I wanted to talk a little about long term investing tonight. The markets were quiet today except for oil's moonshot so I figured today would be a good night to take a look at long term investing in a bear market.
We all know how bad the economy is right now. Notice the comments that came out today from some of the worlds greatest money managers and economists. I have never heard the experts sound so gloomy!
I wanted to emphasize tonight how long these corrections can last. Many bear markets can last a decade or more. Take a look at the Nikkei below:
As you can see, the Nikkei is now sitting at the same level that it was in 1986. This is what deflation can do to a market. Some Japanese still continue to rent because they were burned so badly after their famous deflationary collapse destroyed the value of their homes. Such destruction can leave an impression on you that can last a lifetime.
My grandfather still vividly remembers the Great Depression. He was just a kid then, but it is forever ingrained in his mind.
You think it can't happen here?
Think again folks, it already has. Take a look at the S&P below since 1999/2000. The S&P is actually down since 2000, and relatively flat since the late nineties. That's 10 years of investing! We have already had a lost decade.
Take a minute and think of all the ups and downs that you had in your investments over the last 10 years. Think of the sleepless nights during the tech crash.
The great bull market that started in 2003 did nothing but get us back to even!
I think its time that we all ask ourselves if all of the risk and wasted emotions is actually really worth it. Why risk your nest egg in a rigged market that has averaged zero growth over the last decade? Many lost their fortunes in the tech bubble during this period. The ones that were brave enough to stay fully vested have only gotten back to even.
I do not consider the US stock market to be a safe place for investing anymore. Its turned into the wild wild west. No rules, no accountability, and no returns on your money! I will put my money elsewhere until the regulators bring some discipline back to the markets.
These dangers must be considered when you are strategically setting up your portfolio. The mess we are in now is going to take years and years to fix. This the worst situation I have ever seen in my lifetime. The amount of fraud and risk that been taken in the market has reached unprecedented levels in my view. This can only end one way: Badly.
I would not be surprised if we lost another decade. Make sure that you find an investment advisor that you can trust and knows what the hell they are doing. Any financial planner thats just throwing you 100% into equities needs to be questioned and avoided IMO.
This will be a big issue as this market corrects. Its going to take a long time for the "bubble boys" to realize that the days of big returns of the stock market are over for a long period of time while we fix this mess.
We have basically had an unprecedented 26 year period of relative prosperity. The 1987 crash, the housing mess in the early nineties, and the tech bubble were basically just little speed bumps that we hit along the way.
The pigmen want to you believe that this is just another little speed bump that will be fixed by the end of next year. What they don't realize is this time we just ran into a pothole that's 10 feet deep!
The hangovers from such prosperity often last as long as the party. You must consider this as you build your portfolio.
The savings habits of this country also must change as we hit a long period of slow to negative growth. We need to start buuilding up liquidity(cash) before we can begin the recovery process. The days of getting rich trading debt are over.
Start saving!
As you can see below, we are pathetic in this department versus other countries:
America needs to take a reality check! There is no more equity available to pull out of our houses. The HELOC days are over. Rates are rising and borrowing is becoming very expensive.
We need to get back to saving money because this financial crisis is going to force the unemployment rate to rise dramatically. Many jobs will be lost as we deleverage our whole economy. Expect job losses in most sectors of the economy as the consumer pulls back. Remember thec onsumer is 70% of the economy!
Also, ask yourself this question:
Do I have enough money in my savings account to live for a period of time if I lost my job? If your answer is no then its time to get started!
Bottom Line:
Bear markets can last as long as bull markets. I can find only two periods of time in recent history that compare to what we are going through now. The first is the Great Depression where there was a debt party similar to what we are seeing today. The second is Japan's deflationary collapse after their housing bubble burst.
No one knows for sure how bad this economic collapse is going to be. The one thing I am fairly certain of is its going to take a long time to clean up.
Remember, history always repeats itself.
3 comments:
It's still August and most of Wall Street should have been away in the Hamptons, Poconos or Jackson Hole, Wy, this month(
I havent checked trading volumes to confirm this). But after Labor day, it will be interesting to see if there's a bump-up in 'spinning' from Wall Street.
avl
They better put on their best suit and practice their sales calls.
They have a lot of work to do in a market like this!
things are going to get very interesting in the next few weeks.
Hearing many Fannie rumors. Things are coming to a head. This must be resolved and watch the fireworks when it happens.
Uh oh
Looks like Freddie can't find any capital.
Who in their right mind would invest in these pieces of junk when the threat of being zeroed via nationalization hangs over their head.
The plot thickens:
"Freddie Hunts for Cash
Investor Search Is Hobbled
By Fears About Impact of a Bailout
By JAMES R. HAGERTY and ROBIN SIDEL
August 22, 2008
Freddie Mac executives are sounding out private-equity firms and other investors about the possibility of buying new common or preferred shares in the mortgage company.
But that effort is running up against what may be an insurmountable hurdle: Many investors fear any money they invest now in Freddie or its main rival, Fannie Mae, will be lost later if the U.S. Treasury bails out the companies through a purchase of equity in them. Investors believe such a purchase would likely involve terms that would wipe out the value of previously issued shares.
"Senior management has been talking with a wide array of possible investors this week," said David Palombi, Freddie Mac's chief spokesman. He noted that the company remains above its current regulatory capital requirements but has pledged to raise $5.5 billion of capital "given appropriate market conditions."
Fannie Mae raised $7.4 billion in May but has said it may need to tap the market again, depending on how large losses turn out to be in coming quarters.
In July, Congress gave the Treasury authority to lend money to or acquire equity in the companies if needed to prop them up. That helped reassure buyers of Fannie and Freddie debt that the government would stand behind them in a crisis."
http://online.wsj.com/article/SB121936249440062001.html?mod=hps_us_whats_news
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