This is a follow-up to my posting from last May called “Technical Analysis and Trend Following” where I compared the S&P 500’s decline from 2001-2003 to the movement from April 2006 to May 2008. It was a thinly-veiled jab at those who were predicting a resumption of the bull market based upon a recent uptick in the market. I showed that there was an uptick in April 2001:
and anyone who bought at that time lost big as the index went from about 1300 in April 2001 down to 850 in 2003:
Then I showed a chart that looked similar to the first chart, but this time one that was of the recent market from April 2006 to May 2008:
This was a time when stock market pundits like Cramer and most of the talking heads on CNBC were saying the market was set to go much higher. Others who didn’t get mass media attention like Nouriel Roubini, Peter Schiff, Gary North, and Ron Paul were saying we were in big trouble.
Amazing how it worked out. Chart #2 above took two years to drop from 1300 to 850. This next chart took only five months, from May 2008 to October 2008, to drop the same amount. And yes, there was an intra-day low of 839.8 on October 10th.
If I were to show a chart from February 2003 to October 2007, it will look like the north slope of Mt. Everest. Oh heck, why don’t I go ahead and show it…
Is that what the S&P 500 will look like from October 2007 to 2011? Or will it be condensed into a space of five months like the recent deline was? Or will it be different this time?
I do not know where the market will bottom out. My sense of it is that the market will trade violently around the current level for the next few months, bouncing along this bottom. As earnings report come in lower, the P/E ratio of the market will adjust accordingly. I think there is more widespread bearishness today compared to May. But I think there are still a lot of bulls trying to buy the bottom. There is an epic battle between the bulls and bears which will continue until we see the light at the end of the economic crisis tunnel.
Meanwhile, I’m taking a look at dividend focused funds and will report on show 133.
Wed, October 15 2008 » Analysis, Blog, Predictions » Comments Off on Two Years of Decline Packed Into Five Months
Japanese banks. Trillions lost. Jim Rogers and Peter Schiff on the tsunami. George Soros. Mark Hebner’s Resilience of Capitalism. My personal investment results.
According to the Dow Jones Wilshire 5000 “wealth meter,” the bear market has destroyed some $7.4 trillion in investor wealth. That’s more than the combined annual GDPs of Japan and the U.K.
Jim Rogers on the Tsunami. Feeling now backed by fact: “In the short term, there will be widespread asset deflation and currency crisis, followed by a large-scale inflation that is the result of current government actions and decades of debt.”
Peter Schiff: “Convinced that the bailout will actually work, and that foreign governments are derelict for not launching similar plans, global investors are fleeing other currencies in favor of the dollar. Soon investors will discover that foreign politicians and central bankers have acted responsibly. When they do, the current gains seen by the dollar will reverse violently.”
Suppose your investment is down 33% year to date. What percentage gain do you need on your remaining investment to get back to where you were at the beginning of the year?
A whopping 50%!
How long would it take at an annualized return of 8% to get back to where you were at the beginning of the year? Over 5 long years… sometime in the year 2014. And of course by then the value of the dollar is expected to have decreased due to inflation.
So, suppose an after-inflation return of 3%, then how long to get back to even? Nearly 14 years. We’re talking 2022.
Ah, but I’ve introduced a fallacy in the above scenario. You see, I switched risk on you. If your investment is down 33%, then you were in the highest-risk investments. But an 8% return was historically found in lower-risk investments. More typical of a high risk investment was 14% or 15% annualized over the long term. (And perhaps especially after a previous bear market?)
So a 15% annualized gain, minus a 5% inflation, would be net 10%, for a duration of just over 4 years to get back to even.
Someone in the highest-risk investments should have at least a 12 year time horizon before they need to withdraw any of the money or rebalance into lower risk. Take the Risk Capacity Survey at ifa.com to see where you should be invested.
Wed, October 8 2008 » Analysis, Blog » Comments Off on How much gain to get back to even from here?
Today, Jim Cramer said that investors who need money within the next five years should not invest in stocks. Way to go Jimbo! You must have just taken the Risk Capacity Survey and gotten an Index Portfolio 5 or 10 for these folks. Yes indeed, if investors need money soon, either to buy a house or pay tuition, they should never, not in today’s market or in any other day’s market, invest in the stock market.
Mon, October 6 2008 » Blog, Cramer » Comments Off on Cramer Took the Risk Capacity Survey?
Karen DeCostner writes: Bush keeps repeating that this bailout, oops, I mean (forced) investment, is such a good deal for all of us on Main Street. He keeps repeating that it’s a sure thing that the tax dollars “invested” (I love the use of that word by the politicians and media) will be paid back, because this bailout will be a success. But if it’s such a sure thing that all the tax dollars “invested” will be paid back (and then some), that means it’s a good investment. So why aren’t there some private investors who are willing to take on this great investment? Why aren’t they lined up for this great opportunity? Also, how do they figure who gets paid back what? What does it mean when the robbers in Washington say we’ll be “paid back?” Will my personal “investment” be quantified, and will I get a check in the mail? What’s going to be my ROE? If my investment fails, will the government bail me out by giving back my “contribution?” It could, but they’d have to print money, which would bring higher inflation, wiping out any benefit from a Main Street bailout. But if I listen to the press, read the papers, listen to politicians on NPR, and listen to Bush, all this is supposed to be for me, because I’m on Main Street.Do people actually listen to spoken words anymore, define them, and challenge their use?
Also on last night’s Mad Money, Jim Cramer apologized for apologizing on Monday for recommending Wachovia. Confused? Apparently so is Jim. Two weeks ago he had Wachovia CEO Steel on his show. Steel talked completely positively about his bank. Cramer went along. Then when the FDIC fed Wachovia to Citigroup last week, Cramer apologized for saying nice things. Then yesterday when Wells Fargo bought Wachovia fair and square, Cramer apologized for apologizing, wearing on his chest the scarlet letter “J” which he said stood for “Jump to conclusions” or, later, “Jerk.” He removed Steel from his “Wall of Shame” and indicated that he should be up there instead.
Sat, October 4 2008 » Blog, Cramer » Comments Off on Cramer Apologizes for Apologizing
Abby, a caller into Jim Cramer’s Mad Money show last night, asked whether now is a good time to be in index funds or to get out. Jim replied that he gives one-twelfth per month into his 401(k) and his daughters’ uniform gift to minors. “I don’t sit there and say, ‘Well wait a second, should I time it right?'” He went on to say that with the recent downturn in the market, he would be adding his December allotment right now, adding, “That’s how I trade index funds… I guess it’s not trading them, I invest in them as I have been investing with index funds since 1982. OK? That’s how I do my retirement account is index funds.”
So in answer to Abby’s question, yes now is a good time to be in index funds. As is every other time she might ask the question.
If your 401(k) account does not have access to broad market, low-cost index funds, contact your employeer’s retirement department and let them know you want to invest the same way Jim Cramer does.
Sat, October 4 2008 » Blog, Cramer » Comments Off on Cramer: I Invest in Index Funds
I’ve updated the Lazy Portfolio Smackdown returns through the end of Q3. Only mudfud and Tex Williams are in the black. They both invested in short funds, surprise! Of the professional lazy portfolios, the Harry Browne Permanent Portfolio is *only* down 2.2% YTD. It invests equal parts in total US stock market, 20 year bonds, short-term treasuries, and gold. Biggest loser so far is poulinbob, down 30% with equal parts of three Vanguard funds: Growth Equity, Precious Metals and Mining, and Total International stock index. OUCH!
BTW: Some returns may be adjusted in the days to come as dividends get reinvested in some funds.
Wed, October 1 2008 » Blog » Comments Off on Lazy Portfolio Returns Updated
Did you see Jim Cramer on Mad Money yesterday? He apologized for having the CEO of Wachovia bank on his show and then recommending we buy the stock. If you bought it, you would have lost something like 80 or 90% of your investment. Check out the full story at Huffingtonpost.
Tue, September 30 2008 » Blog, Cramer » Comments Off on Cramer Apologizes for Recommending Wachovia Days Ago
Here are some good things I listened to or read today in trying to prepare for show 129 and trying to figure out how to survive if a collapse really does happen:
NPR Planet Money Podcast 9/26/2008: The Week America’s Economy Almost Died (audio program). This explains what the credit lockup means and why everyone was scared last week.
Topics in this week’s show include:
Topics in this week’s show include:
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