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Oh the fun I'm going to have with this one!
Playing It Safe Can Hurt Returns
But those "who impulsively transfer assets to more conservative funds during market slumps may hurt their ability to save enough for retirement," Ms. Hess says.
That's not what I call playing it safe. Playing it safe would be taking money out BEFORE things fall apart. Taking money out AFTER things fall apart is actually playing it risky.
Hewitt has found that most investors who flee equities "are unlikely to reallocate their investments [to stocks] when the market rebounds," she adds.
Makes sense. I fled in 2004. I have no great desire to jump back in. Ever! I'm perfectly happy in inflation protected treasury debt. Before you laugh at the insanity of investing in US debt over stocks, keep in mind that THAT debt is what is currently propping up the stock market. Without that support, watch out below.
Likewise, younger investors who abandon stocks are likely to pay a higher price than their older counterparts. Why? They are giving up more in the way of potential future appreciation, Mr. Hu says.
What's the cost of abandoning stocks right now though? Could we see a study showing the performance of those who flee every time the stock market rallies 50% in just 5 months? That would seem more like playing it safe to me, but what do I know? Unfortunately, we cannot point to a study. It's never happened before.
How about a study that shows if we should flee stocks if the price of oil doubles in just 6 months (oil was just $31 in February and it's now $71)? That also happened in late 1999 (doubled in price from February of 1999 to August of 1999). Hindsight shows that it was a great time to abandon stocks. Kudos to those who gave up on "potential future appreciation" of stocks as the price of oil was rising.
The Ultimate Sucker’s Rally...
Incredible. We have never seen a stock market rally like this in all the history for the S&P 500. In no other time has the S&P index run up nearly 50 percent in the matter of 5 months.
Indeed.
It would be one thing if earnings were flying off the charts and stocks looked cheap.
Indeed!
But one thing is certain, if earnings don’t show up and employment doesn’t start picking up we are heading back down and in a fierce way.
Indeed!!
Can the stock market rally continue?
Can the summer stock market rally that has seen investors turn almost universally bullish continue as autumn sets in?
If investors are almost universally bullish then what's not to like? Although we probably won't find new investors (since most investors would presumably already be fully invested), we should at least trade sideways as long as nobody panics. BOO! Oops, sorry about that.
However the financial world has become almost universally bullish and talk abounds of recovery, a resumption of earnings growth for companies and consumers coming out of their shells and spending again. Recently even some of the more cautious investment strategists have 'thrown in the towel' and have recommended to their clients that they now load up on risk.
Does now really seem like the best time to "load up on risk"? Is it just me or has the entire world gone insane?
If you thought stocks were risky BECAUSE they tanked 50% AND now consider stocks safe again BECAUSE they have risen 50%, then there may be a market for insanity bunkers.
I'm sealing up my insanity bunker and bracing for the worst. Well, not really. I don't live in an insanity bunker. It just seems like it for the last decade.
What's an insanity bunker you might ask? Heck if I know. I'd probably start with a large inflatable box with lots and lots of barbed wire. I could then sell them on late night TV using infomercials! Hahaha!
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
14 hours ago
7 comments:
About that insanity bunker...If I act now would you be willing to throw in a case of Spam and eighteen rolls of premium two ply?
Stag,
Almost every single main stream stock market article reads the same.
Here's the format. A few random, meaningless data points. A few anecdotal observations by "experts". And the same CONclusion - stocks are a good long term investment.
Why don't they ever talk about valuations in the context of both inflation and debt levels? Or even in the CONtext of the fed's free money policies. I'd say 99% of the financial services industry is ignorant (some willfully so) and the remaining 1% is crooked.
Pushing stocks (during the tech mania) based on projections of 10% annual returns when the the S&P 500 was yielding < 1.5% and inflation was ~ 2.5% was criminal. The same as pushing debt that can't be repaid in order to secure a huge bonus.
The forward annual yield on the S&P 500 is 2.1%. Add on the ~ 2% inflation projected by the TIPS market plus some real growth (if we're lucky) and a 4%-6% return is a reasonable expected long term return from these valuations. Of course if people new this, stocks would immediatedly crash. Then again, this time could be different as the fed is...how should I put this... taking some highly unusual actions.
It's Sham City.
watchtower,
"About that insanity bunker...If I act now would you be willing to throw in a case of Spam and eighteen rolls of premium two ply?"
I could do that! There's no real point to negotiate the actual price of the insanity bunker though. I will be offering 0% teaser rates on the loan. That should bring your initial monthly payments down to $0.
On the other hand, I could use a partner. I'm thinking of making an insanity watchtower to look over my insanity bunker.
Let's see. The bunker is inflatable and has lots of sharp items. In order to do the tower justice I suggest we paint all the windows black (if we can't see THEM, then THEY can't see us) and place a giant anti-stealth 100 megawatt beacon on top of it to lure in those who may wish to cause us harm. Nobody would be expecting that!
In a world gone insane, one must think like an insane person to blend in. That's the thinking anyway.
mab,
"Of course if people new this, stocks would immediatedly crash. Then again, this time could be different as the fed is...how should I put this... taking some highly unusual actions."
I debated someone over on the TIPS board who thought stocks should do well during hyperinflation. People have this strange idea that companies don't feel the EXACT same pain that people do when the you know what hits the fan.
Rising oil prices? Bad for people. Bad for companies.
Massive unemployment? Bad for people. Bad for companies.
Massive tax increases? Bad for people. Bad for companies.
People = Companies
Hyperinflation would cause pain to all. Few businesses could survive it. I'm picturing restaurants in particular. Not only would customers stop coming, but they'd be forced to dedicate one employee to alter the pricing on the menus every 15 minutes. Let's see. We sold burgers for $100 at 12:15pm, but now we need to sell them at $110 since it is 12:30pm. How is THAT extra wasted labor going to help make a business profitable?
So yeah, stocks will rise in nominal value during a severe inflation, but I would strongly argue that they will fall if adjusted for inflation (just like they did in the 1970s).
Meanwhile, TIPS will rise adjusted for inflation by definition. The more they rise, the worse off I'll be though. I had this to say.
"Don't even get me started on Zimbabwe's recent 89.7 sextillion percent inflation. While it might be amusing to earn 89.7 sextillion percent on my TIPS investment, I can assure you that my amusement would be tempered by extreme fear and loathing. I wouldn't need experts to tell me that I was being financially ruined. As I've shown above, a mere 100% inflation rate could easily do that."
The taxes on the inflationary gains would ruin me in no time. Earning 89.7 sextillion percent on my investments would certainly put me in a high tax bracket.
I'm in!
Mark and all,
I saw a guy on CNBC this morning around 5am (cannot remember his name, I was barely awake) buth his unifying thesis for a huge recovery:
-manufacturing will have to ramp up to replace inventories
-this will somehow prompt the consumer to spend more on those inventories
-instant recovery! V shaped!
Sadly he misses the fact that the US does not manufacture anything anymore, do not want to buy newly made crap, nobody has a job. Still, he seemed very confident!
GYSC,
"Still, he seemed very confident!"
Maybe it's just a confidence game!
(also known as a bunko, con, flim flam, gaffle, grift, hustle, scam, scheme, or swindle)
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