Nervously eyeing the markets

[V]

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....

[RiverGirl]

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.

[V]

Platitudes.

[Life_N_Cancun]

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.

[Steve]

I've invested quite heavily since August when I finally managed to set up a UK trading account when I was back home last (needs signatures etc).

The FTSE has been down almost every day this week, but I''m not too worried I only invest in UK Blue Chips that have multiple buy recommendations and keep the bulk of my savings in safer guaranteed return investments. Though my shares have gone down recently I intend to keep them for years and years so a weeks turmoil is no big deal considering it's a longer term investment and money I could afford to lose, though obviously don't want to.

[V]

Most people I know are down 40% to 50% from their market highs of a few years ago.

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.

For most, the only option is to "stick it out" as if you pull out now, you lock in the losses.

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!

[V]

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.

[V]

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.

[Life_N_Cancun]

Originally Posted by V

Going to cash, by stages, such as I discussed earlier, could position an individual investor to... preserve his capital

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

$12,354,041,054,846.90
(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.

[V]

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.

[Life_N_Cancun]

I figure we'll have to start handing over land at some point to satisfy our creditors.... (ie: Alaska)

The history buffs, will remember that during WWII Germany started printing currency to make up for war spending.. which rapidly made the Deutschemark almost worthless. And once upon a time, a $20 dollar gold coin (~1 oz) was worth $20 USD, now you would need 60 twenty dollar bills to get a gold coin of the same weight.

[V]

Citizens who got in a habit of measuring their "wealth" by how much they could borrow were hard to convince that borrowing more to make payments on debt already acquired would have an end point- with unknown consequences for them, and their government.

One of the consequences of U.S. Government borrowing, rather than taxing, to cover budget shortfalls, has been that no one has had to do any serious thinking about reducing government expenditures. Everybody has been able to have what they wanted, whether it was spending for weapons, or spending for health care. Costly new programs have been added to what was being borrowed- most recently, the Medicare Prescription Drug Benefit- with almost no one saying plainly in response to the proposals, "Has anybody noticed, there is no money?!"
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The problem is, even those citizens who may have exercised personal restraint, or perhaps even done without some things to save through the years, will get caught up and suffer right along with everyone else, should a general collapse come as a result of general imprudence.

[V]

Not exactly on point, but interesting, nevertheless, is an article appearing online, from the Atlantic Magazine, titled, "How a New Jobless Era Will Transform America". Primarily a sociological piece, it makes interesting reading and, for those of a somewhat pessimistic bent with regard to the trajectory the U.S. is on, will offer reinforcement.

[V]

Well, the DOW did make it below 10,000, briefly, during this period of uncertainty in the markets. The pullback did not quite reach the ten percent mark that is considered a "correction", but it got close enough for investors to feel more comfortable, and for the markets to stabilize; helping, were the bailout of Greece, tougher talk about the budget deficit in the U.S., and a slight bump up in short term interest rates charged by the Federal Reserve.

This was the first "correction" to have occurred since the markets began to recover in about March, last year.

People want to invest; many have money to invest. I think the natural trend, after the collapse of 2008, is an upward trajectory for the markets; but, people are nervous, and more ready to take their money off the table than ever before.

[mixz1]

Originally Posted by V

... helping, were the bailout of Greece...

Not so fast on the alleged "bailout" of Greece. No money has been sent and Germany is having real second thoughts about putting money into a nation who's debt will approach 120 percent of its GDP in the upcoming year. This bailout could very rapidly turn to doodoo.

Germany Faces Ratings Dilemma in Greek Bailout, Schroders Says - BusinessWeek

[Life_N_Cancun]

Originally Posted by mixz1

putting money into a nation who's debt will approach 120 percent of its GDP in the upcoming year.

Not to rub it in, but that statement could easily apply to the US right now.

2009 GDP 14.26 trillion
National Debt 12.4 trillion (and counting)

[V]

We may all end up needing a lifeboat. Anybody know anything about farming?

[V]

Much of the U.S.' influence in the world has been predicated on it's wealth, and what it could do with that wealth. This also explains China's incipient influence in the world, as it continues to amass wealth at a rapid rate, with its economy doubling in size every seven years.

The U.S. government has been borrowing large sums abroad, and "cooking the books" in a variety of ways, for a number of years, to avoid having to collect taxes from a nation reluctant to pay more. This very process has been advocated by a number of ideologues who saw this as a good thing, and characterized it as "starving the beast".

Now that the beast has been starved and U.S. reduced to the status of "debtor nation", unable to fund current obligations- including the obligation to pay interest and principal, when due, on money already borrowed and spent, without borrowing or printing additional money- it should not take long to see signs of diminishing influence in political and economic spheres, externally, as well as a considerably reduced capacity to solve its own problems, internally.

[RiverGirl]

It will be interesting to see how soon immigrants get the message and stop emigrating to the US. I wonder if China is an emigration destination, or if it will become one?

[V]

The history of the human race is a history of migration. Which way population flows go is mainly a matter of perceived advantage. Both the U.S. and China represent perceived advantage to some groups of people. The U.S. will continue to be more attractive to a wider swath of humanity.

I don't know if you'd find it surprising, Rivergirl, but a great many Americans have gone to China to live and work, in recent years: they don't typically immigrate, but some do, having married and put down roots there. Interest in going there has increased since the great recession began in 2008.

China is not a particularly difficult place for Americans to live, though the language is sufficiently difficult to learn. As a very large and diverse country, with a history and culture very different from our own, it can be extremely interesting to see, and experience.

Unrelated to recent economic events is the numbers of young Americans studying Chinese over the last 15 years, many of them imagining a future career path that will require knowledge of the language. Even more young people from different countries are in China, studying the language, with much the same intention and plans.

To encourage other young Americans to come live and work there, the Chinese Government has offered special inducements, including an offer of easily obtained, permanent residency, to second generation Chinese-American citizens, many of whom speak Chinese with a near native quality, and bear with them their U.S. acquired education.

Evidence of the burgeoning wealth of China is the currently underway project to build a network of 42 high speed rail lines, to be completed by 2012, at a cost of $100,000,000,000.00 USD, none of which they had to borrow. The system will include 5,000 miles of high speed passenger rail lines, and 3,000 miles of high-speed, combined passenger-freight lines.

The passenger train lines are designed for 350 KPH speeds. One such line, already in service, and a part of this project, involves a 1068 KM journey which takes just a little over three hours, station to station, and runs over 600 bridges and through 200 tunnels in route (necessary because of the HST's inability to negotiate curves, owing to the speed).

[RiverGirl]

For now there seems to be a brisk trade going in smuggling Chinese immigrants across Europe, across Mexico and into the US. So the tides haven't turned yet. But it's interesting to ponder.

[V]

And few Chinese who try to make it to the U.S., or other countries, seeking a better life, will concern themselves with...

...diminishing influence in political and economic spheres, externally, as well as a considerably reduced capacity to solve its own problems, internally.

The former of these represents long-term effects, the later of these is with us, already.

People argue about the causes, but a public sector impoverished by years of underfunding, raiding of the public purse by corporate interests, and an economy decimated by avarice run amuk in the financial sector has led us to this pass.

[Jim in Cancun]

Stats show that more Mexicans are immigrating to countries other than the U.S..
Canada started the visa requirement and Europe is also receiving many more than previously.

[RiverGirl]

Mexicans are returning from the US as well. I'm hearing stories regularly of whole families returning from the US because things are just too hard there.

But you can buy a house in Detroit for $1 USD!!
Detroit homes sell for $1 amid mortgage and car industry crisis | Business | The Guardian

[V]

Colorado Springs is not a city particularly hard hit by the great recession. Home prices have not dropped like they have many places, and unemployment is not at the levels of other cities. Furthermore, the city is full of active duty and retired military personnel who've experienced no loss of employment, or buying power, as a result of the recession; yet, the city budget is in crisis, and services are being cut, quickly and deeply.

These kind of changes can make you start to feel the generalized loss of wealth- masked in recent years, in part, by massive amounts of money that could be borrowed on the international market and was, until the great recession hit and lenders (China, for one, on which the U.S. leaned heavily for its borrowings in the last decade) began pulling back, just a little.

Facing Budget Gap, Colorado City Shuts Off Lights : NPR

Meanwhile, the Chinese economy continues to expand at a rate which allows it to double, every seven years, and has maintained this rate of growth through these early years of the great recession. BBC news repeated, today, what's been said often, that China will surpass Japan as the second largest economy in the world, this year.

[Jim in Cancun]

Last year, more "giros" went out from Cancun that came into Cancun. The money from the U.S. to Mexico in general Money Sent Home to Mexico from Abroad Decreases

[RiverGirl]

V - That's payback for the fact that the Springs is full of Devil Worshipers. Actually the Springs is full of right-wing religious nuts and I would not be surprised if people are moving away because of it. Each time I've been there I've been impressed with how the city is rotting from the inside out. The downtown was half boarded up 15 years ago, when the rest of Colorado's economy was booming. The Springs has absolutely beautiful views, it's a gorgeous location for a city, but it fails the thrive, regardless of the greater economy.

[V]

Yeah, a "societal diagnostician" could start there in trying to determine what's gone wrong in the U.S., occupied as the city is by our military, religious extremists, and political ideologues.

The article alludes to those who refuse to pay for government, and the city has apparently decided to "liquidate", rather than borrow to make up for the shortfall.

The fruit of indifference to the common good now hang heavy on the trees.

[V]

China, having loaned over $1,000,000,000,000.00 USD to the U.S. Government has, in recent months begun to show an unwillingness to extend further credit; and, has apparently embarked on a policy to reduce the amount of U.S. debt it is willing to hold, as well. The data on this runs behind, but in both November and December, they redeemed more U.S. Treasury debt than they purchased, and at the end of December had reduced their holdings to $898,000,000,000.00.
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In late 2008, the U.S. Government, finding itself unable to raise sufficient funds to cover expenditures, began to print money to make up for budget shortfalls resulting directly, and indirectly, from the great recession. This, it seems to me, is becoming an increasingly risky policy to pursue, as it may soon result in a downgrade by the rating agencies on U.S. Government debt, which would additionally complicate the budget picture by further impairing the ability to raise money through borrowing.

Explaining now, to citizens unwilling to pay more in taxes, that there is insufficient money in the national purse- and that to continue to print money to make up for budget shortfalls risks a currency collapse similar to what has occurred in other countries- would allow the government to then ask for their support, urging those who could afford to do so to buy U.S. Bonds/Treasury Bills and Notes, as a first step toward healing the national budget.

It just might also constitute a good first step in healing the national psyche, as well, by introducing some realism into the discussion of where the national government now finds itself, financially.

[lilnottsman]

This is an interesting read about what happens when governments follow a policy of printing money without any real financial support for the paper.

"When Money Dies: The Nightmare of the Weimar Collapse"
When Money Dies: The Nightmare of the Weimar Collapse

On this point, does anyone have ideas on what to invest in while our dollars are still worth something. Gold and land comes to mind...