OT: Stock Market Watch, October, '15

[Jeff N.]

Worst day I've seen in a long time, supposedly driven by the problems in Greece. Took a big-azzed bite out of my IRA. Man, I'll never be able to figure this stuff out... Jeff N.

[R3awak3n]

same, lost a bunch of money this past week.

[joosttx]

Stay local, yo

[Cicli]

My stratigy is to spend all my money on bike crap. Sure fire loss of value.

[shovelhd]

You only lose when you sell.

[Louis]

I think all you guys crying "the sky is falling" are getting a bit greedy:

[zmudshark]

You only lose when you sell.

Yep, which is why, at my age, I only buy dividend stocks. The kids can worry about capital gains.

[MattTuck]

yeah, over the past year, I've made a handful of downside bets using puts, only to see the positions expire worthless. I've been allocated to cash and bonds. Almost 0% allocated to equity.

I've been following what's going on in Europe/Greece and China and almost made a big play about two weeks ago with puts on both those markets... but I've been wrong so many times in the last 12 months that I second guessed myself and decided not to.

oh well. sometimes it is about sticking to your guns if you believe your investment thesis.

live and learn.

[saab2000]

You only lose when you sell.

This is correct. I love how people gnash their teeth when there's a market correction like today. But if it goes up 2% over a day nobody says that they earned a ton.

I'm a buy and hold investor at this point in my life and am reinvesting dividends. I have no intention of selling anything for quite a while, if ever, though I do plan to live off dividend income in retirement.

I hope the market is still down when my company makes my 401(k) deposit. I'll be buying more shares.

[Louis]

yeah, over the past year, I've made a handful of downside bets using puts, only to see the positions expire worthless. I've been allocated to cash and bonds. Almost 0% allocated to equity.

Matt, I'm shocked, shocked, that you've been gambling on the market.

You of all people, should believe that the market is somewhat efficient.

[unterhausen]

yeah, over the past year, I've made a handful of downside bets using puts, only to see the positions expire worthless. I've been allocated to cash and bonds. Almost 0% allocated to equity.

I've been following what's going on in Europe/Greece and China and almost made a big play about two weeks ago with puts on both those markets... but I've been wrong so many times in the last 12 months that I second guessed myself and decided not to.

oh well. sometimes it is about sticking to your guns if you believe your investment thesis.

live and learn.I don't really understand how to time options. Any number of times I've been tempted to short stocks only to see the shorts get hammered many times before they were eventually proven to be right. So I just stay away. My broker hates me because I have so much cash, and they dont want to have to deal with cash. But I just can't buy right now. Got to start working on that sometime.

[jimoots]

Stock market is run by computers and algorithms rather than genuine insights, could see this one coming a mile off.

[54ny77]

Can you predict if Campy will come out with an all alloy Super Record group?

That's what matters.

Stock market is run by computers and algorithms rather than genuine insights, could see this one coming a mile off.

[fuzzalow]

It will be a choppy week in the financial markets with either a tapering off or a tsunami depending on the results of the Greek voters referendum this Sunday July 5. It will determine whether Greeks agree to continue to abide by the austerity and terms imposed by the rest of the EU and the European Central Bank.

I hope the Greeks vote Yes which will keep them in the EU but I fear they will not see past their own suffering and vote No which might effectively start a process of Greece's exit from the EU. Lots of potentially bad geopolitical consequences if that happens.

This volatility hasn't much to do with direct US holdings other than the global money-center financial institutions. But they get rocked and everyone else has to go along for the ride.

[Louis]

So when's austerity going to start to work for them? Hasn't so far, and it's been what, five years since they started on that bitter medicine?

[Tony T]

I think all you guys crying "the sky is falling" are getting a bit greedy:

Yep, just a blip today. (btw, when the DOW was up 250pts last week, I must have missed that OT Thread :))

[fuzzalow]

I agree and I had posted this same view months ago in another thread.

C'mon, can't squeeze blood from a rock - which in so many words is what the Germans want. They are pissed off that they are "funding" the lion's share of these endless bailouts. But they haven't yet come to the conclusion that all the EU will have to write-off their exposure to Greek debt. Not a haircut, a write-off.

The Greeks got a lot to revamp in their society too, lotta tom foolery about tax collection, bloated public sector and pensions.

The EU is a tough nut - single currency but no fiscal coherence or unity between sovereign member states.

[biker72]

Looks like a good "buy" opportunity to me.

[Peter P.]

Buy an index fund and stop trying to beat the market. Most of us don't have the financial backing nor the knowledge to make those hedge fund-like returns.

And don't forget dollar cost averaging, baby!

[Ralph]

I bought some energy stocks today. A bet oil and nat gas prices will be higher toward end of year. A contrarian move. Markets been making new all time highs recently...a mild correction is overdue. Greek problem is a convenient excuse. Nothing new here.

[Tony T]

Looks like a good "buy" opportunity to me.

Has been the last 5 times DOW dipped below 18k, but this time, who knows.

[54ny77]

greece contagion?

to me, that's the equivalent of too many in-laws coming over for an unscheduled visit.

[Llewellyn]

Looks like a good "buy" opportunity to me.

This :hello:

[texbike]

Looks like a good "buy" opportunity to me.

I bought some energy stocks today. A bet oil and nat gas prices will be higher toward end of year. A contrarian move. Markets been making new all time highs recently...a mild correction is overdue. Greek problem is a convenient excuse. Nothing new here.

This :hello:

Exactly! I love these pull-backs. Let people freak out a lttle bit more... :)

Texbike

[rounder]

I don't know more than anyone else but believe that Greece is responsible for the market decline. I do not believe it is a matter of austerity. I think it is more a matter of belief in the austerity program. To me, if the folks there are not on board with the austerity program or any pother economic rogram, things there are likely to be bad.

[Louis]

VIX (S&P 500 volatility index, aka "the Fear Index")

[goonster]

I fear they will not see past their own suffering
It is very easy to see past other people's suffering.

What's the upside to a Yes vote? How is the economy supposed to grow? Where is the light at the end of the tunnel? Any halfway red-blooded American with a pulse and a set of b***s in this scenario would vote No. With a bullet.

In any sort of rational endgame, the creditors take a haircut to stave off default, so why won't they take a hit here?

(Don't bother. I know. I'm German . . . :rolleyes:)

[makoti]

Buy. Hold. Sleep easy.

[unterhausen]

Krugman says that the Greeks have to leave. (http://www.nytimes.com/2015/06/29/opinion/paul-krugman-greece-over-the-brink.html?_r=1) It's going to be a mess
To understand why I say this, you need to realize that most — not all, but most — of what you’ve heard about Greek profligacy and irresponsibility is false. .... If you add up all the austerity measures, they have been more than enough to eliminate the original deficit and turn it into a large surplus.

So why didn’t this happen? Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it.

And this collapse, in turn, had a lot to do with the euro, which trapped Greece in an economic straitjacket. Cases of successful austerity, in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive. This is what happened, for example, in Canada in the 1990s, and to an important extent it’s what happened in Iceland more recently. But Greece, without its own currency, didn’t have that option.

[Louis]

It's super easy to say now, and all economists admit this, but the Euro is clearly flawed given the current political set up in the European Union and the differences between countries.

The only real issue is how long will it take for the Europeans to fix the problems? Or will they let catastrophe after catastrophe fix it for them the hard way? (of course the US is not in a position to teach them any lessons, but at least here something like the issues in Puerto Rico won't threaten to bring down the whole US system)

[jh_on_the_cape]

Is this a good time to buy a group from a uk vendor? Or wait?

[verticaldoug]

Is this a good time to buy a group from a uk vendor? Or wait?

UK is GBP not Euro. Since UK elections are over, the weakness vs USD is probably over. So yes, but for different reasons.

[verticaldoug]

I hope the Greeks vote No. Tsipras gambit here is pretty clever in my opinion. The bureaucrats in Brussels and German don't really like pan-European democracy. The EU is largely become a tyranny of the bureaucrats. By calling a vote, Tsipras strengthens his hand by calling out the bureaucrats as being illegitimate and letting the people decide.

I think this vote is more dangerous to the bureaucrats in Brussels, but they are too arrogant to see it that way. Post 2008, the world has largely been ruled by technocrats in Treasury and Central Banks which have tended to enrich a few at the expense of the many. The austerity program for Greece has largely become the bureaucratic catch-22. The greeks spend too much money so they need austerity to pay their debts. Austerity causes drop in GDP so tax revenues fall and they can't pay their debts. They need more austerity. (repeat)

Ultimately, Greece needs a large haircut on it's outstanding debt. Unfortunately, the debt is held by the sovereigns (52b Germany, 49b France, 39b Italy). Bureaucrats are happy to writedown (cramdown) debt when the holders are private creditors, but very reluctant when owned by the sovs. (Bureaucrats). The world democracies should hope Greeks are brave and vote 'No'.

[rnhood]

Disagree. Tsipras cowered by calling a referendum. They elected him primarily on his stance against austerity, and his perceived ability to resolve the crisis. Now that it has fallen though the floor and his political career is on the line, he is trying to pass off accountability to the people. Why did he not reveal his intention long ago? He is a no show. They need to give him the boot.

The wise thing to do is vote "yes" and live with it. And I think the people will vote yes. If the debt is written down then there will soon be other countries standing in line for theirs to be written down too. Its unsustainable. They need to get their financial house in order.

[paulh]

Wait just a doggone minute! Isn't Greece flush with cash from the 2004 Olympics??:rolleyes:

[binxnyrwarrsoul]

Can you predict if Campy will come out with an all alloy Super Record group?

That's what matters.

Plus about one trillion!

[jr59]

Disagree. They need to get their financial house in order.

I don't think this is in question. The question comes as to how we get to this fact. What is sustainable?

I'm not sure how the best plan to arrive at this, w/o upsetting the world's apple cart, or the EU markets if you will.

As far as the markets go, well, I've said for a long time, that people aren't playing fair in these things. The avg joe, or in the case of my forum friends, above avg joes have zero chance of knowing or 1/2 guessing what the markets will do.

[happycampyer]

Greece is in a no-win situation. A "yes" vote prolongs the agony, a "no" vote accelerates the agony. If the Greeks find it inconvenient that the banks are closed for the week and they can only withdraw Eur60 a day (assuming there are notes in the ATM), at least there will still be food on the shelves at the end of the week. A return to the drachma will be wrenching, financially. Anyone with euro-denominated debt will struggle to repay it, if they aren't forced to default. Long term it will probably be better, but in the short term it will be chaos. That of course assumes that the Russians don't step in to bail Greece out, which is probably the worst of three evils.

[oldpotatoe]

Looks like a good "buy" opportunity to me.

What my 'guy' mentioned as well. Long term investment, even if small.

[LouDeeter]

I traveled in Eastern Europe last year, all formerly communist countries. The countries there that aren't in the EU are very much wanting to join, i.e. the former countries formed from Yugoslavia. It means outside investment, improved quality for their products because of the standards demanded by the west, and ease of commerce because of the Euro (although being in the EU doesn't mean you use the Euro). While Greece may still do business with the west if they opt out of the Euro Union, the fact is that the EU will move the allocations for products previously given to Greece to other EU countries. Greece will have to open new markets with non-EU countries if they are to survive a no vote. While I agree that the EU countries can be demanding, opting out is like shooting yourself in the foot just to say that you can.

[MattTuck]

I hope the Greeks vote No. Tsipras gambit here is pretty clever in my opinion. The bureaucrats in Brussels and German don't really like pan-European democracy. The EU is largely become a tyranny of the bureaucrats. By calling a vote, Tsipras strengthens his hand by calling out the bureaucrats as being illegitimate and letting the people decide.

I think this vote is more dangerous to the bureaucrats in Brussels, but they are too arrogant to see it that way. Post 2008, the world has largely been ruled by technocrats in Treasury and Central Banks which have tended to enrich a few at the expense of the many. The austerity program for Greece has largely become the bureaucratic catch-22. The greeks spend too much money so they need austerity to pay their debts. Austerity causes drop in GDP so tax revenues fall and they can't pay their debts. They need more austerity. (repeat)

Ultimately, Greece needs a large haircut on it's outstanding debt. Unfortunately, the debt is held by the sovereigns (52b Germany, 49b France, 39b Italy). Bureaucrats are happy to writedown (cramdown) debt when the holders are private creditors, but very reluctant when owned by the sovs. (Bureaucrats). The world democracies should hope Greeks are brave and vote 'No'.

Greece is in a no-win situation. A "yes" vote prolongs the agony, a "no" vote accelerates the agony. If the Greeks find it inconvenient that the banks are closed for the week and they can only withdraw Eur60 a day (assuming there are notes in the ATM), at least there will still be food on the shelves at the end of the week. A return to the drachma will be wrenching, financially. Anyone with euro-denominated debt will struggle to repay it, if they aren't forced to default. Long term it will probably be better, but in the short term it will be chaos. That of course assumes that the Russians don't step in to bail Greece out, which is probably the worst of three evils.

I traveled in Eastern Europe last year, all formerly communist countries. The countries there that aren't in the EU are very much wanting to join, i.e. the former countries formed from Yugoslavia. It means outside investment, improved quality for their products because of the standards demanded by the west, and ease of commerce because of the Euro (although being in the EU doesn't mean you use the Euro). While Greece may still do business with the west if they opt out of the Euro Union, the fact is that the EU will move the allocations for products previously given to Greece to other EU countries. Greece will have to open new markets with non-EU countries if they are to survive a no vote. While I agree that the EU countries can be demanding, opting out is like shooting yourself in the foot just to say that you can.

The challenges for Greece are large if they go their own way, but not insurmountable. The country's economy is about the size of Los Angeles. In other words, it is manageable. We're not talking the default/collapse of a world power here.

Agree with Doug that this has become a tyranny run from Brussels. Greece has to do what's best for its people; not what's best for the European Union.

[Tony T]

What my 'guy' mentioned as well. Long term investment, even if small.

Well, I don't disagree, but instead of starting the chart at the low (and ignoring the financial crisis), better to look at a 10 year chart:
http://forums.thepaceline.net/attachment.php?attachmentid=1697903091&stc=1&d=1435663292

[MattTuck]

or, we can go back further and actually adjust for inflation.

http://www.advisorperspectives.com/dshort/charts/markets/SPX-Dow-Nasdaq-since-2000-real.gif

[goonster]

Greece has to do what's best for its people; not what's best for the European Union.
It's really an indictment of the EU that they can't weather this storm, and I think a lot of people in positions of power will live to regret that they did not do more to meet Greece a little closer to halfway.

Recently a smart person cast Schaueble as the "Javert" in this narrative, but that's his job, and there are others whose job it should be to keep him in check.

[fuzzalow]

It is very easy to see past other people's suffering.

I was not trivializing their hardship. I was rationalizing that most Greek voters may not foresee the myriad of consequences and unknowns in casting their referendum ballot. And resort to a desire to cease what they do not wish to endure any longer without considering what might happen next. After all, the average person is neither a political strategist nor an expert at int'l finance. What is happening here has few experts even among the experts.

What's the upside to a Yes vote? How is the economy supposed to grow? Where is the light at the end of the tunnel? Any halfway red-blooded American with a pulse and a set of b***s in this scenario would vote No. With a bullet.

In any sort of rational endgame, the creditors take a haircut to stave off default, so why won't they take a hit here?

(Don't bother. I know. I'm German . . . :rolleyes:)

The entire drama is an exercise in int'l political gamesmanship. With much at stake. IMO the upside of a Yes vote is it buys everyone more time. It does not potentially start a avalanche of events that have drastic and uncertain consequences in reshaping the world order, both from the EU, Int'l finance and the NATO geopolitical perspectives.

The fact that any voter with a set of balls would vote No is just the sort of political copout resorted to by Syriza/Tsipras in calling this referendum. The only good from a winning No referendum might be not an exit from the EU but a stronger bargaining hand held by Tsipras in dealing with Merkel.

The answer is not more austerity. I think even the Germans know this but they must have assurances that the Greeks recast their economy, society and internal political structures to not be the corrupt, non-growth, public welfare & pensioned leisure state as it largely exists now. That is a big nut to crack and in fairness to the Germans, they can't write Greek debt off and come out of this with everything the same as before in Greece.

Germany/France/Benelux will eventually write off the debt, if there is given enough time to allow this unpleasant reality to take hold in the collective consciousness of the large EU creditor nations. But especially Germany. I think this is Germany's first real sacrifice as a world leader nation in their crucial role in saving the EU. They will lead by the strength of their economy and political will in writing off the debt to save and preserve the unity of the EU. Not unlike the burden and sacrifice the United States has made post-WW2 in forging and strengthening effective unions and alliances. Such is the role Germany has and must step up into in preserving the EU. Welcome to the world stage as a lead country, they have arrived.

I do not see this as any kind of conspiracy of the technocrats, bureaucrats or central bankers. That oversimplifies a complex problem to the impossible designs and machinations of villains with powers that don't exist.

[MattTuck]

It's really an indictment of the EU that they can't weather this storm, and I think a lot of people in positions of power will live to regret that they did not do more to meet Greece a little closer to halfway.

Recently a smart person cast Schaueble as the "Javert" in this narrative, but that's his job, and there are others whose job it should be to keep him in check.

I'd agree with that. The EU leadership isn't really interested in helping Greece, as much as it is concerned that it will set a precedent in how it deals with Greece (because of the other peripherals), that will handcuff it in the future.

The cost to deal with Greece (forgive all the debt) is probably doable. The problem then lies when Spain, Portugal and Italy start having problems. Those debts are still held by banks (as opposed to Greek sovereign debt which I think is now almost entirely held by the European Central Bank), and have a much bigger potential for crisis.

And so we get back to this issue, the EU wants Greece to do what's best for the EU. Greece does need to make structural reforms, but it should do it for the good of the people in Greece, not to appease the paymasters in Brussels.

I have a good friend who is from Greece and works with me. It is a sad state of affairs. The economy there is in tatters. Most of the driven/high achieving people have left the country. His mom is still there, and he advised her a while ago to take her money out of the banking system. It is an absolute loss of confidence across the whole country. It is much more than a run on banks.

[54ny77]

Yup.




Agree with Doug that this has become a tyranny run from Brussels. Greece has to do what's best for its people; not what's best for the European Union.

[Anarchist]

Syriza was elected on lies.

They ran on lies and they were elected on lies.

There was never a chance that their gamble, and that is what it was, with the populace as the chips, would succeed.

So now Tsipras has failed to live up to his lies and frames a bizarre referendum question designed to have the populace give him a hiding place from his lies.

An abject failure to lead or govern and no attempt to recover, rather a cynical attempt to hold power.

The people of Greece will suffer terrible because Tsipras lied, and failed.

"telos pia ta psemmata"

[slidey]

I really don't have a position on the Greek fiasco - just trying to learn as much as possible.

However, I found a comment by the Chinese premier to bankroll Greece's debt as very interesting. I find myself trying to play forward that scenario a decade or two.

[54ny77]

They already bankroll the U.S. :p

Am surprised (and thankful) to not hear of violent protests, etc. We were there circa '07 and there was quite a bit of tension goin' on politically (riots and whatnot).

Hopefully calm heads prevail politically and the economic situation sorts itself out.

I really don't have a position on the Greek fiasco - just trying to learn as much as possible.

However, I found a comment by the Chinese premier to bankroll Greece's debt as very interesting. I find myself trying to play forward that scenario a decade or two.

[slidey]

They already bankroll the U.S. :p

Am surprised (and thankful) to not hear of violent protests, etc. We were there circa '07 and there was quite a bit of tension goin' on politically (riots and whatnot).

Hopefully calm heads prevail politically and the economic situation sorts itself out.

True - I too am quite impressed with the decorum.

On the one hand it seems that the Greeks have spoken via their govt and by not pulling the rug from under them (and, kudos to the govt for translating their words into actions), while on the other hand I get the feeling that the general spirit/morale of the Greeks has been sapped.

Closer to home, it'll be interesting to see what steps Puerto Rico takes now.

[Tony T]

Where's the "OT: Stock Market Rise Today 7/01!" thread? :)

[Jeff N.]

It starts here! :)

[slidey]

Where's the "OT: Stock Market Rise Today 7/01!" thread? :)

I'm sure you know it, but here's my understanding of why such threads don't usually make it: https://en.wikipedia.org/wiki/Loss_aversion

[MattTuck]

slidey laying down some prospect theory in this house!! :hello:

[fuzzalow]

slidey laying down some prospect theory in this house!! :hello:Theory it is all right. Gimme something I can use.
Reminiscences of a Stock Operator Hardcover – October 4, 2004 by Edwin LefÃ..vre (Author), William J. O'Neil (Foreword)
(http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lef%C3%83/dp/0471678767/ref=sr_1_fkmr0_3?ie=UTF8&qid=1435765607&sr=8-3-fkmr0&keywords=reminecens+of+a+stock+operator)
http://ecx.images-amazon.com/images/I/51V2xZW%2B5QL.jpg

I read this book over 20 years ago. It's only one piece in a puzzle of hundreds of pieces. I think there's equal insight from The Beatles "Money (That's What I Want)"Money don't get everything it's true
What it don't get, I can't use
Now give me money
That's what I want
That's what I want, yeah
That's what I want

[Tony T]

Yeah, "Jesse Livermore". Many see him as one of the Stock Markets "best traders" I read a couple of books about him, and I don't share that opinion. He did great before SEC regulation (especially during the crashes of 1907 and 1929, which leads me to believe that he traded on insider info). He made and lost a lot before regulation, but after regulation, he lost it all and ended up committing suicide.

[fuzzalow]

Yeah, "Jesse Livermore". Many see him as one of the Stock Markets "best traders" I read a couple of books about him, and I don't share that opinion. He did great before SEC regulation (especially during the crashes of 1907 and 1929, which leads me to believe that he traded on insider info). He made and lost a lot before regulation, but after regulation, he lost it all and ended up committing suicide.

No disagreement there. But frankly, anybody that read that book looking for a tutorial on what and how to trade is looking for the wrong thing. The book is a classic and IMO all its value is in the subtleties. That's all I could remember about it. Maybe the best value in the book is just to be able to say that you've read it!

Kinda like how the Piketty book last summer was the fashionable book to claim to have read when most blokes that paraded that book around didn't actually read it!

[slidey]

slidey laying down some prospect theory in this house!! :hello:

Man, I had to look up 'prospect theory'. My knowledge of some of these ideas come from listening to too much Freakonomics.

[MattTuck]

No disagreement there. But frankly, anybody that read that book looking for a tutorial on what and how to trade is looking for the wrong thing. The book is a classic and IMO all its value is in the subtleties. That's all I could remember about it. Maybe the best value in the book is just to be able to say that you've read it!

Kinda like how the Piketty book last summer was the fashionable book to claim to have read when most blokes that paraded that book around didn't actually read it!

Saw a guy walking around with a shirt that said, "r > g", and I tried to strike up a conversation. "Is that in reference to the Piketty book?" He looked confused and then fumbled through some explanation involving inequality... needless to say, I'm not sure he even knew where it came from.

[fuzzalow]

Saw a guy walking around with a shirt that said, "r > g", and I tried to strike up a conversation. "Is that in reference to the Piketty book?" He looked confused and then fumbled through some explanation involving inequality... needless to say, I'm not sure he even knew where it came from.

HaHa, Yeah! Busted!

In fairness, Piketty's not an easy, breezy read. Most guys that displayed that hardback book I honestly think used it as a prop to strike up conversations with women. You'd see it either carried by blokes standing in the street while waiting for their dinner table or on the table in the street cafe. Sigh. East side Manhattan night life.

I'd laugh because I'd point out to Mrs. fuzz the guy that was carrying around the Lewis book Flash Boys and say that he was the stupid one.

[edit P.S. Alluding jokingly to the possibility that this guy first tried to read Piketty and after 10 pages quit. Needing to find another book on "high finance", "Wall Street" or "computer trading" to impress some amorous-intended pretty with and settled on the Lewis book. Now that book, he could handle!]

I'm outta the loop, I dunno what the hot book is this summer season.

[Louis]

Saw a guy walking around with a shirt that said, "r > g", and I tried to strike up a conversation. "Is that in reference to the Piketty book?"

The last time this sort of thing happened to me was in grad school. I saw a guy walking around with a t-shirt that said "Taliesin West" so I told him "You must be studying Architecture" and sure enough he was. He seemed impressed that I had recognized the name, but in reality I've been a fan of Frank Lloyd Wright since high-school.

[Jeff N.]

Fast forward to 7/8....Things are looking really bad. :eek:

[Ken Robb]

Stock market is run by computers and algorithms rather than genuine insights, could see this one coming a mile off.
and you are quite a few miles off from NYC. :)

[1centaur]

Especially bad in China. That is a mess from the top to the bottom.

Technical analysis (investing using chart patterns) in part reflects an underlying assumption/history that much of the market is using fundamental analysis (what a company is supposedly worth).

When a market starts up that is based 100% on chart patterns, it can become unmoored really, really badly. When "investors" have no clue what something is worth and just hope it will either go up because it's been going up or because the government will make it happen, the potential for panicked capitulation without a fundamental net is really high. Charlatans posing as market gurus and spouting market propaganda to keep retail money in the market will create lasting damage on several levels.

I read that Chinese gamblers will bet on a streak of red continuing in roulette readily, and they apply the same mentality to stock investing.

We are seeing just about every investing and regulatory error known to man over the course of a few months. It will make a hell of a book but boy is it bad for a lot of people.

[Louis]

Fast foreward to 7/8....Things are looking really bad. :eek:

I agree if 1) You're 100% in Chinese stocks, or 2) You're a programmer for the NYSE.

And even if it's (1), you did incredibly well until very recently and are still up for the year (probably not for long) and by now you should be used to volatility.

[MattTuck]

Thanks to this thread being resurrected last week, I was reminded to live by my convictions.

Made $2K off a $500 bet on puts on FXI. I closed the position before the close today because I didn't want to risk my gains. I'll probably regret that... but I don't feel so bad.

I'll earmark that for a new frame in retirement (since it was in my IRA) :banana:

[Louis]

Matt, shame on you - gambling with your IRA - tsk, tsk.

(Admittedly what's presumably a small portion of it, but still. As long as you don't have an addictive personality type...)

[MattTuck]

Matt, shame on you - gambling with your IRA - tsk, tsk.

(Admittedly what's presumably a small portion of it, but still. As long as you don't have an addictive personality type...)

Actually, $500 was my entire life's savings. I've quintupled my retirement now! :banana:


No, seriously. Yes, it is a small amount and I wouldn't advise anyone to truly gamble with their retirement. But a few small bets here and there I don't think are too bad -- especially if they are based on sound reasoning. If I had gone with a cheaper (more out of the money contract), I bet I could have done 10x on my original investment. And, think if I had put my WHOLE nest egg into that trade... Now, that would have been nice. :p

As an aside, China was up huge last night. So I got out at the right time. Now, shall I make another bet that they're in for another slide? :help: Daddy needs a new gravel bike!

[Tin Turtle]

I agree if 1) You're 100% in Chinese stocks, or 2) You're a programmer for the NYSE.

And even if it's (1), you did incredibly well until very recently and are still up for the year (probably not for long) and by now you should be used to volatility.

Shanghai Composite is up 69% over last 12 month period not counting yesterdays gain. I live in China part time, I could go on and on about how they are clueless when it comes to investing.

As for the OP, repeat this - "Thou shall only review the account balance quarterly" It will help you to make smart decisions. Set up limits and rules, follow them, and you will have no problems long term.

[verticaldoug]

Shanghai Composite is up 69% over last 12 month period not counting yesterdays gain. I live in China part time, I could go on and on about how they are clueless when it comes to investing.

As for the OP, repeat this - "Thou shall only review the account balance quarterly" It will help you to make smart decisions. Set up limits and rules, follow them, and you will have no problems long term.

How quickly Americans forget the E-Trade commercials from 1999 or the ninja home mortgages in 2006 2007.

[Tin Turtle]

How quickly Americans forget the E-Trade commercials from 1999 or the ninja home mortgages in 2006 2007.

Oh I remember it quite well, I got a very painful lesson around 06. But while day trading was the craze, there was plenty of information available on fundamentals, how to evaluate stocks etc. If you wanted to invest rationally you could educate yourself and make that choice. That information is almost non-existent in China, and you have to remember they are blocked behind a firewall that does not limit everything, but unfortunately does tend to block news and financial sources of info.

A huge section of the population that is doing the actual "investing" are the elderly and they simply have no exposure to market concepts. Its not that they are stupid, its just that its hard to for us to understand a lifetime of thinking/living/earning within a very controlled environment. A survey in China showed 2/3 of the accounts opened in the last 3 months were by people with less than a high school education.

Now the government has dropped the requirements for holding margin accounts open and provided avenues for them to borrow against their apartments to buy stocks. Very irresponsible. Its using one bubble to feed another. That said it would not surprise me to see the SCI flatten out and hold 3400-3600. I mean after all, they halted trading on half the index. If people think its going back up they will jump in with both feet.

Here's a link to a video I shot in Beijing a couple weeks ago (http://www.tinturtle.com/images/gallery2/688.mov) that is funny. I was out on the bike and it started raining like mad so I ducked for cover under an eave at a bank. Along with me were a bunch of 3 wheel cart drivers (delivery, taxi etc). Within seconds they break out a deck of cards and start gambling away in the bank window. Great guys, very nice people, but to them the stock market is just gambling, a different way, and all their neighbors were winning so they had to play too.

[fuzzalow]

Deal on Greek Debt Crisis Is Reached, but Long Road Remains (http://www.nytimes.com/2015/07/14/world/europe/greece-debt-plan.html)

Disaster averted. All the bluster and swagger by Tsipras/Syriza tamped down to also not be a disaster. No need for anyone to beat their chest, there is serious and substantial hard work ahead for the Greek government. I wish them all great fortune and fortitude in seeing this through.

This could just be kicking the can down the road, again, for the Greeks but I think even they know that a cat has but nine lives and Germany is double counting Greece's third bailout in five years because they're tired of the bulls_it.

The first move and rebuilding of credibility always rested with the Greeks - there is so much of their economy and politics that is dysfunctional. But if they get serious and rebuild their economy & credibility, I'd bet that the German position will soften over time towards writing off some of the debt. But the Greeks have to earn it first to reap the benefit.

[Louis]

A big fundamental problem with the Euro (inability of individual countries to devalue) remains.

[Ken Robb]

The different mindset between a "typical" German and what may be "typical" Greek attitudes seems to be very different. My sister-in-law went to Germany for post-grad work in 1972 and stayed because she liked it there so well. Listening to her "typical German" attitude over the years has been enlightening. She said she and her friends were rather appalled to discover after reunification that "The Osties" from East Germany were not used to working as hard and taking care of themselves (vs. government handouts) as those Germans in the West.
So I don't really know what a "typical Greek" attitude to all this is but I can understand many Germans expecting/demanding that Everyone ought to buckle down as they do. :)

[MattTuck]

Can successfully kicked. The debt will never be repaid. Their economy is in shambles. Look at the projections for the economy...

A fiscal surplus of 4% of GDP in 5 years.... yeah right.

The solution to too much debt is not more debt.

The ONLY bright side I see to this is that Greece may actually implement some of the structural reforms that are needed to start rebuild the economy.

But now they've got this albatross around their neck... so much debt, no ability to repay. No desire from Europe to write it down to a sustainable level.

We'll be having this same thread in another 3 or 4 years.

[Tony T]

Are you referring to the U.S.?

[goonster]

Are you referring to the U.S.?

The U.S. has fiscal and monetary sovereignty.

Now Greece has neither.

[Tony T]

Opps, forgot the ;)








;)

[MattTuck]

Are you referring to the U.S.?

I mind as well be.

We have the ability to pay it down, but not the political will. Sigh.

[slidey]

I wonder how things would've played out had they left the Euro.

The consensus seems to be that this is one of the worst, if not the worst, deals for Greece. How can they ever repay the debt? I wonder how much of the ~85bn dollars are going into the European banks, since that seems to have been the place where a majority of the prior funds went.

Agreed though, that they could do a better job of collecting on taxes.

[goonster]

Germans expecting/demanding that Everyone ought to buckle down as they do.
If only the Germans would believe their own self-righteous hype a little less. This is a country that buckles down to a 36-hour work week and six weeks vacation, remember.

The Greeks are an easy target, and I also started out with very little sympathy for them. But now there's really no dispute now that the 2nd round conditions have shrunk the economy by 25% in just four years. Why stubbornly insist on a medicine that is killing the patient?

Also, the German tabloid press is treating this really despicably. A country with a $200+MMM trade surplus is whining about what the Greeks are doing to "our Euro." Pathetic.

Enjoy some actual German tabloid headlines, dramatized for satirical effect:
https://www.youtube.com/watch?v=ktqKNu4N9Ds
(German w. English subtitles)

[fuzzalow]

The consensus seems to be that this is one of the worst, if not the worst, deals for Greece. How can they ever repay the debt?

Yes, that is what happens when a Tsipras government has no credibility and decides to play financial brinksmanship with no bargaining power against Germany & France and loses. What a yutz.

BTW, this is outta left field but it would drive me batty that Tsipras would always galavante around other world leaders and not wear a necktie. Always looked to me like he wanted to look like the teenager sitting at the adults table. Didn't matter that he was bargaining with the future and wellbeing of his nation without a leg to stand on.

They will never repay the debt. But that issue of principal repayment is still much too long term far away to even consider. The Greeks need to first show sustainable and permanent reform in their politics and economy that has them carrying a primary debt surplus that the rest of the Euro-creditors can trust and believe in. Primary debt surplus simply meaning a positive balance of gov't revenues over gov't spending excluding interest charges. The Greeks have to show that they can at least tread water for themselves financially and the primary deficit surplus is how they prove it. The Eurozone must know this because at least they can project that they will no longer have exposure to Greek structural deficits that might again put them in the same hole as they are now.

When the Greeks have climbed this mountain, then they can get into discussions about debt relief as far as principal outstanding.

[Louis]

They should use this breathing room to print a bunch of drachmas and pull out of the Euro.

[MattTuck]

That sounds about right to me.

I mean, as I see it, there are 3 pools of money that Greece could tap (theoretically)

1. Private Investors: These people care about a return on their money, the amount that they'd lend, and the interest rate would be based on the market's perception of Greece's ability to pay it back. No one in this group would lend Greece money at the current time.

2. Eurozone sovereigns /IMF: These people care about 2 primary things. First, they care about the Eurozone, and keeping it intact. They also care about sending a message to Greece to make it 'fall in line' with the demands. This is what they care about on the surface, but they also care about their own exposure to Greek debt. They bailed out their own banks in the last round of Greek bailouts, protecting their own money by giving Greece money to pay European banks.

3. China/Russia: These are sovereigns mostly interested in expanding their sphere of influence in Europe and see Greek weakness as an opportunity to do that. If they 'lend' Greece money, it is for strategic purposes and to gain bargaining power in the future. They are not as interested in a financial return, but the cost to Greece would be very high.


The Greek government has been dicking around focusing on the 2nd group (and recently the 3rd the group), trying to negotiate and play hardball while their economy becomes more and more impaired by their dithering.

They need some real leadership based on telling the Greek people the truth. It is a really crappy truth to have to tell. We borrowed too much money, we made too many promises to our citizens, we cannot meet all of our obligations. What we are going to do is make the changes necessary to put our country on a path to growth. A lot of folks are going be hurt by this, but it is the thing that we have to do so our citizens do not become serfs to Berlin.

There is no unicorn that poops gold. There are serious policy changes that need to be made, and made FAST. So many of the brightest people have already left Greece. So much of the economy has been hollowed out. It is a tragedy, honestly, for the citizens of Greece that their government has been unable to resolve this because they don't want to take the unpleasant medicine.

They're going to wake up some day and wonder why their predecessors allowed it to go on for so long, each month destroying the fabric of their country...

[goonster]

Yes, that is what happens when a Tsipras government has no credibility and decides to play financial brinksmanship with no bargaining power against Germany & France and loses. What a yutz.

I dunno . . . You can blame Tzipras for making election promises everyone knew he couldn't keep, but I would sincerely like to know what he could have done differently.

I have not seen any reports that Schaeuble budged an inch. Greece needs debt relief, and now it turns out that was never on the table. Tzipras' only card to play was to leverage the fear of a Grexit and to appeal for some solidarity.

So much ink has been spilled over the (lack of) neckties and the motorcycle, but I always thought these were appropriate signifiers of an electorate pushed to the brink. Varoufakis is hardly my hero, but when I paid attention to what he was saying, I couldn't find a lot wrong. (OK, I would not have used the word "terrorism")

[fuzzalow]

I dunno . . . You can blame Tzipras for making election promises everyone knew he couldn't keep, but I would sincerely like to know what he could have done differently.

I have not seen any reports that Schaeuble budged an inch. Greece needs debt relief, and now it turns out that was never on the table. Tzipras' only card to play was to leverage the fear of a Grexit and to appeal for some solidarity.

Tsipras came to power on populist rage and frustration of the Greek voter and it is not unreasonable that they would have placed hope in his promises to extract better terms from Greece's creditors. Desperation clouds judgement to make the impossible seem possible. I don't place blame on anybody. There is enough culpability to apportion to all the parties (Tsipras, Merkel, Hollande) in this mess with intransigence and emotion making it worse. Christine LaGarde head of the IMF remarked that she "is the only adult in the room" in observing the main protagonists go at it.

The Greeks are guilty of cooking the books to get entry into the Eurozone. Their government have lied, cheated and borrowed money from their Euro-creditors in financing their corrupt and dysfunctional political system and floating an untenable economy.

The Germans are guilty of lacking due diligence in freely extending credit. German manufacturers reaped tremendous opportunity in the benefits of exporting freely into the Eurozone markets largely financed by the underlying ease of their credit during the booming, prosperous years pre-Lehman.

The Eurozone and the European Commission are guilty of lax application and enforcement of their own terms and conditions of the Eurozone accord. The politics of each country driving the desire for Eurozone unity while possibly shading over or ignoring fundamental shortfalls in their own economies and also in prospective applicants like Greece. Also not fully recognizing the structural incompatibilities and challenges in integrating disparate economies between the Northern and Southern member countries. Guilty perhaps of optimism in having a Plan A without having a Plan B for the downside.

Greece is currently on the short end of the stick because they took and spent the money. But anytime there is a problem this large it is never just laid to one guilty party or one factor alone in creating an mess the size and totality of this one.

I didn't crib this from a website, it's based on my own, probably faulty, knowledge and memory of the situation so don't use what I wrote here to pass a test.

[1centaur]

I agree with fuzzalow's laundry list.

Climbing up to 10,000 feet, we are witnessing the tension between the nature of politics (making specific promises to the people over years of an uncertain future while satisfying politician's egos and filling their bank accounts) and the reality of economics (nothing produces national wealth to pay for promises like relatively unfettered capitalism). As promises and egos mount, fetters tighten both for workers (the soft bonds of the welfare state) and for entrepreneurs (regulations and taxes). When the engine starts to sputter, debt mounts based more on the success of yesterday than the prospects of tomorrow. At some point, a tipping point occurs when the debt becomes too big for the reduced capacity of the economy, and default (or high inflation) ensues.

While one might imagine a Grexit leading to a brief and brutal adjustment and then an unfettered GDP recovery, in reality Greece does not know what it means to work hard, tax effectively and regulate lightly, so we might be looking at decades of poverty (and foreign aid to keep out the Russians). No wonder the statists would like to forgive, rinse and repeat, saddling the taxpayers of Germany et al with the sins of Greece's Euro admission because hey, they're just going to spend it on strudel anyway.

The balance of economy and state is delicate wherever it is found. No matter which side of the line one finds oneself on, there can be no disagreement about that. Each side wants to push the balance a little more to their interests, but as Richard Marx sang, "That little bit of something can look awfully big to me."

[Climb01742]

In every credit situation there is a lender and a borrower. Greece didn't force Germany or others to lend it money. And Greece never really was a very good credit risk to begin with. That was never a secret. There are certainly parallels to the American mortgage market, pre-crash. Loans were made that never should have been made. The borrowers, like Greece, weren't good risks. Yet bankers extended no income verification mortgages. Yet, when everything goes south (literally in Europe) the bankers never want to assume their part in the faulty risk. Bankers must have the longest hair in the world, because save Iceland, have they ever taken a haircut?

I readily admit, Greece has a huge, heaping pile of blame at their own doorsteps for how poorly they, financially, run their economy and collect their taxes. But in this situation, sacrifice and pain needs to go both ways. Bankers were fools to lend Greece the money if they never expected this day to come. The fact that there is no debt forgiveness -- we can fairly debate how much debt should be forgiven -- is one more example of bankers privatizing gain and socializing loss.

[maxdog]

In every credit situation there is a lender and a borrower. Greece didn't force Germany or others to lend it money. And Greece never really was a very good credit risk to begin with. That was never a secret. There are certainly parallels to the American mortgage market, pre-crash. Loans were made that never should have been made. The borrowers, like Greece, weren't good risks. Yet bankers extended no income verification mortgages. Yet, when everything goes south (literally in Europe) the bankers never want to assume their part in the faulty risk. Bankers must have the longest hair in the world, because save Iceland, have they ever taken a haircut?

I readily admit, Greece has a huge, heaping pile of blame at their own doorsteps for how poorly they, financially, run their economy and collect their taxes. But in this situation, sacrifice and pain needs to go both ways. Bankers were fools to lend Greece the money if they never expected this day to come. The fact that there is no debt forgiveness -- we can fairly debate how much debt should be forgiven -- is one more example of bankers privatizing gain and socializing loss.

So true!

[verticaldoug]

In every credit situation there is a lender and a borrower. Greece didn't force Germany or others to lend it money. And Greece never really was a very good credit risk to begin with. That was never a secret. There are certainly parallels to the American mortgage market, pre-crash. Loans were made that never should have been made. The borrowers, like Greece, weren't good risks. Yet bankers extended no income verification mortgages. Yet, when everything goes south (literally in Europe) the bankers never want to assume their part in the faulty risk. Bankers must have the longest hair in the world, because save Iceland, have they ever taken a haircut?

I readily admit, Greece has a huge, heaping pile of blame at their own doorsteps for how poorly they, financially, run their economy and collect their taxes. But in this situation, sacrifice and pain needs to go both ways. Bankers were fools to lend Greece the money if they never expected this day to come. The fact that there is no debt forgiveness -- we can fairly debate how much debt should be forgiven -- is one more example of bankers privatizing gain and socializing loss.

The privatized gain and socialized loss happened during the first writedown. That is when the private creditors were still involved. At this point, most of the money lent to Greece is from the mono-lenders (IMF, Sovs, ECB). They play by different rules and being bureaucrats, cannot admit they are wrong and write down the loans. (If private creditors were on the hook here you can be sure the IMF would be leading the charge on a debt moratorium much like they are leading in Ukraine)

Austerity is like watching a medieval doctor bleed a patient to make him better. The bleeding didn't work, he needs more bleeding. Doctor the patient died. (it was the devil at work that's why)

Greece has already contracted 26% post austerity, current forecasts now call for 2-4% contraction this year. But given capital controls, you probably end up with 6-7% shrinkage.

I had hoped that Tsipras would break the hold of the eurobureaucrats, but he blinked. Now instead of a fast and furious GREXIT, they can continue the slow water drip torture.

I was so wrong on Tsipras.

[1centaur]

To triangulate, the bankers' bet had more to do with the political decision to expand the span of control than with thinking Greece was independently credit worthy, and the banks are uncomfortably close to the political machine. 20x levered semi-autonomous tools (and lubricants) of the state are not an ideal expression of capitalism. Remember, the state post-Lehman did not bail out banks to privatize profit, they bailed out banks to save the state because banks have become indispensable to the functioning of state. Banks are at the nexus of the delicate state/economy balance I talked about.

Truly private lenders would let the country default and not care about the political consequences, and the country would be happy to do it. This unfortunate co-dependence is a whole 'nother thing.

[MattTuck]

Truly private lenders would let the country default and not care about the political consequences, and the country would be happy to do it. This unfortunate co-dependence is a whole 'nother thing.

I'm with you until this part. Lenders are never going to willingly let the borrower default. They want their money back and will use whatever legal tools they have available to get it.

Yes, NEW private lenders considering loans to Greece wouldn't care if the the country defaulted on previous obligations and the political environment was not good, so long as they were confident that Greece would be able to pay back the new loans.

But Greece is so far from being able to attract private lenders (at a reasonable interest rate) that they're not even trying to make the necessary structural reforms to attract them.

[fuzzalow]

While one might imagine a Grexit leading to a brief and brutal adjustment and then an unfettered GDP recovery, in reality Greece does not know what it means to work hard, tax effectively and regulate lightly, so we might be looking at decades of poverty (and foreign aid to keep out the Russians).

Agree. The citizenry really allowed their incompetent and pandering government to lull them into a false utopia of easy, care-free living. Frankly, a situation that is obvious to anyone looking at it from the outside as madness but seemingly complete normalcy to those inside as participants in Greek society. Who knew?

I have Greek friends with ties of family & property still to their homeland. Before the first Greek bailout was yet to happen they freely discussed their wonderful life when they went home on summer visits to Greece. The part that baffled me was in their proudly describing their friends and family who could get the right connections and pull the right strings to get into certain prized government jobs. Government jobs?!? I even asked them, why would anyone aspire to a government job? They looked at me as equally baffled as I looked at them. I had absolutely no idea as to how the Greeks lived and ran their society! None. It was madness! And yet it was normal to my friend and his family in Greece. True story - I was amazed they could be so crazy and that I could be so naive.

This disconnect in part no doubt fuels the outrage felt by the Germans as both an antithetical cultural proclivity and a perversion of financial responsibility. Their own involvement in banking discipline as a lender is not forgotten but conveniently deemphasized. But actions that stand as contributory negligent all the same.

As far as a bailout from either the Russians or the Chinese - it won't happen. The world economy is not prosperous and everybody has their own problems and is short of cash. The Russians can't afford to do anything while the world price of oil is at its current level and the Chinese have their own economic stimulus concerns in maintaining their own internal growth rate in their decelerating domestic economy.

I readily admit, Greece has a huge, heaping pile of blame at their own doorsteps for how poorly they, financially, run their economy and collect their taxes. But in this situation, sacrifice and pain needs to go both ways. Bankers were fools to lend Greece the money if they never expected this day to come. The fact that there is no debt forgiveness -- we can fairly debate how much debt should be forgiven -- is one more example of bankers privatizing gain and socializing loss.

Yeah. The term "moral hazard" rears its ugly head again.

In fairness to the bankers, they will have to write off the debt at some point. The Greek economy is unlikely to revitalize and reinvent itself enough to ever be in a position to pay back debt on the scale that they have amassed. Its a question of timing and to maintain the proper inducements to encourage the restructuring of the Greek economy & political patronage sytem.

However the Germans could also retire a small portion of the debt now as a gesture of solidarity for the Eurozone and as goodwill towards the Greeks. But because emotion runs high with Germany for her own outrage at the Greeks and the desire to impose accountability to the brink of punishment, the situation runs to the way it has run. It did not help for Tsipras to impose his temerity at Merkel in making demands of her without a leg to stand on.

[slidey]

I don't think the narrative that the Greeks are a lazy, idyllic bunch has much merit when combated with facts -

http://www.onthemedia.org/story/perceived-tragedy-greece/

I really think the bigger (maybe, the biggest) problem is the foundation of the Euro - Greece could borrow at the same rate as Germany, just because they had the same currency. If I were a betting man, I'd bet that the EU concept will be financially fractured in the near future.

Finally, it is the ambiguity of the word 'austerity' - it conveys nothing about the context, and in the keyword relevant world we live in, it evokes just one notion in our heads. When people follow austerity - they spend less on goods, when a country follows austerity - it spends less on its people. Both the notions are to do with austerity - but, I do think we very frequently get carried away by the financial benefit we see in personal lives, and jump to the conclusion that this concept scales well for countries as well - historical data shows it doesn't.

[Climb01742]

This may be a tangent but I wonder if part of Germany's psychology in all this is a product of the nation's experience in the 1920s with war reparations and their many defaults under the Dawes Plan. That experience could go two ways: creating a sympathetic responses to crushing debt or a harsher response of, we went through hell, you should too. Thing is, the Marshall Plan did what the Dawes Plan never did, and a helping hand did what a punishing stick couldn't. As I said, probably tangential but curious how Germany's history is shaping its current mindset.

[Tony T]

Germany's debt was cut in half in the 50's:
NYT: Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis (http://www.nytimes.com/2015/07/08/business/economy/germanys-debt-history-echoed-in-greece.html)

http://static01.nyt.com/images/2015/07/08/business/08porter-web1/08porter-web1-master675.jpg
In 1953, Hermann Josef Abs, center, signed an agreement that effectively cut West Germany's post-World War II debt in half

[1centaur]

The antipathy of Northern Europe to Southern Europe combined with the political embarrassment of allowing Greece in the Euro in the first place and the questionable upside of debt forgiveness when the rate of interest and the maturities are so stretched out there has been a lot of forgiveness already in practical terms....all these explain Germany's attitude, I think. Wrapped up in the antipathy are culture issues that may involve Germany's past.

[verticaldoug]

http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010

Michael Lewis article from 2010 in Vanity Fair

[goonster]

nothing produces national wealth to pay for promises like relatively unfettered capitalism
Are you going on record that Germany is practicing sufficiently unfettered capitalism?

That's a score I'd like to keep . . .

No wonder the statists would like to forgive, rinse and repeat, saddling the taxpayers of Germany et al with the sins of Greece's Euro admission because hey, they're just going to spend it on strudel anyway.
Shows what you know. Germans don't eat strudel, unless they are travelling abroad. ;)

[goonster]

I had hoped that Tsipras would break the hold of the eurobureaucrats, but he blinked. Now instead of a fast and furious GREXIT, they can continue the slow water drip torture.
Let's remember that there is no precedent for a Euro exit. It's one thing for us to talk about it, and another to lead your country down that path.

I think Tsipras looked down off the cliff post-referendum, with the banks closed, medication in short supply, etc., and just couldn't jump.

[1centaur]

Relatively unfettered capitalism does not exist in the Western World, and certainly not in Europe. I could not think of a shorter phrase to convey that the means and the will to become rich without great impediment and practiced by many will increase the wealth of the whole faster than any other state of economy short of finding gold in them thar hills. Highly fettered and less capitalistic systems will struggle to grow as fast as their debt.

I am open to nomination of identifiably Germanic food categories.

[fuzzalow]

http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010

Michael Lewis article from 2010 in Vanity Fair

That article is probably an excerpt from Mr. Lewis' book on the credit bubble crisis "The Big Short: Inside the Doomsday Machine". He covered also Ireland, Spain and Finland's madcap experiences in the story of each of their passages through the alimentary canal of securitized finance.

Relatively unfettered capitalism does not exist in the Western World, and certainly not in Europe. I could not think of a shorter phrase to convey that the means and the will to become rich without great impediment and practiced by many will increase the wealth of the whole faster than any other state of economy short of finding gold in them thar hills. Highly fettered and less capitalistic systems will struggle to grow as fast as their debt.

State run capitalism like practiced by the Central Committee of The People's Republic of China is pretty imposing. And their adaptations aren't done yet so if they figure out how to unleash creativity effectively to function inside the cauldron of state run capitalism, that will be formidable. Of course I am cheering for creativity (and all of its associated adjuncts such as free speech & expression) as a necessary and vital aspect of Chinese society to eventual be the irrepressible force that fosters democracy to the PRC and diminishes or supplants the function of their central government. One can hope.

I am open to nomination of identifiably Germanic food categories.Zum Stammtisch in Glendale Queens NY (http://www.zumstammtisch.com) Been in the neighborhood for over 40 years. I always went there for the Jaegerschnitzel. If you don't want to outer-borough there's always Heidelberg on Second Ave and 85th Street which is one of what's left from the old days. But that piece of the Yorkville German/Austria neighborhood is diversified now as are most of NYC's old ethnic neighborhoods.

Factoid: The early scenes from the movie "Marathon Man" with Dustin Hoffman has the on-location exterior shots of the automobile (Zell's brother) driving across 86th Street on the Upper East Side of Manhattan. When 86th Street was predominantly home to German ethnic bars and restaurants and Yorkville was considered NYC Germantown. I bring this up as a movie buff that marvels at the attention paid to details like this by the director John Schlesinger that probably went all but unnoticed except by the director himself. "Is it safe?"

[Louis]

"Is it safe?"

https://www.youtube.com/watch?v=eWr55bxJHVE

[Climb01742]

Factoid: The early scenes from the movie "Marathon Man" with Dustin Hoffman has the on-location exterior shots of the automobile (Zell's brother) driving across 86th Street on the Upper East Side of Manhattan. When 86th Street was predominantly home to German ethnic bars and restaurants and Yorkville was considered NYC Germantown. I bring this up as a movie buff that marvels at the attention paid to details like this by the director John Schlesinger that probably went all but unnoticed except by the director himself. "Is it safe?"

I lived in Yorkville in the late '70s. The meals at some of those German restaurants kept you full for a week. Today, the neighborhood is pretty unrecognizable. Carl Schurz Park may be the last vestige unchanged.;)

[likebikes]

So how about that stock market?

Good time to pull funds out?

[Louis]

It might go up some more tomorrow. (or it might go down)

[54ny77]

Less SRAM in the pro peloton is better for the market.

You read it here first.

[1centaur]

fuzzalow wrote: "State run capitalism like practiced by the Central Committee of The People's Republic of China is pretty imposing. And their adaptations aren't done yet so if they figure out how to unleash creativity effectively to function inside the cauldron of state run capitalism, that will be formidable. Of course I am cheering for creativity (and all of its associated adjuncts such as free speech & expression) as a necessary and vital aspect of Chinese society to eventual be the irrepressible force that fosters democracy to the PRC and diminishes or supplants the function of their central government. One can hope."

Instinct suggests hope is futile. China's government has piled up malinvestment and corruption on the back of a temporary surplus of cheap labor under the constant fear of unrest if the "story" does not live up to expectations. Yes, lots of people getting rich has sparked huge GDP gains, to my earlier point, much of it unfettered by regulations we would view as necessary. To steer this ship to quiet waters is an experiment greater than any ever attempted on earth, and it would have to be accomplished by a sequence of politicians coordinating their actions across a giant population regardless of outside forces. The paranoia of politicians about their ability to achieve this is already evident in their stock market machinations. When belief in the government is broken, look out.

[Louis]

When belief in the government is broken, look out.

It will be interesting to see how long this takes. (We don't know for sure that it will happen, but the chances are not teeny.)

I think it comes down to how hard the Communist Party will try to hang on to power.

[Steelman]

Yep, which is why, at my age, I only buy dividend stocks. The kids can worry about capital gains.

A word of caution on dividend stocks, in anticipation of rising rates, which we could very well be facing in the coming years, dividend stocks such as utilities are generally not a good investment. That is, unless the corporation is growing earnings. A capital loss could wipe out your return from a dividend.

[verticaldoug]

It will be interesting to see how long this takes. (We don't know for sure that it will happen, but the chances are not teeny.)



From my experience, financial markets are interesting just before they get scary.

[Tony T]

I thought for sure that this thread would have been resurrected this week.

[Jeff N.]

Getting bad as of late. My IRA has lost thousands. Should I get me old job back?

[biker72]

With a shaky Chinese market and the Fed that is forecasting a softer global growth outlook, the US stock market will indeed correct a little bit.

If it hits a 10% drop I'll start looking to buy.

[54ny77]

it started tanking the moment that hydraulic parts group was leaked.












.....no pun intended.....:D

[likebikes]

So how about that stock market?

Good time to pull funds out?

^ I posted this on the 14th of july. Probably best to pull out whatever's left as to minimize/eliminate any further losses.

[Shortsocks]

with a shaky chinese market and the fed that is forecasting a softer global growth outlook, the us stock market will indeed correct a little bit.

If it hits a 10% drop i'll start looking to buy.

+1.

[Louis]

10% drop relative to when?

And why 10%? Why not 12% or 15%? Or 50%.

[54ny77]

He still has 10 speed.

Those with 11 are waiting for an 11% correction.

Those with single speeds have already lost.

10% drop relative to when?

And why 10%? Why not 12% or 15%? Or 50%.

[biker72]

10% drop relative to when?

And why 10%? Why not 12% or 15%? Or 50%.

At 10% I'll start seriously looking. If I decide that prices will go lower I'll wait.

[Louis]

If I decide that prices will go lower I'll wait.

Good luck. I know enough to realize that I'm not smart enough to do this.

[likebikes]

At 10% I'll start seriously looking. If I decide that prices will go lower I'll wait.

10% what?

[makoti]

^ I posted this on the 14th of july. Probably best to pull out whatever's left as to minimize/eliminate any further losses.

Or lock them in. Time frame is important.

[SlackMan]

^ I posted this on the 14th of july. Probably best to pull out whatever's left as to minimize/eliminate any further losses.

And then what? Put the money back in after the market goes back up? That is exactly the wrong thing to do, and yet it is systematically the mistake that so many people make. If you don't put the money back in, do you stay out of the market forever? I would think this through some more if I were you. Do you really think you can reliably predict the future better than the sum total of all other investors?

[saab2000]

A couple bad days. Today I bought a few more shares of my favorite dividend paying ETF. It's down about 3% in the past two days so I was able to buy more shares for the same money.

Buy low. Sell high. I'm in it for the long term so I'm good with market fluctuations.

[biker72]

10% what?

I'm not a financial planner or adviser so I use my own method to decide when to buy.

I look at my total portfolio value as of Jan 1, 2015. When the total value drops 10% I'll start looking.

I really thought the markets might have a correction last year so I sold a number of individual stocks at their all time highs. I didn't re-invest thinking there would be a buy opportunity soon. Not there yet.

[saab2000]

I'm not a financial planner or adviser so I use my own method to decide when to buy.

I look at my total portfolio value as of Jan 1, 2015. When the total value drops 10% I'll start looking.

I really thought the markets might have a correction last year so I sold a number of individual stocks at their all time highs. I didn't re-invest thinking there would be a buy opportunity soon. Not there yet.

My strategy is long term with regular investments. Going for the dollar cost averaging strategy and I like the dividend reinvestments of holding my holdings.

And I'm generally too risk averse to own many individual stocks. I have a bunch of funds and ETFs.

But I love reading about this stuff. I guess I'll find out in a decade or two if I'm doing the right thing.

[biker72]

My strategy is long term with regular investments. Going for the dollar cost averaging strategy and I like the dividend reinvestments of holding my holdings.

And I'm generally too risk averse to own many individual stocks. I have a bunch of funds and ETFs.

But I love reading about this stuff. I guess I'll find out in a decade or two if I'm doing the right thing.

Good plan. I have almost no individual stocks left. The stocks I did have were a rollover from my company 401K. Most but not all of those stocks did pretty well.

Most of my investments are ETFs and Mutual Funds with for right now a rather large cash position.

[OtayBW]

Hang in there. Don't freak out. That is all...

[Llewellyn]

The Australian market has fallen 12% since 27th of April. I've bought some and sold some others. The best thing anyone can do is buy and hang on for the ride

[cinema]

I made like 10% on a bunch of ultrashort etfs this week. saw the start of the fall when they downgraded the yuan so i'm doing a short term entry into those funds.

[Ken Robb]

I have been happy with my investment in Thomas Partners through Chas, Schwab. It invests in dividend paying stocks. Take a look if that sounds good to you. Dividends make it sort of bond-like but there is up-side potential from the stocks paying the dividends. I'm not too smart but I know it's hard to fake cash flow. :beer:

[joosttx]

Healthcare REITs I mentioned one a while back.

[oldpotatoe]

My strategy is long term with regular investments. Going for the dollar cost averaging strategy and I like the dividend reinvestments of holding my holdings.

And I'm generally too risk averse to own many individual stocks. I have a bunch of funds and ETFs.

But I love reading about this stuff. I guess I'll find out in a decade or two if I'm doing the right thing.

Me too. My financial guy just told me again...'panic is not an investment strategy'. And seeing the index go down( indexes, not necessarily MY holdings), is an opportunity for some perhaps, undervalued now' possibilities.

[Climb01742]

A bit of perspective: during the last 6 years of the stock market rally there have been corrections before, some as much as 20%. markets go up and down, it's what they do. what may be different this time is china. but who knows? timing markets isn't easy, if possible at all. even warren buffet doesn't try. one of the most telling things he's ever said was...when he dies, he's leaving his wife an estate that's 90% in index funds and 10% bonds. kinda indicates his belief in stock picking, eh?:rolleyes:

[Jeff N.]

...just once in my life, I'd like to pick up the morning paper off my driveway and read, "Stocks climb to their biggest one day gain in U.S. History".

[saab2000]

...just once in my life, I'd like to pick up the morning paper off my driveway and read, "Stocks climb to their biggest one day gain in U.S. History".

A couple years ago this was happening. But you need to read the headlines at 5pm to see this. Basically since about 2009 markets have been on a tear.

[Look585]

Perspective:

In the last few weeks, the S&P 500 has declined 7.7% from it's intraday high.

In the 35 calendar years since 1/1/1980:

27 of 35 years, the S&P 500 was positive.
27 of 35 years, the S&P had a drop (peak-trough) of 8% or more.
18 of 27 years when the S&P had a 8%+ drop, it finished positive.

Keep your pants on. If you can't keep your pants on, you own too much equity.

[cnighbor1]

I use Merriman LLC timed system located in Seattle They invest using four different timing systems all in mutual funds
You can be in the market 100% 75% 50% 25% or 0% based on their timing systems Back in the big crash in 80's they were out 100%
I was out 25% when market crashed this week
which means that for that 25% portion I took no lose so when they go back in I am up what the market would lost for that portion
and when I check Monday I bet they were out another 25% by Thursday evening saving me more losses
I am also invested 80% stocks and 20% bonds which reduces the risk in investing in the market has bond went up last week

[Llewellyn]

The Aussie stock market fell 4% today - it's going to be a rugged week ahead. But plenty of buying opportunities for those who are willing to take a longer term view.

[MattTuck]

Woah baby! Dow Futures down 600 points.

Be prepared for a Jon Hilsenrath piece today in the journal saying that FOMC members are reconsidering their september time frame for a rate hike. Gotta get this market under control.

[happycampyer]

Given that the Fed (with the assistance of other central banks) is largely responsible for driving stock and commodity valuations to bubble levels, what did they expect?

[MattTuck]

Given that the Fed (with the assistance of other central banks) is largely responsible for driving stock and commodity valuations to bubble levels, what did they expect?

They expected the so called 'wealth effect' to change the underlying psychology of the American consumer and lead to real economic growth...

http://thedailyblog.co.nz/wp-content/uploads/2014/04/trickle_down.jpg

[SlackMan]

Perspective:

In the last few weeks, the S&P 500 has declined 7.7% from it's intraday high.

In the 35 calendar years since 1/1/1980:

27 of 35 years, the S&P 500 was positive.
27 of 35 years, the S&P had a drop (peak-trough) of 8% or more.
18 of 27 years when the S&P had a 8%+ drop, it finished positive.

Keep your pants on. If you can't keep your pants on, you own too much equity.

Perfect.

[Jeff N.]

F^&k!

[FlashUNC]

Keep your pants on. If you can't keep your pants on, you own too much equity.

+1.

Hindsight is 20/20, but I think you have to look back at the Fed's unwillingness to raise rates the last couple years as a big mis-step.

[MattTuck]

+1.

Hindsight is 20/20, but I think you have to look back at the Fed's unwillingness to raise rates the last couple years as a big mis-step.

I'm not going to defend the Fed, as their policies have done a great deal of harm in the last 20 years. But, in this most recent period from 2009 onward, I have some empathy (some, not a lot, but some) for them. They have monetary policy tools at their disposal. And so, when they see problems, they have to deal with them with monetary policy tools. I place much more blame on congress for its inability to make the necessary reforms in fiscal policy to support the US economy and the US worker.

There are a couple ways to read this. One is that congress (unwilling to make the difficult choices required of leaders) outsourced its duties, by failing to act, to the un-elected (and some would say unaccountable) Fed. Another read is that the Fed allowed fiscal profligacy by taking extra-ordinary measures and thus taking the pressure off congress to solve the problems. I do think the Fed could have been more forceful with Congress to get their act together... the market has been surviving on extraordinary central bank intervention for the last 6 years and the fiscal authorities have done very little to repair the underlying economy. The Fed bought about as much time as they could... and, as usual, congress dithered.

[R3awak3n]

I dont even have that much money in the stock market but I am loosing half of it right now :( The poorer you are the poorer you get

[FlashUNC]

I'm not going to defend the Fed, as their policies have done a great deal of harm in the last 20 years. But, in this most recent period from 2009 onward, I have some empathy (some, not a lot, but some) for them. They have monetary policy tools at their disposal. And so, when they see problems, they have to deal with them with monetary policy tools. I place much more blame on congress for its inability to make the necessary reforms in fiscal policy to support the US economy and the US worker.

There are a couple ways to read this. One is that congress (unwilling to make the difficult choices required of leaders) outsourced its duties, by failing to act, to the un-elected (and some would say unaccountable) Fed. Another read is that the Fed allowed fiscal profligacy by taking extra-ordinary measures and thus taking the pressure off congress to solve the problems. I do think the Fed could have been more forceful with Congress to get their act together... the market has been surviving on extraordinary central bank intervention for the last 6 years and the fiscal authorities have done very little to repair the underlying economy. The Fed bought about as much time as they could... and, as usual, congress dithered.

I agree, I just think the Fed needed to take a tougher stand on this. I think the short-term, post-Crisis strategy was a sound one of pumping as much liquidity into the marketplace as they could. But it wasn't sustainable, everyone could see it was, and rather than push to raise rates and force Congress to do their job, the can just kept getting kicked down the road.

[SlackMan]

It's a good time to harvest (more) tax losses. If you don't know what that is, see here (http://www.investopedia.com/articles/taxes/08/tax-loss-harvesting.asp).

[texbike]

+1.

Hindsight is 20/20, but I think you have to look back at the Fed's unwillingness to raise rates the last couple years as a big mis-step.

Japan suffered the same thing. Could this be our "Lost Decade" as so many have predicted?

With that said, we're in for the long-haul and not as concerned about day to day fluctuations in the market. I do see these dips as a buying opportunity for certain equities. Next generation cybersecurity stocks, LinkedIn, and Salesforce are some of my favorites.

Texbike

[fuzzalow]

I do think the Fed could have been more forceful with Congress to get their act together...

Neither The Fed, the President nor SCOTUS can impel Congress to do anything during a sitting term. What would you have The Fed do?

The stock market is a terrible indicator for validation or refutation of monetary policy. Timing can always better done in hindsight both as applies to The Fed and for strategies and asset allocations in running a book.

U.S. is still the best haven for capital. And the U.S. economy is still better positioned than any other global economy. Remain calm. Besides, all this volatility is turbulence against the unrealized capital gains portion of the P&L at this point, right?

[cinema]

I woke up early here on the west coast to watch as the markets opened and i couldn't believe my eyes. never seen anything like that before. Watched as the after hours bid/ask turned to opening quotes. Things are slowly crawling back up but not sure if it's dead and bouncing. hang tight everyone don't do anything based on your emotions, it's really volatile right now.

re: the feds philosophy over the last few years to stave off rate hikes; what an interesting lens to view todays plunge through. neoloiberalism eating its own tail

[MattTuck]

Neither The Fed, the President nor SCOTUS can impel Congress to do anything during a sitting term. What would you have The Fed do?



The Fed governors and chairman (woman) make frequent public presentations to private citizens, and regularly speak to congress directly during mandated Humphry-Hawkins testimony.

There are plenty of opportunities to remind both the public and congress (the people's representatives) that the economy has been on life support thanks to extraordinary central bank intervention, and that it is Congress's job to make the reforms necessary to solve the problems in the real economy.

Instead, the Fed comes to congress and issues its policy statements with the goal of saying, "we've got it under control. Trust us." Meanwhile their policies ravage everyday savers and the markets use the cheap money to play roulette on when they're going to raise interest rates by 1/4 of a percent. Seriously? This is not the optimal way to run a capitalist economy.

In this case, I'd have the Fed take a public leadership role. And be more vocal about getting congress to do their job. I'm not suggesting they do this by edict. But the Fed's communication with the public and markets has been almost devoid prodding congress.

To the above point, we'll probably look back at this period like the great depression for a big chunk of the country. The top of the pyramid has done pretty well, but for the bulk of Americans, it has been a very tough road -- huge economic dislocations.

[SlackMan]

The Fed governors and chairman (woman) make frequent public presentations to private citizens, and regularly speak to congress directly during mandated Humphry-Hawkins testimony.

There are plenty of opportunities to remind both the public and congress (the people's representatives) that the economy has been on life support thanks to extraordinary central bank intervention, and that it is Congress's job to make the reforms necessary to solve the problems in the real economy.

Instead, the Fed comes to congress and issues its policy statements with the goal of saying, "we've got it under control. Trust us." Meanwhile their policies ravage everyday savers and the markets use the cheap money to play roulette on when they're going to raise interest rates by 1/4 of a percent. Seriously? This is not the optimal way to run a capitalist economy.

In this case, I'd have the Fed take a public leadership role. And be more vocal about getting congress to do their job. I'm not suggesting they do this by edict. But the Fed's communication with the public and markets has been almost devoid prodding congress.

To the above point, we'll probably look back at this period like the great depression for a big chunk of the country. The top of the pyramid has done pretty well, but for the bulk of Americans, it has been a very tough road -- huge economic dislocations.

I think all of the above is spot on, but let us not forget that there is also an executive branch of our government that also deserved prodding by the Fed. The huge stimulus packages pushed by the exec branch contributed greatly to the need for the Fed to keep the markets flooded with liquidity.

[verticaldoug]

The Fed governors and chairman (woman) make frequent public presentations to private citizens, and regularly speak to congress directly during mandated Humphry-Hawkins testimony.

There are plenty of opportunities to remind both the public and congress (the people's representatives) that the economy has been on life support thanks to extraordinary central bank intervention, and that it is Congress's job to make the reforms necessary to solve the problems in the real economy.

Instead, the Fed comes to congress and issues its policy statements with the goal of saying, "we've got it under control. Trust us." Meanwhile their policies ravage everyday savers and the markets use the cheap money to play roulette on when they're going to raise interest rates by 1/4 of a percent. Seriously? This is not the optimal way to run a capitalist economy.

In this case, I'd have the Fed take a public leadership role. And be more vocal about getting congress to do their job. I'm not suggesting they do this by edict. But the Fed's communication with the public and markets has been almost devoid prodding congress.

To the above point, we'll probably look back at this period like the great depression for a big chunk of the country. The top of the pyramid has done pretty well, but for the bulk of Americans, it has been a very tough road -- huge economic dislocations.

For the FED, independence to pursue necessary monetary policy is the most important. They have 3 mandates- employment, stable inflation and moderate long term interest rates. If the FED were to lecture congress on fiscal policy beyond generalities, congress will swiftly seek retribution and attempt to rein in FED independence. (Many on the hill already want this)

If you look at U.S. economic history over the past 200 years, we are living in an amazingly stable time period. The bust in 2008 was nothing like the great depression. More importantly, if you read economic history, you know the U.S. had boom-busts about every 20 years prior to modern times. Go pick up the House of Morgan or the book on Mellon and read up on the busts over the past 200 years. They almost always are around the introduction of new technology and wars (civil, WW1, WW2, Vietnam).

So we have the new technology part, now where do you want the war? Blue horseshoe likes General Dynamics , Raytheon.

[cfox]

For the past few years, the Fed has floated various economic benchmarks as a basis for raising rates, only to move to new benchmarks once the old ones were met. All the while they have been reminding us, via words and (in)actions, how very fragile our recovery is. Their biggest error has been leaving "emergency" measures in place in the absence of an emergency. By not picking up a few bullets from the ground, they are left with none if they are truly needed. The Fed has lacked the confidence in itself to normalize rates while telegraphing to the market that they are not tightening, only removing emergency levels of accommodation.

[Jeff N.]

Starting to crawl back to a more acceptable level now, but HOLY DOUGHNUT HOLES, BATMAN! When it dove down over 1K points at the opening bell this AM...I was like...:help: Not good to see that with the morning coffee, folks.

[Climb01742]

I was living in NYC when Black Monday happened in '87. Today is actually small potatoes compared with how the city and markets felt that day and the days immediately after. History helps us keep perspective.

[SlackMan]

Perhaps this figure from a recent WSJ editorial helps one understand problems with recent Fed policy.

[MattTuck]

For the FED, independence to pursue necessary monetary policy is the most important. They have 3 mandates- employment, stable inflation and moderate long term interest rates. If the FED were to lecture congress on fiscal policy beyond generalities, congress will swiftly seek retribution and attempt to rein in FED independence. (Many on the hill already want this)

If you look at U.S. economic history over the past 200 years, we are living in an amazingly stable time period. The bust in 2008 was nothing like the great depression. More importantly, if you read economic history, you know the U.S. had boom-busts about every 20 years prior to modern times. Go pick up the House of Morgan or the book on Mellon and read up on the busts over the past 200 years. They almost always are around the introduction of new technology and wars (civil, WW1, WW2, Vietnam).

So we have the new technology part, now where do you want the war? Blue horseshoe likes General Dynamics , Raytheon.

A lot of complex ideas in here. Not sure I can capture it all in a quick post.

First, I disagree with your characterization that the Fed is independent. It is very much an institution woven into the fabric of policy makers in the executive and legislative branches. Some would argue that it is a puppet of the executive, or atleast can be strongly influenced by that branch. Facing difficult times in the past, the Fed has negotiated for policy concessions before changing interest rates. That's a much longer debate though.

On the topic of whether the Fed is doing a good job, you assume what you're trying to prove. That this is a stable period is not an indication of progress. Shumpeter's creative destruction is the life blood of capitalism and new ideas. Being stable means that more and more of the 'destructive' forces accumulate in the economy, in firms, and impair their ability to innovate and grow. Think of the Zombie banks in Japan. Rather than go through a purging crash and let capital get allocated again, with market based price discovery, we get interventions form the fed that distort the market. Don't mistake stability created by unsustainable policies for a well functioning market.

Finally, on the topic of whether current conditions are as bad as the depression. Clearly, standard of living is much better now.

But when you look at things like median wage growth, labor force participation and the numbers of people requiring government assistance, this 'stable' period leaves many people wishing for better times.


http://api.theweek.com/sites/default/files/styles/large/public/fredgraph-lbfp.jpg?itok=5UGzgMI-

http://myf.red/g/1dBY/png/

Don't have a graph for government assistance, but one figure I found was 13.2% of people receive food assistance from SNAP. So, instead of having bread lines (which made for dramatic photographs), now the assistance gets mailed out to folks or deposited in their accounts electronically. Much less photogenic -- but no less of a problem.

[Climb01742]

WSJ should more accurately by known as the Murdoch Street Journal. He's politicized its editorial board as much as he has Fox. The Economist is, IMO, a far more balanced POV.

[SlackMan]

WSJ should more accurately by known as the Murdoch Street Journal. He's politicized its editorial board as much as he has Fox. The Economist is, IMO, a far more balanced POV.

LOL, LOL, LOL, LOL!

Oh yeah, right.

BTW, note the source of the numbers in the WSJ figure I posted: The Fed.

:fight:

[cnighbor1]

In my IRA Managed by Merriman LLC
they have me out of nearly all my stock mutual funds ( they don't buy stock or bonds)
Still in Bond mutual funds
Rest in cash
for all my accounts with them including wife's
we are
15% cash
35% bond mutual funds
50% stock mutual funds. those are in DFA funds which are fully diversified worldwide
Above was at 6:35am today

So my lost today was half what I would have had if 100% fully invested in stocks

[cnighbor1]

The firm that manages Wall street sold out to an overseas firm
they fired all the old traders who had been thru past big market downs
And reduced on the floor traders
So who's left when needed like today to trade
and most of trading done my computers so look out!!!

[SlackMan]

In my IRA Managed by Merriman LLC
they have me out of nearly all my stock mutual funds ( they don't buy stock or bonds)
Still in Bond mutual funds
Rest in cash
for all my accounts with them including wife's
we are
15% cash
35% bond mutual funds
50% stock mutual funds. those are in DFA funds which are fully diversified worldwide
Above was at 6:35am today

So my lost today was half what I would have had if 100% fully invested in stocks

Just curious--how many years from your retirement are you and your wife?

[SoCalSteve]

In my IRA Managed by Merriman LLC
they have me out of nearly all my stock mutual funds ( they don't buy stock or bonds)
Still in Bond mutual funds
Rest in cash
for all my accounts with them including wife's
we are
15% cash
35% bond mutual funds
50% stock mutual funds. those are in DFA funds which are fully diversified worldwide
Above was at 6:35am today

So my lost today was half what I would have had if 100% fully invested in stocks

Are your bond muni funds CA double tax free? Are you happy with them? Have they been relatively stable? Pay well ( 5-6% )? I'm thinking of investing heavily in these for the income they produce as I slowly transition into retirement.

Thoughts?

Thank you!

Steve

[1centaur]

I have been reading the WSJ on and off since I was 17 (that's a long time). The editorial slant has often been as "right" as it is now, and sometimes a little more balanced. I presume the NYT has not always been this left, but I have not read it as much. Based on the comments I read to their editorials, the WSJ is no more right than their customers, and probably less so.

The Fed seems more politically influenced today than in the Greenspan years, but I could be wrong. It has felt like their ZIRP was designed to allow Washington to focus on things other than growth.

Late summer, computers not on vacation, no strong reason to buy, value is still not close to compelling. What will actual people (professional money managers) do if fundamentals do not get worse from here, over the next 3-5 weeks? It's hard for them to sit on their hands. Especially if the Fed does not move...the tantrum works.

[likebikes]

So how about that stock market?

Good time to pull funds out?
^ Posted 7/14

Probably best to pull out whatever's left as to minimize/eliminate any further losses.

^ Posted 8/21. Both seem almost prophetic now.

[SlackMan]

^ Posted 7/14



^ Posted 8/21. Both seem almost prophetic now.

Let's pretend the prophet was correct. When would the prophet say to get back into the market? That is the critical question. If you are out of the market on a handful of critical big return days, you are far worse off over the long term. To time the market well, you have to know when to get out AND when to get back in. Most people who get sucked into that game get out after the market has fallen and get back in after the market has risen, which is exactly the wrong thing to do.

[Jeff N.]

Let's pretend the prophet was correct. When would the prophet say to get back into the market? That is the critical question. If you are out of the market on a handful of critical big return days, you are far worse off over the long term. To time the market well, you have to know when to get out AND when to get back in. Most people who get sucked into that game get out after the market has fallen and get back in after the market has risen, which is exactly the wrong thing to do.That is what ALL experts say...but it's torture seeing your portfolio lose thousands and thousands of dollars over several days, waiting for a recovery that might not come for a long time...if ever. This sucks. I've busted my arse to get to retirement and financial stability, and to see the value of my IRA just dwindle like this...it's just messed up. Just sayin'.

[SlackMan]

That is what ALL experts say...but it's torture seeing your portfolio lose thousands and thousands of dollars over several days, waiting for a recovery that might not come for a long time...if ever. This sucks. I've busted my arse to get to retirement and financial stability, and to see the value of my IRA just dwindle like this...it's just messed up. Just sayin'.

It probably doesn't help ease the torture, but investors should realize that the only reason that they earn a significant return premium above something safe like Treasury bills (currently yielding 0.02%) is to compensate them for the risk they bear with the riskier investments. Earning the high returns without experiencing some risk would be like getting paid for working when you don't actually work--it would be great, but it's not realistic. So, yes, seeing investments fall in value stinks, but that is the very risk and thus the very reason you earn a return premium in the first place. Delete the risk, and the return would be close to zero. As for me, I'll gladly take the volatility and the higher return that compensates me for bearing it.

[Mzilliox]

If you can't drink it, eat it, or hump it, is it worth your time and money? This market is based on nothing real at all. nothing at all. is that worth investing into? Luckily last year we saw this crap coming and moved into cash, bonds, and germany. I'm not sweating today, so i have nothing to make back up... I'm above even.

My money is on fresh water... I'd be investing in that.

I'm relatively risk averse when it comes to emotions and humans. We just aren't predictable as a species. Other than the Germans.

[SlackMan]

If you can't drink it, eat it, or hump it, is it worth your time and money? This market is based on nothing real at all. nothing at all. is that worth investing into? ....

Wow, so when an investor owns a share of a company that makes real stuff, and sells that real stuff to real people for real money and generates real profits, does that not fit your definition of real? For example, an owner of a broad stock index fund owns a chunk of Apple stock. Are iPhones, iPads, iMacs, etc. not real stuff selling to real people for real money and generating real profits? Does Chipotle not make real burritos that they sell to real people for real money and generate real profits? And on and on and on. Do you really believe what you wrote? Wow, just wow.

[echappist]

Let's pretend the prophet was correct. When would the prophet say to get back into the market? That is the critical question. If you are out of the market on a handful of critical big return days, you are far worse off over the long term. To time the market well, you have to know when to get out AND when to get back in. Most people who get sucked into that game get out after the market has fallen and get back in after the market has risen, which is exactly the wrong thing to do.

Say you have a IRA portfolio of index fund (which i assume is what most here are concerned with) , why not start to go back in now? Say you are at $70-$30 btwn index fund that tracks stocks and another that tracks treasury bonds before last weekend (so you haven't got out), your portfolio value is probably $63-$30 right now after stock index fund dropped (assuming whatever gains from the bonds is negligible). Why not do a rebalancing (amount depending on how much you are willing to risk) and make your next contribution 80-20 equity to bonds until things begin to rebound?

Say the stock before the correction was $7 a share, after it lost 10% it's at $6.3 a share. You now have 10 shares of stock fund worth $63 and $30 worth of bonds. If you rebalance to 70-30 stock to bonds (essentially buying stock using your bonds), you would have $65 in stocks (10.32 share) and $28 in bonds. If the market rebounds back to its original value (at $7/share), you now have stock worth $72.24 and bond worth $28 and made a 0.24% overall return from the stock index fund alone. Of course, there is also an oppurtunity cost associated with transfering $2 from bonds to stocks, but the return on $2 of bonds is going to be much smaller than the return on $2 of stocks when it rebounds.

The above is when you make no additional contributions, but if you go increasingly stock heavy in your contribution as the market goes down, you will recoup quite a bit from the additional contributions when the market rebounds, and you'd probably come out ahead even if there is no full recovery.

I'm sure something similar exists for individual stocks, but then you'd have to figure in all the associated costs, etc.

[verticaldoug]

That is what ALL experts say...but it's torture seeing your portfolio lose thousands and thousands of dollars over several days, waiting for a recovery that might not come for a long time...if ever. This sucks. I've busted my arse to get to retirement and financial stability, and to see the value of my IRA just dwindle like this...it's just messed up. Just sayin'.

My first thought is you are looking at your IRA too much. I don't know your allocation but vs 1 yr ago, you should be relatively flat. Down small S&P500, up small Nasdaq, Up small to flat small cap, up in Treasuries, down in High Yield (energy junky junk) and down in EM (both debt and equities). Over the past several years, you should probably have average low double digits. I don't know your asset mix, don't know you age, don't know your risk appetite. These are all things you should speak to a financial consultant.

You may just have too much specific risk in company stock and be unhappy with the volatility.

[Climb01742]

This from today's NYT:

"Before the full extent of the sell-off on Wall Street was known, Goldman had already predicted that the hedge fund industry would once again underperform the broader S.&P. 500, which, at Mondayç—´ close, was down 8.1 percent for the year. The Dow lost 588 points, or 3.6 percent. The average hedge fund has underperformed the broader market for six consecutive years, according to the research firm HFR."

Granted, hedge funds can be unique beasts, but if Goldman is correct, this is yet another data point in one of the most fundamentally interesting questions about investing: can anyone, even really smart people, outperform the market on a consistent long-term basis? If not, what are the fees of any advisor buying you? Aside from asset allocation and diversification, can advisors really make a difference? These questions aren't meant as a slam on advisors. But are markets just beyond our ability to out-think?

[SlackMan]

Say you have a IRA portfolio of index fund (which i assume is what most here are concerned with) , why not start to go back in now? Say you are at $70-$30 btwn index fund that tracks stocks and another that tracks treasury bonds before last weekend (so you haven't got out), your portfolio value is probably $63-$30 right now after stock index fund dropped (assuming whatever gains from the bonds is negligible). Why not do a rebalancing (amount depending on how much you are willing to risk) and make your next contribution 80-20 equity to bonds until things begin to rebound?

Say the stock before the correction was $7 a share, after it lost 10% it's at $6.3 a share. You now have 10 shares of stock fund worth $63 and $30 worth of bonds. If you rebalance to 70-30 stock to bonds (essentially buying stock using your bonds), you would have $65 in stocks (10.32 share) and $28 in bonds. If the market rebounds back to its original value (at $7/share), you now have stock worth $72.24 and bond worth $28 and made a 0.24% overall return from the stock index fund alone. Of course, there is also an oppurtunity cost associated with transfering $2 from bonds to stocks, but the return on $2 of bonds is going to be much smaller than the return on $2 of stocks when it rebounds.

The above is when you make no additional contributions, but if you go increasingly stock heavy in your contribution as the market goes down, you will recoup quite a bit from the additional contributions when the market rebounds, and you'd probably come out ahead even if there is no full recovery.

I'm sure something similar exists for individual stocks, but then you'd have to figure in all the associated costs, etc.

I think what you're saying has a timing element (or I misunderstand). If you strip away the timing element, you have rebalancing your portfolio back to target proportions. That is a fantastic idea and something every investor should do (at least) annually.

[SlackMan]

This from today's NYT:

"Before the full extent of the sell-off on Wall Street was known, Goldman had already predicted that the hedge fund industry would once again underperform the broader S.&P. 500, which, at Mondayç—´ close, was down 8.1 percent for the year. The Dow lost 588 points, or 3.6 percent. The average hedge fund has underperformed the broader market for six consecutive years, according to the research firm HFR."

Granted, hedge funds can be unique beasts, but if Goldman is correct, this is yet another data point in one of the most fundamentally interesting questions about investing: can anyone, even really smart people, outperform the market on a consistent long-term basis? If not, what are the fees of any advisor buying you? Aside from asset allocation and diversification, can advisors really make a difference? These questions aren't meant as a slam on advisors. But are markets just beyond our ability to out-think?

Great point. I think a way to help understand this is that the 'smart' money is sometimes able to outperform the market, but they (the managers) take all of that advantage for themselves in fees. The investor is then left with either the market return (best case) or lower (worse case).

[MattTuck]

If you want to read an interesting article, check out this paper by Ken French.
SSRN Link (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105775)

I compare the fees, expenses, and trading costs society pays to invest in the U.S. stock market with an estimate of what would be paid if everyone invested passively. Averaging over 1980 to 2006, I find investors spend 0.67% of the aggregate value of the market each year searching for superior returns. Society's capitalized cost of price discovery is at least 10% of the current market cap. Under reasonable assumptions, the typical investor would increase his average annual return by 67 basis points over the 1980 to 2006 period if he switched to a passive market portfolio.

[akelman]

Don't have a graph for government assistance, but one figure I found was 13.2% of people receive food assistance from SNAP. So, instead of having bread lines (which made for dramatic photographs), now the assistance gets mailed out to folks or deposited in their accounts electronically. Much less photogenic -- but no less of a problem.

You think government assistance, including SNAP, which is mostly designed to make sure that children aren't malnourished, is no less of a problem than bread lines? I guess I don't know what you mean. On the one hand, you could mean: poverty remains a troubling problem, especially given that it endures in a nation as rich as this one. On the other hand, you could mean: the existence of a hunger safety net program is as pernicious now as bread lines were during the Depression. Or maybe you mean something else again.

[christian]

You think government assistance, including SNAP, which is mostly designed to make sure that children aren't malnourished, is no less of a problem than bread lines? I guess I don't know what you mean. On the one hand, you could mean: poverty remains a troubling problem, especially given that it endures in a nation as rich as this one. On the other hand, you could mean: the existence of a hunger safety net program is as pernicious now as bread lines were during the Depression. Or maybe you mean something else again.

He means the first. Problem: people are still poor.

[MattTuck]

You think government assistance, including SNAP, which is mostly designed to make sure that children aren't malnourished, is no less of a problem than bread lines? I guess I don't know what you mean. On the one hand, you could mean: poverty remains a troubling problem, especially given that it endures in a nation as rich as this one. On the other hand, you could mean: the existence of a hunger safety net program is as pernicious now as bread lines were during the Depression. Or maybe you mean something else again.

Was trying to point out that, while certain elements of the depression are etched into our memory (like bread lines), there are still many people today that are in need of similar services.

If you had everyone who receives SNAP today lining up for their benefits, the lines would be immense and would certainly be much more top of mind than it is.

Since the benefits are distributed in a decentralized way, there is nothing to take a picture of, there aren't real humans waiting in line, to be seen by other humans, nothing for people to point at and say, "something needs to be done about this."

Instead, we get information like, "1 out x children are dependent on government assistance for their nutrition." It is an abstract concept. It is real, but for many people it isn't concrete unless you can 'see with your own eyes.'

My bigger point is that, while many well educated folks are doing well in this economy, there is a big swath of Americans that are not doing well. And that I believe in retrospect, historians will look back at this period and find (that below the surface) it had many similarities to the depression. And that is to say nothing of the near future, in which all this unsustainable central bank intervention will have to be unwound -- to possibly catastrophic effect.

It is often said that "if you had a job, the great depression wasn't too bad." I don't think the same could be said today. Many people have 2 and 3 jobs, just to make ends meet. We're not living in a robust economic expansion. It's just the opposite.

[akelman]

Was trying to point out that, while certain elements of the depression are etched into our memory (like bread lines), there are still many people today that are in need of similar services.

If you had everyone who receives SNAP today lining up for their benefits, the lines would be immense and would certainly be much more top of mind than it is.

Since the benefits are distributed in a decentralized way, there is nothing to take a picture of, there aren't real humans waiting in line, to be seen by other humans, nothing for people to point at and say, "something needs to be done about this."

Instead, we get information like, "1 out x children are dependent on government assistance for their nutrition." It is an abstract concept. It is real, but for many people it isn't concrete unless you can 'see with your own eyes.'

My bigger point is that, while many well educated folks are doing well in this economy, there is a big swath of Americans that are not doing well. And that I believe in retrospect, historians will look back at this period and find (that below the surface) it had many similarities to the depression. And that is to say nothing of the near future, in which all this unsustainable central bank intervention will have to be unwound -- to possibly catastrophic effect.

It is often said that "if you had a job, the great depression wasn't too bad." I don't think the same could be said today. Many people have 2 and 3 jobs, just to make ends meet. We're not living in a robust economic expansion. It's just the opposite.

I think some of this may be slightly overstated -- I'm pretty sure that things aren't nearly as bad now as they were during the Depression, though I suppose it depends to some extent on what year of the Depression you're talking about; things were lousy during the Depression, even for the vast majority of people who had jobs (though folks in my line of work certainly did relatively well, which, in retrospect, sounds really odd); and I don't think what's happening now is anything like "the opposite" of "a robust economic expansion," though I do think the economy isn't at all great and doesn't seem likely to be great any time soon -- but I certainly agree with your basic points.

The combination of increased workplace precarity, persistent poverty, and de-professionalization scares the crap out of me, not to mention the concentration of wealth we're seeing at the moment. The middle class seemed like such a great idea, for everyone really, that I hate to see it go. Anyway, I tend to think we're experiencing something that looks more like Gilded Age II, Electric Boogalgo than it does Great Depression, Redux, but I really don't know. As you say, it will be up to the economic historians to sort it out. Oh wait, there probably won't be any economic historians left to sort it out.

All of that said, thanks for clarifying the original statement. I couldn't make sense of it -- I genuinely didn't know what you meant -- and appreciate you taking the time to clarify.

[oldpotatoe]

Was trying to point out that, while certain elements of the depression are etched into our memory (like bread lines), there are still many people today that are in need of similar services.

If you had everyone who receives SNAP today lining up for their benefits, the lines would be immense and would certainly be much more top of mind than it is.

Since the benefits are distributed in a decentralized way, there is nothing to take a picture of, there aren't real humans waiting in line, to be seen by other humans, nothing for people to point at and say, "something needs to be done about this."

Instead, we get information like, "1 out x children are dependent on government assistance for their nutrition." It is an abstract concept. It is real, but for many people it isn't concrete unless you can 'see with your own eyes.'

My bigger point is that, while many well educated folks are doing well in this economy, there is a big swath of Americans that are not doing well. And that I believe in retrospect, historians will look back at this period and find (that below the surface) it had many similarities to the depression. And that is to say nothing of the near future, in which all this unsustainable central bank intervention will have to be unwound -- to possibly catastrophic effect.

It is often said that "if you had a job, the great depression wasn't too bad." I don't think the same could be said today. Many people have 2 and 3 jobs, just to make ends meet. We're not living in a robust economic expansion. It's just the opposite.

It's not a 'robust economic contraction'..not a financial guy, know nothing about this stuff, why I 'have a guy'...BUT I think the 'Great Recession', was called that for a reason. Without WWII, the 'Great Depression' would have lasted much longer, and the effects are still felt today, 85 years later. I think the economic ills of today are certainly a reflection of how bad the latest recession really was. It's effects will linger for a while, IMHO.

Big issue is that the guy sitting in the big chair has ohh so little influence, in spite of the political rhetoric. The next person will try again, to 'make things better', but only 50% or so of the people will think they are doing it right, the other will say he(or she) isn't.

[93legendti]

Dow up 300. You guys breathing again?

[Jeff N.]

I'll take whatever positives I can get, but after Friday's and Monday's dumpage, there's a loooooong way to go before I'll call it a "rebound". It's been one step forward and 10 steps back.

[oldpotatoe]

Dow up 300. You guys breathing again?

Har har, nobody even jumped off a roof top. +2.6% right now....NPR interviewed a guy who sold all his stocks end of yesterday....oooops

[93legendti]

Jeff was hurtin' yesterday...



That is what ALL experts say...but it's torture seeing your portfolio lose thousands and thousands of dollars over several days, waiting for a recovery that might not come for a long time...if ever. This sucks. I've busted my arse to get to retirement and financial stability, and to see the value of my IRA just dwindle like this...it's just messed up. Just sayin'.

[jlwdm]

I'll take whatever positives I can get, but after Friday's and Monday's dumpage, there's a loooooong way to go before I'll call it a "rebound". It's been one step forward and 10 steps back.

You have to take the good with the bad. The Dow for example is still up 50% in the last 5 years. Hard to complain.

Jeff

[makoti]

Jeff was hurtin' yesterday...

And likely is today, and will be tomorrow. How easy this is to handle depends so much on where you are in life.
Those of you in your 20's, 30's, and 40's can ride this out without too much worry. Time is in your favor. I'm closing in on retirement, so it really gets my attention, but I've been through other downturns (remember all too well driving home seeing the "Dow down 508" sign on a now defunct local brokerage) & sitting tight seems to work, so I'm ok. But if I was retired now? Living on my investments? I'd be sick, right now.

[Jeff N.]

Jeff was hurtin' yesterday...Indeed. Feeling better today, but only marginally.

[verticaldoug]

Indeed. Feeling better today, but only marginally.

I'd expect the NAV of your portfolio to be above the Oct 15, 2014 portfolio NAV which was the last hard and fast drawdown. This drawdown is bigger peak to trough, but with present market levels, you are still above Oct 15th last year. I'd think the NAV is only off 7% or so from your high. Compared to NAV on Jan 1 2014 and Jan 1 2013 you are also probably up double digits. If not, you need to rethink your allocations.

If looking at IRA balances on down days bums you out, does looking at IRA Balance on big up days make you feel giddy? My advice, stop watching the daily fluctuations. Seriously

[Jeff N.]

I'd expect the NAV of your portfolio to be above the Oct 15, 2014 portfolio NAV which was the last hard and fast drawdown. This drawdown is bigger peak to trough, but with present market levels, you are still above Oct 15th last year. I'd think the NAV is only off 7% or so from your high. Compared to NAV on Jan 1 2014 and Jan 1 2013 you are also probably up double digits. If not, you need to rethink your allocations.

If looking at IRA balances on down days bums you out, does looking at IRA Balance on big up days make you feel giddy? My advice, stop watching the daily fluctuations. Seriously
I've been told that...but the thing is, you don't HAVE to look at daily fluctuations...it's all over the news! On the front page of the Tribune! On my cell phone! It's right there, in your face, on a daily basis!

[SoCalSteve]

I've been told that...but the thing is, you don't HAVE to look at daily fluctuations...it's all over the news! On the front page of the Tribune! On my cell phone! It's right there, in your face, on a daily basis!

Some people can stomach risk better than others. I am miserable with it, simply miserable!

I pulled all my money out the stock market in 2008 when I saw it starting to tank...I'm now just putting my money into much safer double tax free CA muni bond funds...collecting 5-6 % and sleeping at night.

I guess we all have different needs, both emotionally and financially. Jeff, if you are this uncomfortable in the stock market, maybe the bond market is a better deal for you...life is too short and you've worked too long and too hard to be miserable in your retirement.

Good luck!

[Louis]

this is yet another data point in one of the most fundamentally interesting questions about investing: can anyone, even really smart people, outperform the market on a consistent long-term basis?

Probability says some very small % will, even if their "research" consists of throwing darts at the business pages. (Unless your definition of long-term is infinity, in which case all dart-throwers will eventually come back to the mean.)

[jimcav]

I'm now just putting my money into much safer double tax free CA muni bond funds...collecting 5-6 % and sleeping at night.

Good luck!

I can retire from the navy next year so really should have thought about this well before now (expecting to work post-military: but if I can't find local work will likely move back near my mom to help her and also where the cost of living is crazy-low compared to SoCal)

thanks
jim

[echappist]

I think what you're saying has a timing element (or I misunderstand). If you strip away the timing element, you have rebalancing your portfolio back to target proportions. That is a fantastic idea and something every investor should do (at least) annually.

it does have a timing element, but i dont think it's timing the market in the traditional sense of the word.

I also think of buying into the market as the flip side of deciding when to sell. Of course if stocks tank another 10%, you can get it for even cheaper, but as no one really knows if the market would tank another 10%, forcing yourself to act at a certain threshold at least gets you something.

similarly, if the value of stocks goes up 10%, time to rebalance so that the portfolio has more bonds. You never capture the max possible gains but at least you capture something as opposed to getting irrationally exuberant and hold onto things too long or irrationally depressive and not start buying soon enough.

[93legendti]

Indeed. Feeling better today, but only marginally.

Sorry for your pain...hopefully you are years away from needing your stock assets...

If I was close to needing my stock assets and heavily dependent upon them, I would not be heavily weighted in stocks.

[MattTuck]

Hang on, baby!

[Jeff N.]

After what looked like a good upward trend today, looks like it's gonna go right back down where it started...maybe lower. Guess I'll start delivering papers on my bike!

[SoCalSteve]

Sorry for your pain...hopefully you are years away from needing your stock assets...

If I was close to needing my stock assets and heavily dependent upon them, I would not be heavily weighted in stocks.

Very good advice!!!

[Louis]

Hang on, baby!

http://theredlines.net/wp-content/uploads/2012/03/1st-Drop.jpg

[happycampyer]

Some people can stomach risk better than others. I am miserable with it, simply miserable!

I pulled all my money out the stock market in 2008 when I saw it starting to tank...I'm now just putting my money into much safer double tax free CA muni bond funds...collecting 5-6 % and sleeping at night.

I guess we all have different needs, both emotionally and financially. Jeff, if you are this uncomfortable in the stock market, maybe the bond market is a better deal for you...life is too short and you've worked too long and too hard to be miserable in your retirement.

Good luck!I would just note that the bond market has the potential to get very dicey if/when rates start to rise. A lot of debt has been issued at ridiculously low rates (just think that many 30-year mortgages have lower rates than the historical average for 30-year Treasuries), and will drop in value when rates revert more to the norm.

[1centaur]

Boy have ARMs worked out for me! :)

To climb's question on long term outperformance...it's complicated. Outperforming the S&P 500 for a quarter of a century by being a stock picker in S&P 500 stocks seems an unlikely goal, given the changing nature of portfolio managers (they age), computers (they trade trends, not fundamentals), money management firms (they change regimes and personnel and have to buy and sell related to that), global flows (Chinese buying S&P 500 because it's a way to take money off shore) and probably 20 other things that prevent a manager who is good at buying cheap or buying momentum from winning year after year. But even in that narrow niche, there are people who are better than random luck for a period of 2-5 years because they really are in a groove of understanding that works.

Get out of the S&P 500, and the ability to add value goes up. Some managers are good at understanding risk on and risk off along with value and momentum and can seek those in many venues. If they are lucky enough to have investors who don't have unrealistic expectations and understand what their manager is doing, value can be added over long periods. It's still a battle, because the world changes and many investors may buy and sell for stupid reasons for long periods (think sector ETFs that do not try to outperform but just buy stuff in their sector cause other people pay them to do that).

Markets are not so much efficient as they are unpredictably confused. Managers are like companies - Apple stunk, then it was great. It was possible to stay out of Apple when it stunk and get into it when it started to get things right. One can do the same for managers.

[CNY rider]

I would just note that the bond market has the potential to get very dicey if/when rates start to rise. A lot of debt has been issued at ridiculously low rates (just think that many 30-year mortgages have lower rates than the historical average for 30-year Treasuries), and will drop in value when rates revert more to the norm.

I'll second this and add that everyone who owns "safe" bond funds should have some idea what will happen to the price of their fund if there was a 100 bp rise in yields in say the 10 year Treasury.

[SoCalSteve]

I would just note that the bond market has the potential to get very dicey if/when rates start to rise. A lot of debt has been issued at ridiculously low rates (just think that many 30-year mortgages have lower rates than the historical average for 30-year Treasuries), and will drop in value when rates revert more to the norm.

Funny you say that because in charting these CA double tax free muni funds, going back long before the " Great Recession " and interest rates being at record lows...they have stayed pretty stable for more than 10 years...

My father in law, who watches the Financial News Network all day long ( he's a retired Dr ) is very heavily invested in these funds and has been for many years.

I kind of trust him...:beer:

[fkelly]

"But even in that narrow niche, there are people who are better than random luck for a period of 2-5 years because they really are in a groove of understanding that works."

I differ. There are people who are better than random luck for a period because that's how "random luck" works. If there are 100 people picking stocks a percentage will be better than random luck and a percentage worse. Most likely distributed along a normal curve. The shorter the period the less reliable the distribution will be, but over a longer time there will be a regression to the norm.

Virtually all research shows that you can't beat the market averages or time the market.

I'd be interested in seeing the names of safe municipal bond funds that have been paying 5 to 6% over the last year.

[unterhausen]

Granted, hedge funds can be unique beasts, but if Goldman is correct, this is yet another data point in one of the most fundamentally interesting questions about investing: can anyone, even really smart people, outperform the market on a consistent long-term basis? If not, what are the fees of any advisor buying you? Aside from asset allocation and diversification, can advisors really make a difference? These questions aren't meant as a slam on advisors. But are markets just beyond our ability to out-think?

I wouldn't want to run a fund. Over time, I'm pretty sure that moving money between index funds is as active as you want to get. I do pretty well when I pay attention to the markets, and I'm pretty sure I could make a living day trading. I lost 20 percent of one of my IRAs when I was trying to finish my Ph.D. thesis by parking my money in the wrong stock. Rather than admit I was an idiot to my wife, I just day traded back until I was even and went to cash.

My theory is pretty simple, people are stupid when considered in the aggregate, and they are particularly stupid with their money. You just have to figure out what the stupid people are going to do, and profit off of that. If all the scaredy-cats leave the market, my strategy is a lot harder to pull off. It's draining though, I haven't done it in a while. For trading purposes, my idea of a long term hold is if I have it overnight.

[SoCalSteve]

"But even in that narrow niche, there are people who are better than random luck for a period of 2-5 years because they really are in a groove of understanding that works."

I differ. There are people who are better than random luck for a period because that's how "random luck" works. If there are 100 people picking stocks a percentage will be better than random luck and a percentage worse. Most likely distributed along a normal curve. The shorter the period the less reliable the distribution will be, but over a longer time there will be a regression to the norm.

Virtually all research shows that you can't beat the market averages or time the market.

I'd be interested in seeing the names of safe municipal bond funds that have been paying 5 to 6% over the last year.

Define safe? But, they have been extremely stable for pretty much the life of the funds...never swinging more than a point in either direction...and, they were like this even before the Feds lowered the interest rate.

NKX
VCV
AKP

And NBB if you don't need to worry about double tax free.

Please let me know what you think.

[Look585]

Bond Investing:

There have been several references to bond and bond fund investing in this (stock market) thread. As with stocks, there are a wide variety of bonds and bond funds with very different risk profiles.

A key concept to understand with bonds is that of "Duration", a measure of sensitivity to interest rate changes.

You'll do yourself a big favor by spending 15 minutes reading about it. All of the big bond shops have a brief on this topic. I've linked PIMCO and Blackrock (2 of the largest bond managers) below. This is not a recommendation on either of these firms or their investment products, simply a suggestion that you read their educational materials.

PIMCO - Understanding Duration (https://www.pimco.com/resources/education/understanding-duration)
BlackRock - Understanding Duration (https://www.blackrock.com/investing/resources/education/understanding-duration)

[Look585]

<snip>

NKX
VCV
AKP

And NBB if you don't need to worry about double tax free.

Please let me know what you think.

These are "closed end funds", a different twist on mutual funds. You should definitely understand the "duration" of these products and their use of "leverage".

I took a quick look at VCV. As of the most recent factsheet (May2015) on Invesco's website, it employs 36% leverage and has (leverage adjusted) duration of nearly 11 years. If you don't understand that, you should!

[Climb01742]

I went to college a bit north of NYC, a pretty easy train ride up the Hudson. My college would import folks from the city to teach some classes. I had a writing class taught by a New Yorker writer. I had a film course taught by an NYU film school prof. What I wish now they'd imported from the city? An investment veteran to give a bunch of wet-behind-the-ear college kids a no-BS primer on here is how the market works and a few strategies for keeping your shirt. I took a few econ course but it was all macro/micro econ theory. Helpful in a big picture, get how life works sense, but far too academic vs real world. Feels like every college kid should have to take one, real-world, grizzled veteran taught course about investing. Could be valuable. At least as valuable as those art history courses I took (which, ironically, have turned out to be some of the learning I've used most in my life, not to make money but to understand life and history).:rolleyes:

[MattTuck]

Woah baby! Dow Futures down 600 points.

Be prepared for a Jon Hilsenrath piece today in the journal saying that FOMC members are reconsidering their september time frame for a rate hike. Gotta get this market under control.

A few days late, and not John Hilsenrath. Instead, it is from the horse's mouth. Bill Dudley, of the Fed.

http://www.bloomberg.com/news/articles/2015-08-26/fed-s-dudley-says-decision-on-september-liftoff-less-compelling-idsw6y3j


The case for raising interest rates in September is less compelling because of international financial and market developments, New York Federal Reserve President William Dudley said Wednesday.

æ“¢rom my perspective at this moment the decision to begin the normalization process at the September FOMC meeting seems less compelling, Dudley said.


For those who are still bullish, you have to ask yourself. If the economy is so great, and the market is so strong, and able to come back from being down 1000 points, why is the Fed so afraid to even raise the rate by a quarter of a percentage point? I mean, we're at HISTORICALLY low interest rates, and they're afraid that raising by a quarter of a percentage point is going to undermine the whole system... that should tell you something about the fragility of the whole system.

[SlackMan]

[/IMG]A few days late, and not John Hilsenrath. Instead, it is from the horse's mouth. Bill Dudley, of the Fed.

http://www.bloomberg.com/news/articles/2015-08-26/fed-s-dudley-says-decision-on-september-liftoff-less-compelling-idsw6y3j



For those who are still bullish, you have to ask yourself. If the economy is so great, and the market is so strong, and able to come back from being down 1000 points, why is the Fed so afraid to even raise the rate by a quarter of a percentage point? I mean, we're at HISTORICALLY low interest rates, and they're afraid that raising by a quarter of a percentage point is going to undermine the whole system... that should tell you something about the fragility of the whole system.

Stop asking hard questions and just drink!

http://media.tumblr.com/9591dfa08ad0cb50db4142d5edc09a21/tumblr_inline_mlu0y8eCeo1qz4rgp.png

[SlackMan]

I didn't realize how many great Kool Aid pics they have that are relevant when telling someone they should just drink the Kool Aid.

https://s-media-cache-ak0.pinimg.com/236x/a3/46/14/a346147eb559a5ada23ae25da8e7b3ef.jpg

[cinema]

For those who are still bullish, you have to ask yourself. If the economy is so great, and the market is so strong, and able to come back from being down 1000 points, why is the Fed so afraid to even raise the rate by a quarter of a percentage point? I mean, we're at HISTORICALLY low interest rates, and they're afraid that raising by a quarter of a percentage point is going to undermine the whole system... that should tell you something about the fragility of the whole system.


I am not bullish on stocks but I think it's a slippery correlation (the economic outlook vs the feds intent to raise the interest rate). The fed is clearly being held hostage by wall street. rate hike would pretty much equal a tax increase and once WS and repubs in general get what they want (tax decrease, less regulation) they are reluctant to give it back once things improve.

It's the same when companies raise their prices when they need to make more money because a raw material becomes more expensive; when the cost of that commodity comes down, the price of the product doesn't come back down. WS has been spoiled and is merely threatening the fed, it is unrelated to the economy overall. The market would quickly stabilize if they did in fact raise the rate, or stocks might actually come down to more realistic prices. Right now there is too much money floating around with too few places to go.

[SlackMan]

I am not bullish on stocks but I think it's a slippery correlation (the economic outlook vs the feds intent to raise the interest rate). The fed is clearly being held hostage by wall street. rate hike would pretty equal a tax increase and once WS and repubs in general get what they want (tax decrease, less regulation) they are reluctant to give it back once things improve.

It's the same reason companies raise their prices when they need to make more money because a raw material becomes more expensive. When the cost of that commodity comes down, the price of the product never does. WS has been spoiled and is merely threatening to fed, it is unrelated to the economy overall.

Wait, WHAT? If interest rates rise, the cost of credit rises for anyone with a floating rate loan and/or anyone taking out a new loan. That can have real effects on the overall economy.

[cinema]

Yes of course, but i'm talking about the intent of the fed, not actual interest rates. the "intent" of the fed has now been relegated to WS psychological warfare

[verticaldoug]

Maybe your assumption on rates is wrong.
Instead of rates being abnormally low now, the reality was from 1950-2000 rates were abnormally high and inflation high.

Historically, the US experienced long periods of deflation prior 1913 and the founding of the FED. Prices were actually lower in 1913 than in 1800. I think the same can be said for England.

When you look at price data, outside of wars, prices are low to stable. What if because of the cold war and restriction of trade following the end of WW2, rates and inflation remained stubbornly high. With the fall of the wall, the increase of trade and massive investment in natural resources, we now have too much stuff and not enough demand. . . .

Maybe this is normal and what you want is not

[fkelly]

"NKX
VCV
AKP

And NBB if you don't need to worry about double tax free"

Looked these up on Etrade. Read a bit about duration too, though I am not seeing average duration in the Etrade charts. Dividends are about 6% as stated. That's impressive. Also looked up NEA which is Federal and amt tax free (the others are all also CA. tax free, which doesn't concern me). They are all run by respected bond fund companies (Nuveen, Invesco, Alliance).

Obviously returns could be affected by rising interest rates as well as bankruptcy or serious financial troubles by the municipalities they invest in or corporate bond failings. Supposedly the investment companies only invest in highly rated bonds, but we all know how the rating game can go.

I recently invested in BND, a Vanguard total market bond fund. It has an expense ratio of .07 % (very low) and a dividend of 2.45 percent. In a portfolio of some 20 or so holdings, it and a gold stock were the only ones unscathed in the recent sell off. There are no expense ratios listed for the other funds, but I think that may be because they are baked into the share price.

I may look around to see if Nuveen or the others have NY tax frees (in addition to Federal tax frees) that pay similar dividends. However, I don't chase the tax free as an objective in itself ... it's total returns that count.

Thanks for the leads.

[SlackMan]

"NKX
VCV
AKP

And NBB if you don't need to worry about double tax free"

Looked these up on Etrade. Read a bit about duration too, though I am not seeing average duration in the Etrade charts. Dividends are about 6% as stated. That's impressive. Also looked up NEA which is Federal and amt tax free (the others are all also CA. tax free, which doesn't concern me). They are all run by respected bond fund companies (Nuveen, Invesco, Alliance).

Obviously returns could be affected by rising interest rates as well as bankruptcy or serious financial troubles by the municipalities they invest in or corporate bond failings. Supposedly the investment companies only invest in highly rated bonds, but we all know how the rating game can go.

I recently invested in BND, a Vanguard total market bond fund. It has an expense ratio of .07 % (very low) and a dividend of 2.45 percent. In a portfolio of some 20 or so holdings, it and a gold stock were the only ones unscathed in the recent sell off. There are no expense ratios listed for the other funds, but I think that may be because they are baked into the share price.

I may look around to see if Nuveen or the others have NY tax frees (in addition to Federal tax frees) that pay similar dividends. However, I don't chase the tax free as an objective in itself ... it's total returns that count.

Thanks for the leads.

Just know what risk you are taking: NKX's leverage-adjusted duration is just over 12 years. That means that if interest rates rise by one percentage point, NKX should fall about 12% in value; for a two-percentage point increase in rates, the fall would be about 24%. Strictly speaking, these approximations are accurate only for small changes in rates, but the figures help put things in perspective. AKP's duration is just over 9 years (implying -9% and -18% comparable figures), and VCV's duration was given above.

[SoCalSteve]

Just know what risk you are taking: NKX's leverage-adjusted duration is just over 12 years. That means that if interest rates rise by one percentage point, NKX should fall about 12% in value; for a two-percentage point increase in rates, the fall would be about 24%. Strictly speaking, these approximations are accurate only for small changes in rates, but the figures help put things in perspective. AKP's duration is just over 9 years (implying -9% and -18% comparable figures), and VCV's duration was given above.

I do understand there are always risks to investing. Certainly doesn't appear that the interest rates are going up anytime in the near future at this stage of the game, does it?

Where would you put your money if you wanted income solely and didn't much care about the principal?

[fkelly]

"That means that if interest rates rise by one percentage point, NKX should fall about 12% in value; for a two-percentage point increase in rates, the fall would be about 24%."

But, let's put this in context. NKX is paying about 6%. The best CD rate I can find using bankrate is 1.25%. Best savings rate is around 1%. Let's say interest rates rise 2% and CD's start paying 3%. Let's say NKX falls correspondingly to 4%. Given that there's always some risk with a bond fund, that 4% seems subjectively close to the 3% of a CD. But right now 6%, even with risk is well above any CD or savings rate, even adjusting for risk.

Personally, I put a significant portion of my portfolio (in the order of 40%) into dividend paying stocks ... some riskier than others. e.g., here's a list of dividend paying stocks with no recommendation to buy any of them, just an example:

APU AMERIGAS PARTNERS L P UNIT L P INT 8.53%
BND VANGUARD TOTAL BOND MARKET INDEX FUND 2.45%
COP CONOCOPHILLIPS COM 7.02%
COST COSTCO WHSL CORP NEW COM 1.21%
CSCO CISCO SYS INC COM 3.41%
CSX CSX CORP COM 2.84%
CVS CVS HEALTH CORP COM 1.40%
ED CONSOLIDATED EDISON INC COM 4.18%
GAIN GLADSTONE INVT CORP COM 10.36%
INTC INTEL CORP COM 3.71%
JNJ JOHNSON & JOHNSON COM 3.31%
NEE NEXTERA ENERGY INC COM 3.09%
NS NUSTAR ENERGY LP UNIT COM 9.24%
O REALTY INCOME CORP COM 5.13%
PEG PUBLIC SVC ENTERPRISE GROUP COM 3.91%
PEP PEPSICO INC COM 3.13%
PG PROCTER & GAMBLE CO COM 3.88%
PSX PHILLIPS 66 COM 3.18%
UNH UNITEDHEALTH GROUP INC COM 1.82%
UPS UNITED PARCEL SERVICE INC CL B 3.09%
VEU VANGUARD FTSE ALL-WORLD EX US INDEX FUND 3.17%
VNQ VANGUARD REIT ETF 4.20%
VTR VENTAS INC COM 5.75%
WM WASTE MGMT INC DEL COM 3.13%

Some of these are "speculative" or very risky. But almost all of them have been paying me dividends like this for more than 10 years. And, while rising interest rates are a risk to dividends, dividends by themselves reduce risk. Why? (1) because you start getting some of your money back right away and (2) because the companies paying them have to focus on earnings to pay dividends rather than just speculating. Yes, some companies can take on debt to pay the dividends short term, creating a Ponzi scheme of sort, but those are the ones you want to stay away from or get out of. I've been burned by a few of these, but overall the strategy works.

[Tin Turtle]

[QUOTE=fkelly;1813902]
WM WASTE MGMT INC DEL COM 3.13%
QUOTE]

I am in some of what you listed, I got out of WM though, the slide in price (for me) was not sustainable.

Look585, thank you for some very good information. It really does say something about this forum that off topic threads can be both enjoyable and useful.

[verticaldoug]

"That means that if interest rates rise by one percentage point, NKX should fall about 12% in value; for a two-percentage point increase in rates, the fall would be about 24%."

But, let's put this in context. NKX is paying about 6%. The best CD rate I can find using bankrate is 1.25%. Best savings rate is around 1%. Let's say interest rates rise 2% and CD's start paying 3%. Let's say NKX falls correspondingly to 4%. Given that there's always some risk with a bond fund, that 4% seems subjectively close to the 3% of a CD. But right now 6%, even with risk is well above any CD or savings rate, even adjusting for risk.

Personally, I put a significant portion of my portfolio (in the order of 40%) into dividend paying stocks ... some riskier than others. e.g., here's a list of dividend paying stocks with no recommendation to buy any of them, just an example:

APU AMERIGAS PARTNERS L P UNIT L P INT 8.53%
BND VANGUARD TOTAL BOND MARKET INDEX FUND 2.45%
COP CONOCOPHILLIPS COM 7.02%
COST COSTCO WHSL CORP NEW COM 1.21%
CSCO CISCO SYS INC COM 3.41%
CSX CSX CORP COM 2.84%
CVS CVS HEALTH CORP COM 1.40%
ED CONSOLIDATED EDISON INC COM 4.18%
GAIN GLADSTONE INVT CORP COM 10.36%
INTC INTEL CORP COM 3.71%
JNJ JOHNSON & JOHNSON COM 3.31%
NEE NEXTERA ENERGY INC COM 3.09%
NS NUSTAR ENERGY LP UNIT COM 9.24%
O REALTY INCOME CORP COM 5.13%
PEG PUBLIC SVC ENTERPRISE GROUP COM 3.91%
PEP PEPSICO INC COM 3.13%
PG PROCTER & GAMBLE CO COM 3.88%
PSX PHILLIPS 66 COM 3.18%
UNH UNITEDHEALTH GROUP INC COM 1.82%
UPS UNITED PARCEL SERVICE INC CL B 3.09%
VEU VANGUARD FTSE ALL-WORLD EX US INDEX FUND 3.17%
VNQ VANGUARD REIT ETF 4.20%
VTR VENTAS INC COM 5.75%
WM WASTE MGMT INC DEL COM 3.13%

Some of these are "speculative" or very risky. But almost all of them have been paying me dividends like this for more than 10 years. And, while rising interest rates are a risk to dividends, dividends by themselves reduce risk. Why? (1) because you start getting some of your money back right away and (2) because the companies paying them have to focus on earnings to pay dividends rather than just speculating. Yes, some companies can take on debt to pay the dividends short term, creating a Ponzi scheme of sort, but those are the ones you want to stay away from or get out of. I've been burned by a few of these, but overall the strategy works.

You need to look through the stock ticker and at the underlying asset. While some of the tickers you have listed are traditional equities in being corporations, you also have REITS, ETFs of broad indices of stocks and bonds, and MLPs.

NS, and APU are energy MLPs. They are forced to payout their cash therefore have the large dividends. NS is midstream transport (probably best place to be now), APU is a downstream retail so they will have different types of risk.
VNQ is a etf of REITS. so essential rental income from various property types.

Current yield can be great in the form of coupons and dividends, but as many of you remember, eventually you will worry about getting your principal back. 2008 was not that long ago.

[Climb01742]

Just curious...where did many of you contributing to this thread get your investing knowledge? Is it your profession or do you do it for your own account? And if it's not your profession, did you first get involved in doing/researching this for profit or out of a curiosity and interest in it as an intellectual pursuit/ challenge? Just curious what draws you to it. Thanks.

[SlackMan]

Just curious...where did many of you contributing to this thread get your investing knowledge? Is it your profession or do you do it for your own account? And if it's not your orofession, did you first get involved in doing/researching this for profit or out of a curiosity and interest in it as an intellectual pursuit/ challenge? Just curious what draws you to it. Thanks.

Finance PhD here + lots of investing on my own account and advising friends & family. One thing academic research in finance does better than anyone else is attempt to control for risk properly when evaluating the returns on different securities, asset classes, or strategies. If there is one single thing that I would like to change about the average investor's behavior and of the average investor who gives advice, it would be that they think more carefully about risk and the proper way to measure it.

[saab2000]

Just curious...where did many of you contributing to this thread get your investing knowledge? Is it your profession or do you do it for your own account? And if it's not your profession, did you first get involved in doing/researching this for profit or out of a curiosity and interest in it as an intellectual pursuit/ challenge? Just curious what draws you to it. Thanks.

I read tons of online articles. My father was a lifetime investor and so I was at least aware of the world of finance.

About 8 or 9 years ago I happened upon an issue of "Money" magazine and it went on and on about retirement and how most Americans don't plan well for it. It seemed that most of the articles were written specifically for me. So I subscribed and that opened my eyes a bit more.

Now I read lots of articles about retirement planning and some about basic investing. But most of what I invest is retirement money for me. My time horizon is probably at least 15 years into the future so these fluctuations don't really bother me. I haven't sold an investment in about 7 years. Mostly I buy and hold and most of my investments are low fee funds and low fee ETFs at a low cost brokerage firm.

Another portion is similar, but the time horizon is shorter. It's invested as a savings account because savings accounts are near 0% interest so I'm taking some risk by investing it.

Additionally, I've had some exchanges by PM with a few folks more knowledgeable than myself and they've been very generous with their time.

[Climb01742]

Finance PhD here + lots of investing on my own account and advising friends & family. One thing academic research in finance does better than anyone else is attempt to control for risk properly when evaluating the returns on different securities, asset classes, or strategies. If there is one single thing that I would like to change about the average investor's behavior and of the average investor who gives advice, it would be that they think more carefully about risk and the proper way to measure it.

It's probably as much a personality indicator as anything but I think you're on to something. I'd rather give up a few % of upside to avoid more downside volatility. I once interviewed a very successful money manager in Chicago (for professional, not personal/my account reasons) and he said if a prospective client asks him for a consistent rate of return above 10%, he won't take them on as a client. He was essentially a conservative manager who managed the downside as much as the upside. Granted, that works well for wealth preservation, perhaps more than wealth creation, but his approach struck me as quite wise. His assets under management indicated many wealthy folks found him wise as well.

[SoCalSteve]

Just curious...where did many of you contributing to this thread get your investing knowledge? Is it your profession or do you do it for your own account? And if it's not your profession, did you first get involved in doing/researching this for profit or out of a curiosity and interest in it as an intellectual pursuit/ challenge? Just curious what draws you to it. Thanks.

I know very little about finance other than to listen to what my father in law tells me to do...he is a retired physician who spends most of his day watching the finance channels on TV. He lives very nicely on the dividends from the bond funds I mentioned above and has been doing so for many, many years ( he is in his mid 70's ).

If and when he tells me to sell, I will. But, as for now, it looks pretty good into next year that the Fed is gonna hold off raising rates, especially after what is happening in China and how it affected us. And, if they do, it will be so small, that it won't matter.

[SlackMan]

...who spends most of his day watching the finance channels on TV....

At the risk of sounding (being?) snarky, I would rather people ask our Pomeranian for advice than watch finance channels on TV hoping to learn useful information. Virtually every other serious student of financial markets that I know feels similarly.

[SoCalSteve]

At the risk of sounding (being?) snarky, I would rather people ask our Pomeranian for advice than watch finance channels on TV hoping to learn useful information. Virtually every other serious student of financial markets that I know feels similarly.

Funny, cuz he lives in a beautiful home overlooking the ocean in Dana Point, CA. Owns 2 expensive cars, travels whenever he feels like it, lives life without the regard of having to worry about money and does all this from watching financial TV networks ( mostly with the sound off ) and investing in bond funds.

He must be doing something right!...:beer:

[seanile]

Funny, cuz he lives in a beautiful home overlooking the ocean in Dana Point, CA. Owns 2 expensive cars, travels whenever he feels like it, lives life without the regard of having to worry about money and does all this from watching financial TV networks ( mostly with the sound off ) and investing in bond funds.

He must be doing something right!...:beer:
are we still talking about the pomeranian?

[saab2000]

Funny, cuz he lives in a beautiful home overlooking the ocean in Dana Point, CA. Owns 2 expensive cars, travels whenever he feels like it, lives life without the regard of having to worry about money and does all this from watching financial TV networks ( mostly with the sound off ) and investing in bond funds.

He must be doing something right!...:beer:

I'm guessing he did well as a doctor and invested well a long time ago. Those shows seem like entertainment as much as anything. Not that there's anything wrong with that. But I think most knowledge comes from reading, not watching those shows.

And wealth rarely happens fast. Based on the numbers I've run it comes from investing early in life and adding to that regularly.

I'm hoping to get to the point that the dividends I earn each year equal what I think I need to live. At that point I may consider retirement, though I'll probably add a buffer as some protection.

I wish I had started earlier but at least I started.

BTW, these dividend bonds seem interesting to me. I will have to look into that.

[SlackMan]

Funny, cuz he lives in a beautiful home overlooking the ocean in Dana Point, CA. Owns 2 expensive cars, travels whenever he feels like it, lives life without the regard of having to worry about money and does all this from watching financial TV networks ( mostly with the sound off ) and investing in bond funds.

He must be doing something right!...:beer:

If one starts out with a lot of money and then earns less than stellar returns, one can still live a very nice life. That said, if one is going to watch finance channels on TV, it makes me happy to know the sound is off.

[1centaur]

And if he is largely in bond funds he's paying little heed to the guys on CNBC, so he's just using it as a rolling ticker and headline source. Nothing wrong with that.

[Climb01742]

Based on the numbers I've run it comes from investing early in life and adding to that regularly.

This. I wish I'd taken this to heart very, very early in life. What I wish I'd done, and what I'll encourage my children to do when they start working is, put even small amounts each month into a low fee stock index fund. If they're inclined, their investing can get more sophisticated after that, but start early, invest regularly and low fees. I've done 401k's as long as companies I've worked for offered them, but I wish I'd just started sooner and been more disciplined, even with small increments.

[Anarchist]

If one starts out with a lot of money and then earns less than stellar returns, one can still live a very nice life. That said, if one is going to watch finance channels on TV, it makes me happy to know the sound is off.

My bachelor and master degrees are in Finance. I would never consider taking the tone you have here with people that 1) you don't know, and 2) seem to be doing just fine, thank you.

No idea what your age is, but it seems to me, you could use some seasoning.

[SlackMan]

This. I wish I'd taken this to heart very, very early in life. What I wish I'd done, and what I'll encourage my children to do when they start working is, put even small amounts each month into a low fee stock index fund. If they're inclined, their investing can get more sophisticated after that, but start early, invest regularly and low fees. I've done 401k's as long as companies I've worked for offered them, but I wish I'd just started sooner and been more disciplined, even with small increments.

Great advice. A few months ago, we visited a mentor of mine who started investing early in his life and in index funds. He and his wife never really had huge incomes. But, they are now retired and have a penthouse apartment in Paris with a view of the Eiffel Tower (in addition to a house in the States).

I don't have the figures at hand, but there is a basic calculation that shows if you save aggressively early in life, you can pretty much stop saving entirely at age 45 and still have plenty of money on which to retire.

[SlackMan]

My bachelor and master degrees are in Finance. I would never consider taking the tone you have here with people that 1) you don't know, and 2) seem to be doing just fine, thank you.

No idea what your age is, but it seems to me, you could use some seasoning.

I'm truly sorry if you interpreted my 'tone' that way, but if you really think the average investor truly understands the risks associated with investing, then I'm going to continue to argue strongly against that proposition. Do you think it would be better to be more 'seasoned' and let people continue to make mistakes?

I would challenge you to provide some evidence to support your proposition. There are tons of studies in behavioral finance that indicate that the average investor doesn't understand investing very well -- do you have evidence contrary to that evidence?

[SoCalSteve]

I'm truly sorry if you interpreted my 'tone' that way, but if you really think the average investor truly understands the risks associated with investing, then I'm going to continue to argue strongly against that proposition. Do you think it would be better to be more 'seasoned' and let people continue to make mistakes?

I would challenge you to provide some evidence to support your proposition. There are tons of studies in behavioral finance that indicate that the average investor doesn't understand investing very well -- do you have evidence contrary to that evidence?

There is nothing wrong in educating people. Hell, we could all use more education!

What I think the gentleman is getting at is that you are judging people's financial picture and how they feel they should best invest their money. Oh, and insulting them with your dog reference as well.

Maybe a better " tone " would be to ask questions, find out about people's situations so you are better prepared to help them..not jump to conclusions without knowing all the facts.

And, I do thank you for caring enough to add links to show people that there are risks involved in investing. There are risks with everything in life. Getting on a bicycle and riding in a city is pretty risky, wouldn't you say?

I do truly think that my father in law ( who is a very well educated man ) wouldn't steer myself or his daughter in something that he felt was risky and he wouldn't do himself.

The nice thing about these bond funds is that they are easily sold. I am sure if California starts to drift into the sea, we will sell these funds quickly and figure out other avenues to invest in. But, for now, I do not see much of a downside in making 6% double tax free on my money.

[1centaur]

The world does not offer 6% double tax free without significant risk. A lot of high yield bonds offer 6% with no tax benefits and not dumb people buy them willingly. I am not saying 6% tax free is unacceptable risk, but it is real risk.

Please do not forget that rates have generally gone down over many years, which is good for bond prices and so acted like a tail wind for the fairly stable results you cite.

I have Mass muni bonds (mutual fund), and figure they will go down in price when rates rise, but I don't really care because I'll just keep reinvesting the coupons at lower prices to build the stack for my retirement. I have thought about retiring in California (when the drought is gone) and living off Cali muni bonds as much as possible. Cali's finances stink, and The Big One might hurt them even more, so I'd diversify away from those risks to some extent.

[SlackMan]

There is nothing wrong in educating people. Hell, we could all use more education!

What I think the gentleman is getting at is that you are judging people's financial picture and how they feel they should best invest their money. Oh, and insulting them with your dog reference as well.

Maybe a better " tone " would be to ask questions, find out about people's situations so you are better prepared to help them..not jump to conclusions without knowing all the facts.

And, I do thank you for caring enough to add links to show people that there are risks involved in investing. There are risks with everything in life. Getting on a bicycle and riding in a city is pretty risky, wouldn't you say?

I do truly think that my father in law ( who is a very well educated man ) wouldn't steer myself or his daughter in something that he felt was risky and he wouldn't do himself.

The nice thing about these bond funds is that they are easily sold. I am sure if California starts to drift into the sea, we will sell these funds quickly and figure out other avenues to invest in. But, for now, I do not see much of a downside in making 6% double tax free on my money.

Just to clarify: I was insulting 'Finance TV' by stating it was worse than listening to a dog. I would never insult average investors posting on a thread looking for financial advice. Indeed, the very reason I take time to post on threads such as this is to help people who are otherwise lost in what to do, or worse, suckered into bad decisions by financial advisors who have their own interests at heart.

Much of what I read above wouldn't be good advice for anyone regardless of their own situation, so I don't need to know an individual's situation before casting aspersions on strategies that are bad regardless of the situation.

But, I must say I'm not surprised by the reaction. Many people approach financial decisions with a great deal of emotion. And many people who think they make great financial decisions don't like to hear that their decisions are actually suboptimal. I'll just shut up and move on. It just makes me sad that so many people wind up so much worse off by the financial decisions they make when the right strategies are not that hard.

[Ken Robb]

I know enough about finance to know I don't know enough about finance. BS from Kellogg School of Management at Northwestern U. Lacking an ability to understand complex financial schemes I rely on looking for enough corporate cash flow to support generous dividends and reasonable expansion. I have been very happy with the performance of Thomas Partners that I bought through Chas. Schwab. Their investment philosophy is similar to my own but they have quite a few analysts watching our holdings every day. Management fees are reasonable and vary with the size of one's investment.

[fuzzalow]

Investing is as much as about temperament as it is is about knowledge. Temperament as a quality that cannot be taught but, if one is lucky and smart, can be learned.

[MattTuck]

My bachelor and master degrees are in Finance. I would never consider taking the tone you have here with people that 1) you don't know, and 2) seem to be doing just fine, thank you.

No idea what your age is, but it seems to me, you could use some seasoning.


What I think the gentleman is getting at is that you are judging people's financial picture and how they feel they should best invest their money. Oh, and insulting them with your dog reference as well.

Maybe a better " tone " would be to ask questions, find out about people's situations so you are better prepared to help them..not jump to conclusions without knowing all the facts.

The nice thing about these bond funds is that they are easily sold. I am sure if California starts to drift into the sea, we will sell these funds quickly and figure out other avenues to invest in. But, for now, I do not see much of a downside in making 6% double tax free on my money.

I'm not sure that SlackMan deserves that. His comments have been (to my mind) pretty fair and balanced and based on the evidence that is out there related to finance and behavioral economics.

Steve, your father in law may be doing very well. We don't know. He has some portfolio that features a certain asset class. Has it gone up over time? Perhaps it has. But SlackMan is suggesting that this isn't the only measure that is important. Whether you're a trader (getting in and out of positions) or a long term passive investor (purchasing for the long term, minimizing trading costs), the risk part of the equation is also critically important.

Let's take a generic investor as a hypothetical. Let's say he went out and bought twitter and tesla because he thought they were going to change the world. And let's say he's doing well. Maybe his comparison is the Dow Jones Industrial Average. And he says to everyone, "Hey guys! I'm out performing the Dow!" and people say, "Wow! He must be a great investor."

But there are two problems. First, this hypothetical investor has a very undiversified portfolio. His holdings are concentrated entirely in Silicon valley growth stocks, with high levels of risk. From a diversification perspective, this is terrible. He doesn't have exposure to a wide part of the stock market (like large cap, small cap, value stocks), he doesn't have exposure to the bond market, he doesn't have exposure to international, emerging economies, etc. He may be making some money, but his returns are extremely concentrated and sensitive to specific events. He may be judged to be a good investor because his returns are good, but that is a very narrow view.

Stepping back from the diversification perspective, we can look at our hypothetical investor's statement. He may be be beating the Dow Jones, but that is not the right comparison. Dow Jones Average are very large companies, with lower risk than small start ups. Comparing the performance of two high growth companies to performance of an average of very big companies is like comparing apples to oranges. You'd need to find a comparison that is apples to apples. The best you could do would be to find an index of companies with similar risk, so as to compare the returns on a risk adjusted basis.

One way of calculating risk adjusted returns is with the Sharpe Ratio. Link. (https://en.wikipedia.org/wiki/Sharpe_ratio)

Financial television, like all television, has one primary objective. That is to sell advertising. To do this, the anchors and programming choices have to remain constantly positive and must 'cheer on' the market. I would not consider them to be unbiased reporters trying to educate the populace on the theory and practice of better investing. In fact, it is in their interest (and their advertisers like eTrade, Interactive Brokers, whoever else) that people don't learn long term passive investing, and that they instead trade based on 'new' information being broadcast, and the stock tips that the guests are pumping, not to mention getting people excited with emotion to get them to trade. (And, if a stock tip is making it to cnbc, you can rest assured that it has already been widely circulated amongst traders at hedgefunds before Joe Bag'o'donuts sees it coming across the airwaves.)

Once you cut through all this, you have to view financial tv has a highly suspect place to get your investing information. I'm not saying it can't be done, but I'm saying there is a lot of noise that needs to be discounted, to get to the signal.

Finally, I'll just throw out there that there is no way to escape a simple fact. The higher a return, the higher the risk. It is the way the world works. Advisers, Fund Managers, etc. may tell you that there is less risk because of something they do, but ultimately, you cannot escape from that simple axiom. If you are highly concentrated in one asset class, and one segment of that asset class, I strongly urge you to consider the only free lunch in finance that there is. Diversification.

If you want to be a trader, and move in and out of stocks based on what you think is good information, feel free. But if you are an investor, for the long term, and you have your retirement (or you family's well being) on the line, please hold a basket of asset classes and reduce your unsystematic risk.

[cfox]

Finance PhD here + lots of investing on my own account and advising friends & family. One thing academic research in finance does better than anyone else is attempt to control for risk properly when evaluating the returns on different securities, asset classes, or strategies. If there is one single thing that I would like to change about the average investor's behavior and of the average investor who gives advice, it would be that they think more carefully about risk and the proper way to measure it.

In my experience, academic finance has always done a poor job of pricing liquidity, market conditions, and the scalability of financing leveraged positions. There is a massive difference between understanding the risks and putting a proper price on those risks. Understanding the risks is a good start. We used to have some good laughs on the trading desk looking at some of the assumptions made in papers that came across our desk.

[rugbysecondrow]

Great advice. A few months ago, we visited a mentor of mine who started investing early in his life and in index funds. He and his wife never really had huge incomes. But, they are now retired and have a penthouse apartment in Paris with a view of the Eiffel Tower (in addition to a house in the States).

I don't have the figures at hand, but there is a basic calculation that shows if you save aggressively early in life, you can pretty much stop saving entirely at age 45 and still have plenty of money on which to retire.

This is what my wife and I did when we first entered the workforce. by maxing out our 401k and our matching we had the equivalent of 20% of both our incomes going into our 401k starting at ages 21 and 23. We built our life and lifestyle with that money never seeing the light of day. Used cars, more modest home, tig'd frame instead of lugged :) , generally living below our means and saving. At ages 38 and 36, I know where we sit and I feel pretty good about that. I work full time, I have a few invention projects and products (see signature below) and I have other hobbies. I would only have the ability to learn enough about finance and the markets to make more mistakes than I would have successes if I hadn't chosen funds modeled after index funds.

One other difference my wife and I incorporated was factoring our home into our financial plan. As it stands now, our home and college should be paid for by the time I reach 59.5. I plan to only work as long as I have to, so my plan is for large financial obligations to be taken care of by the time I reach the age I can withdraw funds. If I want to work, I will, but I want to freedom to choose.

Life is going to get more complicated as I recently took a position and I have some retirement decisions to make. I might post that question here or in a new thread as there are some smart folks here.

Cheers,

Paul