RE: Here's hoping you didn't miss the bottom of the market...

Sagarin wrote:

US paper is sub-prime and the country is going to suffer the same fate as Pelosi's California.

nancy pelosi is the governor of california? that's news to me!

mez wrote:

Well done! I also like how these "tax cuts" are really not that at all. There has been NO cut in rates...it's a credit...taxable income on next year's books. We'll have to pay on that lousy 13$ a week! He giveth and taketh away. There is no effort here at all to remedy this economy, only to expand goverment and the Democrat voter base. Deficits be damed, who cares if there's no money to support ANY of this spending....the agenda must get pushed through. Is this what everyone who supported this guy was hoping for? This is the hope? It certainly is change....that's for sure.

I knew that 13 dollars on you check didn't make much sense because that is your money anyway. It just means if you get a refund then next year your refund will be smaller, and if you pay in then next year you will pay in a little more. If it is a credit there will be a new column for it in next years paperwork. Just like there was one this year for those who only got half or none of last years stimulus.

Oh well that's fine with me. I always overpay and get a refund. I don't mind taking more of my money now rather than next year. I just don't like the idea of passing a 780 billion dollar stimulus that only gives breaks to those who have put themselves in a situation where they consume more than they produce.

Sagarin wrote:

Cash is the only position, unless you are short. The market multiple is still way too high given the confluence of events, including a further erosion in earnings and a president and Congress who utterly fail to realize that US paper is sub-prime and the country is going to suffer the same fate as Pelosi's California. We needed to elect a real fiscal conservative in the wake of Bush, not a redistributionist, economically illiterate, huge spending liberal. Of course, the market is and will continue to poignantly let you know this.

Sagarin, I've followed your posts quite a lot on the economy, along with Flagpole's. (It seems like you guys are almost polar opposites in your views of investing!) My problem is that I'm about seven years from retirement, have seen my portfolio drop about 35%, and wondering if I should sell and go to cash, to at least preserve what I have left. Flagpole, my broker, and conventional wisdom say that is foolish. I'm just concerned about getting wiped out. I have $700K equity (approx.) left in pretty solid real-estate and $250K in cash equivalents. No question, though, my investment portfolio is very important part of the overall retirement picture. When I hear people say to be short in the market, it strikes me as being somewhat negative, almost unpatriotic!! Short-selling, in my limited knowledge of the market, just seems to push the market lower, further delaying a meaningful recovery. I think all of us, with the exception of the bears, want a recovery at some point. I know you do not like to give investment advice, but is it stupid to keep a portfolio of MF's, ETF's, corp. bonds in this market with a 5-10 year window to retirement? When do YOU see recovery coming? Thanks.

Anyone and everyone who invests in U.S. stocks. Not trying to be too negative, but you should realize this is what you are investing in.

http://www.letsrun.com/forum/flat_read.php?thread=2909666

I would pull it all out now. While I can't give you an explanation like the rest of them, the market is not getting better soon and will continue to fall. Might as well put it in something that has a guaranteed return. Thats what I have done.

(Disclosure: I am only 21)

First of all, I am a trader exclusively, so my investment horizon is much different from your own. Secondly, Flagpole and I are not polar opposites. His 20-year time frame is really no different from my own. And his generic advice is probably useful for a novice or a 20-year old just starting out. What I have a problem with is when he implies it is ALWAYS a great time to buy, always with a caveat of course, and touts this week's assortment of economic data and dialogue from financial pundits, as well as his own "insights" into the global economy, as though he is an economist and does his own econometric modeling. Most of the opinions emanating from financial pundits are generic, yesterday's news, already discounted by the market well in advance, and not really meaningful.

My point is that there are some major structural dislocations going on, global deleveraging will prove to be a prolonged process, and there is a very real risk that Obama may just not be the panacea those on here who promise a DURABLE, SUSTAINED, MEANINGFUL recovery by 2010 or 2011 or 2012 think he is. Yes, we should post positive growth in there at some point, albeit potentially anemic, with a good chance of severely stagnating after the experts on here will sound the all's clear signal. I see this spending binge crimping growth for years to come. And the risk is that it happens at the very time that global economies and the demand for oil gain traction. Personally, my time frame is no longer than the next 5-7 years, and I see a high probability of a multi-year stagnation. What exactly do we think we are reflating into this time around?

You need to make your own decisions and evaluate your risk tolerance. It sounds like you are already pretty defensively positioned anyway. Many think the market is painfully cheap. And several technicians see the market in a bottoming process. With my 5-7 year horizon, I am not one of them, not yet. But, with your time frame, you should have lowish exposure to equities anyhow (you should always have some) and it sounds like you have some diversification by asset class at least. I'm sorry, I cannot, WILL NOT give investment advice. I don't really think Flagpole should be either. As I said before, the economy is complex, and it's all about probabilities. I just have no confidence in our "experts" and officials, and without that, I can't be bullish, not now anyway.

Old School Steve,

You're in a tough spot -- decently close to retirement yet with enough stocks still for this downturn to be hurtful. There is no question that NO ONE here can give you information that will soothe your worries -- I know I can't, and anyone who says they know for sure if you should stay in or get out now if just full of it.

Based on what others are saying though (specifically Jeremy Grantham and Warren Buffett), I'll tell you what I would do in your situation...first of all let's make sure I'm correct about your situation:

1) You have $700,000 in equity in real estate.

2) You have $250,000 in cash.

3) You have more money then also in stocks?

4) You will be at least 62 in 7 years?

If the above is correct and it were ME about to retire in 7 years, I would do the following:

1) Be grateful for the equity and consider selling it all when closer to retirement and using the proceeds to help fund retirement IF my other stuff continued to do horribly -- it IS a bit of a safety net. You could always buy a $200,000 small house or condo or something and bank the difference - I'd probably do that.

2) Keep that $250,000 in cash for now -- maybe at least put it in CDs or an MMA so it would gain some.

3) Keep my stocks where they are, but all future purchases would be bonds (since you're so close to retirement and stocks are sketchy now).

4) I would NOT sell those stocks.

Here's your situation (conservative):

1) In 7 years your $250,000 at 2% interest per year turns into $281,540.60 (this is if in a CD or MMA that brings 2% annually).

2) You continue buying bonds at 2% interest per year for 7 years. I'll assume $20,500 each year (even though at age 50 you could do more or if you have a wife that also has an IRA you could do more). That brings $155,450.86. A bigger percentage would bring more money.

3) Assume you sell your real estate and buy $200,000 worth of house so that you have $450,000 (leaving some out for commissions and moving costs) remaining in cash.

Let's add that all up:

$281,540.60

$155,450.86

$450,000.00

EQUALS - $886,991.46

Take 4% of that each year to the tune of $35,479.65. If you are 62 or older you can get Social Security too to the tune of at least another $18,000 or about $27,000 if you're married. Now we're up to $62479.65 (if you're married -- $9,000 less if not). And we've not even included the stocks you're so worried about (unless I've got this wrong about what you have).

If the stocks are still doing poorly then just let them lie there (unless you have several hundred thousand dollars -- then consider making them into more conservative investments and cutting your losses then).

So, if I've got your situation correctly, you should be debt free and living in a paid for house and making a little more than $62,000 a year even if any stocks you have now go to nothing.

Since Grantham is very bullish on the market in the next 5-7 years, there's a good chance your stocks will rebound at least a little and give you even more income.

Anyway, you've gotta go with what you think is best -- it's your money. I hope it all works out for you.

Old School Steve wrote:

Flagpole, my broker, and conventional wisdom say that is foolish. I'm just concerned about getting wiped out.

That's because your broker wants the rest of your money, or 8% of it or whatever. He doesn't care that you get wiped out as long as he keeps getting a ride from you all the way down.

Conventional wisdom says the market is going down, down, down, because the bankers who are running things keep stealing from us and giving to themselves. They own the IMF, Fed, IRS, and nothing's going to get any better until people wake up. Flag has nothing constructive to offer. In the sake of sanity I don't read anything that he says.

My feeling is that anyone who doesn't manage their own account and consistently getting gains week after week, is much better off putting everything in a 5% cd at a local credit union. Or put 80% there, 20% in a self directed account, and be very conservative while learning how to get better than 5% and no losses, every week, week after week. Keep in mind the market is a net zero sum gain, which means you are competing with everyone else.

Also, the market and economy is failing because the ones in charge of things are stealing from us and giving to themselves. Shorting of stocks has nothing to do with this, and in fact is good and is beneficial to the market.

The only thing you said in there that is correct is that shorting stocks is beneficial to the market. This is correct. This is how the market holds value in a bad time. The rest of what you said is bunk. What broker takes 8% of your investment? I don't know of any CDs you can get today at 5% return. Overnight averages from bankrate.com show the best is a 5-year CD at 2.68%. Probably can get a little better than that somewhere, but not 5% -- not today, and not for the long haul.

People selling their stuff now, unless you have way more than you need anyway, are just silly to do so. It's what they call "herd mentality". Sell now, and you've guaranteed yourself a loss. Trust me, before 5 years is up, I will tell you all that I told you so, and no, I won't believe you when you tell me you got out at 14,100 and back in at 6,300 (or whatever it bottoms out at). And J.R. you read this post of mine...just so you know that I know the truth.

Sagarin, thanks for your input. Being a trader, I guess your perspective is quite a bit different from mine. I respect your decision not to give specific investment advice. Very hard to do, especially on an anonymous internet message board! I have read enough of your posts on the economy (and running) to assume that you know your stuff. I forgot to mention that my shrinking portfolio still kicks out about $30,000/year in dividends, and now that yield looks fantastic. My broker always reminds me of this; let's hope I still get them!! We have about 7 years left of income flow, so we will probably keep the mutual funds, ETF's, corp bonds in place and put our savings into muni's or CDs. That should give us a better balance. My wife and I will have about $3,000/mo. at retirement between SS and her meager pension. Our plan is to sell our real-estate and down-size, also. Our very, very comfortable retirement now just looks only somewhat comfortable. Thanks for your opinion on the future of the market; I agree, we're dealing with a lot of probability here.

GE slashes dividend...film at 11.

Old School Steve,

I'm sure Sagarin will agree with me on the following, but while big KUDOS go to you for the big dividends (and kudos for mentioning them -- too many forget about them at all), if the market doesn't turn around soon, those will get slashed too, so keep a close eye on those. GE just cut theirs down to 10 cents today.

I think you'll end up better in 7 years than it seems to you now (Sagarin may disagree with that part).

In any event, good luck (Sagarin is now back on board in agreement).

Steve, to be fair, I am not hording guns, ammo, iodine, and canned tuna, not yet anyway, though it's never a bad idea to have the back burner on. Nor do I believe the world is coming to an end on Dec 21, 2012, though there may be some major transformational shifts. Nor am I a perma-bear. I used to do this for a living (market strategy), but now I just do my own thing. If you have properly positioned yourself to begin with, you should make out ok. No guarantees for anyone of course. I still see risk out there and that's why I won't commit short-term money. I'm sure I will get bullish again at some point, but the structural undercurrents are not what they were in the early 80s or the early 90s or the early 00s.

Dur, so Flagpole you're saying I should not sell my shares in stock I bought in 2005?

I bought at 9000, stock market at 7000.

Is it good advice to stay in? Will it go up or should I sell now and buy back in lower saving myself the 20% erosion in my personal wealth...Flagpole please help.

Thanks you.

retard Peeps wrote:

Dur, so Flagpole you're saying I should not sell my shares in stock I bought in 2005?

I bought at 9000, stock market at 7000.

Is it good advice to stay in? Will it go up or should I sell now and buy back in lower saving myself the 20% erosion in my personal wealth...Flagpole please help.

Thanks you.

Depends on lots of things. How close to retirement are you? Are you hurt badly if you sell now? Do you NEED that money now for anything? Aren't you in this for the long term?

In all but really extreme cases, IF IT WERE ME who bought in at 9,000, I would NOT sell now at 7,000. Have you been buying since it was at 9,000? If so your average purchase is at a DOW less than 9,000, so you only need to get up to whatever the average is in order to break even during this bad time.

It REALLY is as simple as you haven't lost until you sell. Of course it could get to a point that depending on when you NEED to sell that you can't make up the lost value, but if you've got a long horizon, selling now is a bad idea in my opinion.

Now, if you put $30 million dollars in the market at 9,000 and just want to get out with a 23.3% loss, then go ahead if you want -- that's a lot of value lost, but if you don't need that extra then so what?

If though, you're a typical investor who put in a few tens of thousands or less, then IF I WERE YOU, I'd stay in until the market goes up again, because it will. I don't pretend to be anyone's savior though -- I just tell you what I would do. Being consistently in and making a big purchase every now and then has served me very well,and I believe long term it will continue to.

what happens if the Dow goes to 3000?

Flagpole, thanks for your input. I value your opinion, Sagarin's and a few others on LR, even though I shudder to take advice from the internet. However, even the professional financial "experts" seem to be clue-less, and you guys are a lot cheaper. (I guess I value your advice because you seem to remain positive about the economy at a time when it is very hard to be positive.) I've lived through several recessions of various degrees, but this one is scary, and our "window" of time is relatively small.

I forgot to say earlier that my portfolio does generate substantial amounts in dividends, that have held up even though the overall value has shrunk. (We will need those dividends more when we actually retire, but they're still nice to get now.) My broker always points this out, even as the value shrinks monthly. I will be putting our savings going forward into cash-type investments, or perhaps muni's to get the stock/cash balance more in line with our retirement in a few years. We will leave the current portfolio pretty much intact and hope that it recovers somewhat in the next 7 years or so. My broker says that the funds that are in there should bounce back nicely, " at some point". Hopefully it will keep kicking out those nice dividends. (We may tweek the portfolio to get more dividends than we currently are.) I haven't sold anything out of the portfolio, so my losses are still "paper losses". Social Security should be about $3,000 combined, plus my wife's pension will help. Selling our real-estate and down-sizing will probably give us a decent retirement. Thanks for your advice.....pretty much what we would be doing, but good to hear.

My wife and I are a few years behind you. We are both professionals and still generating excellent cash flow, but right now we are on the sidelines with new cash except to the extent we can find good GO munis. They are an excellent investment right now if you have a long term retirement horizon, but they also are not without risk. You could reduce your stock equity positions by 15% or so and watch for a better re-entry point, which may come. You also should look hard at your dividend stocks, reinvesting all dividends. dump any remaining financials, and make sure the cash position of the remaining income producing companies not only is strong, but that they will not use the cash for acquisition purposes in this environment. For the remainder of your equity position, I would hang on and not capitulate unless you cannot afford retirement without the existing value of your stock equity portfolio, but it is going to be gut wrenching for the foreseeable future.

Sponge, thanks for the advice on the GO munis. I think munis of various sorts will be one of our objectives for the next several years. We will be very cautious about buying anymore stocks, as we have a pretty good selection now. Any new stocks purchased would be ones with good dividends and good balance sheets to ensure dividends down the road. Yes, gut wrenching would descibe it pretty well!Good luck to you.