Budget crisis V. The Dow

Started by MushCreek, July 26, 2011, 07:23:51 AM

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MushCreek

Since we seem to have some financial experts here, I'm curious what you think the market (specifically the Dow) will do in the next week or so. Our 401K has some money in the Dow right now, and I'm thinking about moving it until this so-called 'crisis' is resolved. It's just a click of the mouse to put it in something safer, and I'm worried about how Wall Street will handle the fall-out should this thing drag on. Any thoughts?
Jay

I'm not poor- I'm financially underpowered.

archimedes

It's hard to imagine a positive outcome.

If they do nothing it could be a catastrophe,  completely rattling the world economy. 

If they come to an agreement,  it will probably be bad.   

Putting aside the merits of budget cutting plans,  a dramatic reduction of federal spending,  at least initially,  will raise unemployment and reduce economic activity (GDP).  So we're left with bad choices and worse choices.

I went to cash on Friday.
Give me a place to stand and a lever long enough,  and I will move the world.


h0rizon

Depends.  Are you planning on touching your 401k anytime soon?

During the 2008 downturn my 401k took a massive dump.  I kept all my existing investments and continued to invest at the same rates into the stocks - basically dollar-cost averaging with my normal contributions/matches.

Then 2009/2010 rally took place and I saw quarterly returns of 25%.  I recovered all I had in it before, plus upwards of 25-50% on the money invested during the downturn.  I am quite pleased with that outcome.

Point is, I held steady and leveraged the downturn to my advantage.  But I also have 40 years to go until retirement so my risk tolerance is high.

The short-term repercussions of the budget deficit, regardless of decision, could very well be negative for quite some time (which is my projection).  Should they actually manage to find a workable budget for the longer-term, you could easily see corporate confidence return, hiring pick up, the deficit problem shrink further and the economy pick up steam.

Stocks = legalized gambling.  You just never know. 
"Never give in. Never give in. Never, never, never, never – in nothing, great or small, large or petty – never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy

archimedes

Quote from: h0rizon on July 26, 2011, 12:19:52 PM
Stocks = legalized gambling.  You just never know. 

Cheers to that.   d*
Give me a place to stand and a lever long enough,  and I will move the world.

MushCreek

My wife and I are on either side of 60, so it's a relatively short-term investment at this point. I was thinking to get out right now, and wait to see what happens in the next month or so. We bailed out similarly the last time it dumped, and we got back in at a good time. We're running out of years to take a really big hit.
Jay

I'm not poor- I'm financially underpowered.


h0rizon

At your age, you should be invested alot more in bonds and such.  That said, bonds could very well take a dip with this debt ceiling, especially if the ratings go down (although, yields could go up due to the lesser credit rating....).

For you, I'd say that is a tough call.  You should aim to be risk-adverse, so ask yourself how much of the retirement fund you can stand to lose if it disappeared tomorrow.  If you could lose 20% and be fine, then maybe that's how much you should have invested in riskier assets. (Obviously it's more complicated than that, but hopefully that will help).

Just my 2 cents, don't bet your livelyhood based on one guy's recommendation  8)
"Never give in. Never give in. Never, never, never, never – in nothing, great or small, large or petty – never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy

MushCreek

We had a pretty good chunk in a Dow- based fund, but moved it yesterday. I see the Dow went down another 200 today- I think folks are starting to wake up to the fact that these clowns in DC just may ride us into a further recession- or depression.
Jay

I'm not poor- I'm financially underpowered.

muldoon

whats the problem?  I continue to do well in the market. 

Of course I only have two positions in this casino, a long term set of puts on LPS from March (up 400%) and a more recent set of puts on NFLX.  (up 250%).  I'm planning to keep both open thru September. 

It's not about investing, it's legalized gambling.  Find the pattern, play small, and enjoy the free ATM when it works, mentally prepare for what happens when it doesnt work.  Just like any casino.  Frankly in my opinion, if your investing in this market, you've lost your mind.  The average (70%) of positions traded in exchanges lasts 11 seconds, it's all computers trading with computers.  If you want to "invest", invest in yourself, your family, your house, your skills.  If you want to gamble, well good luck. 

disclosure - I emptied my 401k in 2007 after the bond market crisis in February that no one except financial tradefloors saw.  I sunk my funds into metals and land (my place that I sometimes get to write about here).  I sold my metals in 2008 and remained tangible asset focused.  I keep a 4 figure "casino" account open, and make 3-10 trades a year ..  2008 was fantastic to me, 2009-2010 not as much, 2011 has been good.  But I can lose 100% of that and still sleep well at night.  Any significant gains go to 1) asset 2) debt reduction 3) productive improvements with eventual cash return or equitable increase.  (water, pastures, fences, etc). 

I am 35, I have a long way to go to "retirement" but I have little desire for risk.  I do however have desire to take advantage of stupid moves by stupid people who failed 3rd grade math. 

not a financial advisor, if you listen to me you likely will lose money. 

firefox

After reading a lot of your posts Mouldoon, you sound  like
you have your head screwed on tight.
Bruce
Bruce & Robbie
MVPA 23824


MushCreek

We will be investing some of our money into the house I'm getting ready to build. My wife is old enough (don't tell her I said so) to draw from her 401K without penalty. We'll wait til Jan. 1, as I won't be earning an income in 2012, so the tax hit will be less. We have enough money to move ahead full speed with the build until then. I used to think that drawing from your 401K for anything other than retirement was a bad idea, but now I believe having a debt-free roof over your head might be worth more.....
Jay

I'm not poor- I'm financially underpowered.

h0rizon

Sound advice Muldoon.  Invest in your land (so you can feed yourself) and yourself (so you can weather downturns) and you should do just fine.

I may tap my 401k via loan to help pay for the land if possible.  3.5% rate and I get the interest I pay vs 6% and the bank gets it.
"Never give in. Never give in. Never, never, never, never – in nothing, great or small, large or petty – never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy

Sassy

Retirement day July 31, 2011  c*  We're thinking of taking everything out, pay off debts & live a little less stressed...  Glenn is getting pretty burned out on this job, although we're thankful that he has it & the steel company people he's working for are great.

I keep kicking myself for not having reinvested in stocks when the market started going back up - I took all my money out right before the downturn & put it in US treasury bonds.  Was going to retire last year, but stayed on until I turned, ah, the age where you don't have to pay a penalty  ;)  (I'm 2 wks younger than Glenn).  

Everyone I've talked to has said I did the right thing...  the way the economy looked & all those bailouts & the markets dumping big-time...  oh well, win a few, lose a few...  

I'm afraid to leave the money in the "Thrift Plan" Federal workers have...  like Muldoon, would rather have tangibles than all that funny money  [waiting]  But the taxes are going to be pretty steep...

http://glennkathystroglodytecabin.blogspot.com/

You will know the truth & the truth will set you free

MountainDon

Quote from: Sassy on July 29, 2011, 07:43:21 PM
Retirement day July 31, 2011  c*  

Retirement? Yours? As in no more punching a clock? Wow, what a day!!   :) :) :)

I'm still in the semi retired stage, still 65, but more retired than not.   :)  Last year (school year Aug thru May) we worked Tues thru Fri, 9 - 3:30. This year Tues thru Fri, 9 to 12 Noon. Half the time = half the income, but also no employees now, so we save on those expenses. Uh-oh. Sorry I guess that doesn't help the economy.  :( 

No assets in stocks right now. And by some strange quirk the bonds all matured this week; cash in the bank looking for a new home. ???

Just because something has been done and has not failed, doesn't mean it is good design.

Windpower


The congress critters are still thinking about how to 'help' us with our 401K's

turn them into 'managed pay out plans' (for our own benefit of course)

I think we will convert a major portion of the 401k into the farm house remodel and other tangibles before inflation or the government get their hands on it

one more year to social security for me (I hope)
Often, our ignorance is not as great as our reluctance to act on what we know.


hurricane

It is a flip of the coin.
The first time we had to make this decision, we got out and the market went up.
The second time we had to make this decision, we decided to stay in because of our previous overreaction, and we rode it almost to the bottom.
No one knows what will happen.
Generally, you should just do the opposite of what we do.

Sassy

Quote from: hurricane on August 02, 2011, 12:39:14 PM
It is a flip of the coin.
The first time we had to make this decision, we got out and the market went up.
The second time we had to make this decision, we decided to stay in because of our previous overreaction, and we rode it almost to the bottom.
No one knows what will happen.
Generally, you should just do the opposite of what we do.

That sounds about like me  d*  I did get out of stocks before the big downturn a couple years ago (3yrs  ??? ) but should have gotten back in - could have had almost twice in the Thrift Savings Plan than what I have...  oh well, win some, lose some - I was too close to retirement to want to take the chance.  

Another reason I wanted to retire besides my body just can't take the long hours in ER, is I want control of that money...  as soon as I can, I will take it all out - even w/a big tax hit.  Better than watching it whittle away from inflation or the many tics in congress/senate deciding to do something w/it for my own good  >:(  

I won't be entirely retired...  will sign up w/a nursing registry to do home health if I can avoid a lot of lifting etc.  Plus there is always lots of work around the Underground Complex...  especially w/Glenn being gone a lot.  

It's hard to say what the international bankers/international corporations/hedge fund owners/many tics/you name it have plans for...
http://glennkathystroglodytecabin.blogspot.com/

You will know the truth & the truth will set you free

MushCreek

Well, I see the Dow is responding favorably to the budget deal- NOT! I keep reading that the recession 'ended' in June of 2009, over two years ago, but I'm not seeing it.
Jay

I'm not poor- I'm financially underpowered.

h0rizon

I keep reading that the recession 'ended' in June of 2009, over two years ago, but I'm not seeing it

Now they are saying a 30-50% chance of a 'double-dip'. 

This is just amazing.  One part bad budgeting/greediness, 2 parts FUD (Fear, Uncertainty, Doubt) and you have a self-feeding, self-sustaining  downward spiral. 

I wonder how much further till we hit 'bottom'.  Several more years I think.
"Never give in. Never give in. Never, never, never, never – in nothing, great or small, large or petty – never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy

peternap

Quote from: h0rizon on August 03, 2011, 12:01:51 PM


I wonder how much further till we hit 'bottom'.  Several more years I think.

The real question is, the bottom of what?
John's "Muddle Through", my "Melt Down" or Glenn's "End of the World"? ???
These here is God's finest scupturings! And there ain't no laws for the brave ones! And there ain't no asylums for the crazy ones! And there ain't no churches, except for this right here!



John Raabe

Here's the shape of the record drop of '87



Here's the more recent five year period including today's 4.3% drop.



Not very promising. A good outcome would be to drop another 5-8% over the next few months and then start a three year slog back.

None of us are as smart as all of us.

OlJarhead

Watching the DOW is really silly actually.

Consider this:  after the last major crash two major players were removed from the mixed bag and replaced with players that would perform better.

Thus, the DOW figures, if you put the group back together would not be the same as you see today.  Put GM back in there and CITI and see what happens.  Also, perhaps, put all the rest back in.

Fact is the DOW is manipulated so that it will tend to trend favorably no matter what.

As for the markets, I'm no guru but I was not surprised to see the drop after the deal was signed.  Frankly I think investors didn't believe they would do it, but when they did panicked and jumped ship....of course, strangely they jumped over to Treasuries more then commodities I guess -- which always baffles me.

We just raised our debt limit by more then the GDP of Russia or Canada and by 1/3rd of China's....where, exactly, are we going to borrow 1/3rd of ALL of China's wealth in the next year and a half?  From the printing press me thinks.

Think Weimar is what I'm saying.

I'll leave you with this:  http://surfingthenewnormal.wordpress.com/2011/03/09/hyperinflation-case-study-1-weimar-republic/

muldoon

nice action today, it was just crazy tho.  I saw a 72:1 down volume tick at one point.  Crazy crazy, I don't think it was ever that heated in 2008.  I exited my netflix puts with a nice return.  Might be too soon, but no one ever went broke taking a profit. 

The market structure is soo jacked here I tend to expect a rip your face off rally or an outright crash.  My bet is short term reversal with some green days tomorrow or next week; longer term, lower highs and lower lows trending down. 

MushCreek

Yeep! I think I'm out of the Dow fund for the foreseeable future. We're going to draw some of that money out in January for our house anyway.
Jay

I'm not poor- I'm financially underpowered.

Native_NM

Dollar-cost averaging, boys....think long-term. 

I never try and time the market.  I max out the 401(k) regardless of the market conditions.  The only timing technique I have used is to try and add more to the IRA when the market is lower. 
New Mexico.  Better than regular Mexico.