Nervously eyeing the markets

I noticed few had posted in the last 24 hours: is that because everybody's nervously eyeing the markets? I'll admit it's absorbed some of our internet time, recently, wondering if we should do some defensive selling to preserve gains, and principal.

The market crash of 2008 has changed many people's perception as to what's best- in the effort to preserve a retirement nest egg- with "buy and hold" probably less popular now than it was before, especially after it was tested in 2000-2001, as well, "twice burned" and all that....

 

My experience with the markets is that if you find yourself with market jitters it's a sign that you aren't invested in a way that matches the risk level you are comfortable with.

And it's best to adjust your risk levels when the market is calm, not jumping around.

 

Platitudes.

 

Most people I know are down 40% to 50% from their market highs of a few years ago. For most, the only option is to "stick it out" as if you pull out now, you lock in the losses.

If you do pull out where can you put it? Interest bearing accounts aren't even paying enough to keep up with inflation right now. Currency markets are too unstable.. and its not exactly the best time to invest in a small business or real estate IMHO & dont even think about gold...

As always it depends on how you are vested and what levels you're at, if you're not far from your highs you may want to pull back and put some money "under the mattress", if your heavy into "high risk" markets, you might want to reorganize, but for most folks who aren't day-traders and have managed accounts, I think the old wisdom is best. (aka:think long term, 50/50 bonds stocks). Besides, moving around too much results in painful fees and penalties with most plans.

 

That's entirely possible, Life, if they left their money in the markets, or are locked into investments which they cannot liquidate without prohibitive penalties.

I understand the emotions involved when you sell for a loss. But, in just one recent decade there were two dramatic and protracted market moves downward which offered a long period in which to respond by going to cash, then waiting for a time when it was clear the markets were recovering to buy back in. To my mind, there is no virtue in riding a market down, when it's not necessary to do so.

I always like to see gains reported on my tax return, and see having a tax bill as a sign things are going according to plan. I've never thought there was much of any reason to invest other than to make money, and these two major moves offered a significant opportunity to do that. The last, especially, was like a slow motion train wreck. Long before it impacted the stock markets, media were full of predictions from analysts that a big shock was coming, and it did, late 2008.

We, like others, are stuck with some investments that are structured to make it unappealing to liquidate, but no longer see those as optimal, tax savings on investments with little or no gain being meaningless.

We bought into this recovery after it was clearly established. But, for at least the last three months, commentators have been suggesting that all asset classes (except homes, perhaps) were overbought, and that a rollback was coming. There are indications that that process may have started.

Without naming names, there are some equities we prefer to own: in a downturn which is prolonged, we are given the opportunity to sell them, only to buy them back, later, at a lower basis, at a time when its clear markets are recovering. The difference represents a potential future capital gain and has the potential of putting us ahead of where we would have been had we not sold. Plus, I consider it an advantage to have a capital loss to use at an appropriate time, in the future, to reduce taxes owed on any future gains. Selling, when markets turn down- only to buy back in, later, when markets are recovering- makes sense to me from both these two standpoints, and is an approach we've applied to investing for a number of years. Because we don't know how deep, or how long, a pullback will be, we don't feel free to liquidate, completely, but will do so, in stages, if the markets continue to decline; hence, my interest in whether this small, recent downturn will result in a significant change in values which could be taken advantage of.
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I distinguish what I'm talking about by paying no attention to market chop, or mere fluctuations, but paying attention to what become markets trending downward, or upward. There is no attempt to guess at tops, or bottoms, in an effort to maximize the gain- something I consider, as many do, impossible.

Steve, it makes no difference, really, if money you have invested is money you could "afford to lose", as losing it will make you poorer than you would have been if it didn't happen.

To me, it only makes sense to invest if you intend to make money doing it: to accept that you may incur a long term loss, and die poorer, strikes me as more likely to guarantee that result. I suspect you didn't really intend for that statement to be taken quite so literally as I took it!

 

What is catching my attention, now, is not how far the market has pulled back at this point, which is only about 5%, but how it refuses to respond to good economic news, when there is some. That makes me think there's been a change in sentiment among investors: they may, as a group, feel the market is headed down, something that constitutes one of those self-fulfilling prophecies, at times. I had thought if the DOW broke below 10,200 that I should start paying attention: it's done that, now, and a little more.

 

Having talked about the possibility for several months, investors now seem to be buying into the idea that there is a real risk the U.S. may, without further stimulus to the economy, slip into another recession. That, coupled with poor results in the sale of sovereign bonds today- carrying with it the risk that some governments will no longer be able to finance their growing debt- has provoked a sell off. In the U.S., only the closing bell prevented the DOW from slipping below 10,000 today.

A pattern similar to what we saw in the waning days of 2008, when the selling of all investment categories brought their value down and the value of the dollar up- when those sums were moved into U.S. Treasuries- seems to be just emerging.

Going to cash, by stages, such as I discussed earlier, could position an individual investor to both preserve his capital, and to buy back in at a lower basis, should this prove to be the beginning of a long-anticipated, significant correction.

 

Except that the US dollar is at high risk of sudden devaluation with our

$12,354,041,054,846.90 :flagusa:
(and counting) worth of national DEBT . As the dollar goes most other currencies go with it, diversifying will only provide limited protection.

I wont mention how irritated I was when I heard how large the 2010 US fiscal budget will be.

 

Let's pretend

I know what you mean, Life. The meaning of money has reached whole new levels of abstraction from anything of real value.

The U.S. has been running on fumes for years, borrowing enormous amounts of money to make up for the shortfall between what was spent and what was collected in taxes but, last year, when the U.S. was no longer able to borrow enough money from all sources to make up for the shortfall in taxes collected, and the Treasury started "loaning money" it didn't have by simply printing more money, a whole new territory of make believe was entered.

The EU is clucking with dissatisfaction at this disorderly house; and, China has signaled that they are withdrawing from their role of funding the Federal Budget; but, at least in the short run, it seems the dollar will strengthen, anyway, and the budget will get funded more easily, by investors closing out positions, and buying Treasuries, if this correction turns out to be for real.