are not.
Most boomers should be shrinking their lifestyle now while they still can… unfortunately that is not what the Fed and the leaders want!