Yesterday on the show Bulls and Bears (God help me I still watch but fast forward through a fair bit of it) there was a conversation about whether nationalizing the banks might actually be the best choice.As I heard this I had an odd thought. What if that turns out to be the best solution? I am not expressing a preference or a belief I am simply wondering what if the private solution can't get it right and the fastest path ends up going through the government. A private market failure is kind of what has happened already.
However messed up you think the government would be in terms of mismanagement, incentives for the wrong things, unintended consequences and whatever else; I'm right there with you but what if that is the better alternative? What would that say about the future of American finance?
My next pondering is about indexing and might whip a few people up. Pure indexing has not worked in a while. In the last ten years the S&P 500 is down about 30% (yeah, that's right). It is worse if you factor in inflation. What if it continues to not work for the next ten years? The Nikkei 225 peaked around 40,000 in 1990. Let's assume (hope?) we are not 30% lower from here in 2019, but what if where we are at a point for the S&P 500 that is nowhere near where anyone would expect it to be, like 831.95.
A lot of money invests by indexing. How many years of futility would it take before the indexers reinvent what they do? Do any investors in Japan invest in equities via pure indexing? How could they? The market is down 80% in 20 years. I do not assign a high probability to this outcome but would an indexer go an entire 20 years without questioning the method? How can a financial plan that relies on stock market growth possibly succeed with a 20 year period of no growth, very low growth or an outright decline?
Even though we are down 30% over the last ten years there have been times where it made sense to be all in and let it grow and other times where some sort of defense was in order. No matter what happens in the next ten years there will be times to be all in and let grow and other times where some sort of defense will be in order. Pure indexing does not allow for this. Or does it? Can anyone make the case?
Why is is that healthclubs have to hardsell people? When we joined our current gym a few years ago it was like buying a car including that price is only good today and the salesman writing upside down on the paper. Our gym gave us a couple of three month passes to give to friends, Joellyn gave one to one of her dog lady friends and the guy at the gym pounded on her. Anyone own a gym or work at one and know why this is necessary?
Last question, the picture is from Iceland and you will notice a crane in the background. When we went there in 2006 I mentioned on the blog that there were a lot of cranes on the way in from the airport. I wonder how many cranes there are now.
37 comments:
I am a farmer. The farm produces an income from crops that is completely independent of the value of the underlying land. I do not have a daily appraisal of the farm. In fact, the only time I really worry about the value of the farm is with respect to property taxes. I don't use the farm's land as collateral in any way. I diversify my crops, never planting just one. Basically, the current value of my farm for all practical purposes is meaningless. Historically, the value of farmland has kept up with inflation and that's about it. We get the wild speculation that pushes values way up followed by the susequent crashes (which by the way we're seeing now) that pushes values below previous values. But for a guy that owns his farm and makes a living from it, it values matter very little. Values matter when buying new land, in as much as the crops grown on it must be able to pay for the cost of the land. A crash in real estate has been historically a good time to buy, although it generally goes against the conventional wisdom at the time.
So it is in investing. As a long term investor with an infinite horizon (I never plan to sell) I concern myself with the income an investment produces. The income from my equity investments has changed very little over the past year. Granted, there may be some dividend cuts, just as some years of farming have low yields/and or prices that affect the income. My mix of fixed income and equities has decreased in value somewhat, but the income stream has not.
Just as when buying farm land, the question of when to purchase equities does depend on value. Just examine competing investments right now, and purchasing equities makes its own case (for the long run). At other times, it is not the case. Ten years ago was not a good time to be buying equities either.
Are you an investor or are you a speculator? Also, I know many people do not have infinite time horizons.
Regarding the banks, I have had similar thoughts. The question becomes how to privatize the banks again once this mess is sorted out.
I know this will come across as an unsophisticated fuddy-duddy.
Roger, I think your take on pure indexing is too narrow. Asset allocation across a variety of indices, coupled with periodic rebalancing, seems to me to be the conventional wisdom among all but the woefully naive.
Buyandholders of lazy portfolios have demonstrated that it's relatively easy to outperform the S&P without taking any particular defensive action, assuming a strong stomach.
Unsophisticated fuddy-duddy ? Not at all. Your comment is one of the more astute and reasonable I've seen on this blog.
Here are the annual returns as of 12/08 for the funds that make up a popular "lazy mans" portfolio.
Vanguard Inflation -Protected Secs
(2.85)
Vanguard Total Stock Mkt Idx
(37.04)
Vanguard Total Intl Stock Index
(44.10)
American Century International Bd
2.41
Vanguard REIT Index (37.05)
Vanguard Energy (42.87)
Vanguard Value Index (35.97)
Vanguard Small Cap Value Index
(32.05)
Vanguard Emerging Mkts Stock Idx
(52.81)
Vanguard International Value
(41.74)
Terrible numbers. Perhaps a solution is for indexers to take a page from random's blog and keep an eye on yield curve and 200 DMA, when violated, begin lightening up from stock indexes and moving to a safe harbor money market fund.
The farm analogy is a good one.
And of course there are times when the land purchased for farming does not produce as expected or previously hidden problems arise (e.g., an impermeable deeper layer causes it to flood, etc) or a bad overall year creates a demand for additional cash to make it through the year and prepare for next so there are conditions in which a sale must occur.
And naturally selling some crop forward will stabilize returns, making the future income stream more predictable and, among other things, reducing the risk a forced sale in unfavorable circumstances as noted above less likely, so there are conditions ripe for hedging as well.
The farm analogy is definitely not fuddy duddy, it's real business for sure.
This is fuddy duddy again.
At the top of Roger's home page it says in part, "The point here is to share process."
For sure, techniques in deriving profits from farming can be sophisticated, but from an investment perspective, it is simple, just not easy.
I think a sound investment plan in publicly traded securities is simple too, it is just not easy for most people who seem overly preoccupied with valuation.
I just thought I would share my process and try to make the point that too much time and effort is spent trying to control the value of an investment portfolio through speculative techniques. I think this is indicative of what ails business at all levels in the United States right now.
Thank all of you for the kind comments.
Roger,
I just want to make a few points as to why I think nationalizing the banks is not the best choice.
1.) the wreckless policies of artificially low interest rates by the federal reserve created the bubble which has given us todays economy.
2.) The private market did not fail. It was working corretly until the government stepped in a interfered. Remember, bad banks that were running bad businesses were going under. We want these banks to go out of business so that good banks can buy up their assest and run them well.
3.) thousands of years of history has shown that governments do not nationalize industries for the peoples interest. They will use this to make sure that their friends and co workers remain wealthy. The rest of us must suffer.
4.) the banks will not be re-privatized. We only get more govenrment never less.
I could go on but I'm not writing a book :) Governments are too dangerous to run the economy (especially controling the money).
8:22, you did see where i said i was not expressing a belief or opinion?
You would think somebody by now some bank or entity would have formulated an ETF solution for all the toxic assets?
CA
Roger,
A tad off topic here however I was reading yesterday's posts and came across this seeking alpha article defending leveraged ETF's...
Rob from WI
http://seekingalpha.com/article/116333-in-defense-of-leveraged-etfs
I did see where you said you were not expressing a belief or opinion. I only wanted to respond to your comment and put my ideas out there.
Maybe the level of the SP500 is down 30% in ten years, but the total value of an investment in the SP500, which pays dividends, is not. Further, no serious investor would have made SP500 purchases ten years ago either given that the investment returns were so poor.
I guess anyone can use statistics in an attempt prove a point, however ill-conceived it is.
"Further, no serious investor would have made SP500 purchases ten years ago either"
Hahah. Seriously.
The point about indexing for the last 10 years is valid - but it must be compared to the returns of active investors. Or, since they don't usually publish their returns (or fudge dates to make it look good) then active mutual funds.
Ten years ago, a prudent investor would have been putting earnings from both equities and fixed income into more fixed income. A more aggressive investor may have been selling some equities and buying fixed income.
A speculator would have been caught up in the excitement of the moment and have bought into the new-era of investing mantra of the times.
I would venture to say, that most regular posters here din't get caught up into the flipping houses schemes of the last five years. Equity investing in my opinion is no different. The most important decsion aside from how much total exposure one requires from equities (usually as a % of investable assets) is when to purchase at attractive valuations. Some may require the valuation hedging techniques discussed here, but most do not. I regard the purchase of equities as a sunk cost. The decision itself has no bearing on the future course of action.
Let's all be honest here. Most of us have had some limited speculation sucess somewhere in our past. Some now recognize it for the luck it was rather than than the skill they thought it was at the time. Most converts to investing from speculation have had some painful and expensive lessons along the way. Yours truly included. Success from speculation is intoxicating and the speculator is always looking for that next fix.
Therefore, I stand by my statement that no serious investor would have been making new SP500 purchases at the time.
As mentioned above, sharing the process. Not saying it is the only correct process, but a process.
Thanks Fuddy Duddy and absolutely agree, the heart of the matter is simple and should not be unduly complicated; as Harry Browne used to say, the same logic people use in everyday life can be used when investing, it is not inherently 'different' (if the tools involved are understood).
So in understanding the tools, part of my point was that it is easy to conflate controlling risk and rationalizing cash flow with speculation because the two ideas often involve the same technologies, the same tools, but speculation is largely parasitic in my view because it misapplies or abuses instruments and techniques designed for rationalization, not vice versa.
Futures were not originally created as a gamble on the direction of commodity prices, just the opposite, they were created to allow producers to reduce risk by raising present cash via a sale of what they produced later; stocks were not invented to make bets on market direction, they allowed a company to raise capital by selling a portion of the company's future earnings instead of mortgaging assets via debt (which they could also do of course), and so on. The secondary and tertiary markets that arose around these instruments facilitated liquidity, price discovery and stability (arbitrage) and were not inherently abusive either.
But people can abuse anything and, of course, do; this I think is related to the inherent instability of capitalism Hyman Minsky identified but, in its simplest form, it could by viewed as a collapse occurring when abuse exceeds use. William F. Buckley, quoting William Schlamm, would often write, "[T]he problem with socialism is socialism; the problem with capitalism is capitalists,” which I suppose is close enough.
The other part of my point is that investors unfamiliar with rationalizing technologies or who simply reject them out of hand as 'speculative' or 'trading' could be leaving themselves more exposed to disaster, to the consequences of a bad year, than they realize so it may be worth keeping an open mind on the subject to say nothing of learning a bit more about the tools and techniques involved; I suspect it is very similar in farming.
Good question about health clubs. When I asked how payment would be made, it was only through an automatic payment (can't remember if credit or debit). You couldn't just simply quit writing a monthly check or pay with cash. A quick google search showed it was almost always very difficult to automatic billing stopped with lots of phone calls trying to get you to stay.
How much cash flow is generated by people to lazy to go to the gym, and too lazy to stop the automatic billing? I'll bet it is a bunch.
I was so disgusted by the experience, I didn't want to join.
An excellent post by one of the most non-publicized bloggers, Tom Drake. He provides excellent insight into risk adjusted return strategies. The following is an excerpt from today's post at http://twocents.blogs.com/weblog/2009/01/the-best-we-can-do9.html
"There is no way an ordinary mortal can know what is really happening now. The best we can know is from watching all markets carefully and thoughtfully. World markets are inundated by continuing massive private liquidations and by government interventions around the globe. Think about it. Governments are on the prowl for banks and other assets to keep everything running in some semblance of normalcy (normality). It's just a normal recession they say. But governments from Japan, China and Russia to Europe, Britain and the US are nationalizing the banks and other "strategic" assets. There are a variety of politically correct terms to describe the takeovers: re-financing or rescue or whatever.
Gold flew up to $900 this week while the dollar gained as well on its trading partners (assuming we all still trade) except for Japan. That means Europe and Britain got rocked after having projected "what me worry" status so long via ECB chief Trichet. It's been apparent for quite some time that this was not just a New York deal. In an inflationary time, all economies are synchronized, unlike what we lived through from the late 1970's to the late 1990's. Measured by the US ETF RSX, the Russian equity markets are down over 80% since May 2008 net of persistent devaluations of the ruble to the dollar. Russia is still far better off, so far, than after the 1998 bankruptcy blowout that helped bring down LTCM.
Is this all just another decennial wipeout after which we resume upward progress? Or is this too much this time? I think the former not because I am a perma-bull or lazy historian, but because inflation should continue in this decade. I caution that this does not mean equities or bonds have to go bullish, only that some aspects of economies and crude goods prices can or should go back up. In other words this should be more like the late 1960's to 1980 for a while yet. Bonds should go down as some recovery takes hold. How could they stay up on Everest after 28 years of gains? With stocks it should be very,very selective. I don't even want to go into it, but government-favored sectors (you know them) and materials should revive somewhat.
But perhaps one should just own the commodities as Jimmy Rogers used to say and Dennis Gartman says recently. Why bet on how well a corporation may do with it all when you can buy gold or copper or agricultural ETF's and coal and uranium ETF's? It's a commodity era not a bond or equity era, and this collapse proves it to this economic Long Wave fan. Forget standard stocks and standard bonds. Look for dividend-paying substitutes for bonds and for capital gains in commodities. Buy some on signficant pullbacks and sell some on significants gains, just like good commodity traders do. (Learn about and thoroughly study US closed end funds, and look at US and Canadian oil and gas royalty trust income stocks.) If you can make 10% per year trading and 6-8% on interest or dividends, welcome to the new market. Unfortunately even if you are retired, you may not be able to sit and hold a "diversified portfolio". On the other hand, would you rather sit in front of a market trading screen or be a greeter at WalMart? Not literally, I hope, but "in concept". Capital preservation and modest goals and risks may require some new skills."
Thxs for the link to Tom Drake. I quickly read through some of his recent posts and found this one interesting as well. Has anyone invested in these oil and gas trusts that tom refers to?
"My first of the year rebalancing/repositioning is done. I haven't really made a lot of changes, but have consolidated and/or eliminated some smallish positions to keep it simpler. Bear in mind that my main goal these days is relative safety and fairly steady income with inflation protection for the future. I have both tax-deferred accounts and taxable accounts
In tax-deferred accounts my goal is to generate income within them sufficient to fund IRS "Required Minimum Distributions" (RMD) which are based upon life expectancy. The IRS guarantees (to themselves) that everything in them **will be taxed**. Since taxes are quite likely to rise, I have little desire to increase the total value per se of such funds at this stage. All gains are taxed the same as income, and the IRS is a full partner. So income with some inflation protection is key.
Half of all such funds are now in Vanguard's GNMA fund VFIJX with an average duration of 2.8 years (far shorter than normal but for a good reason), with a very low cost (0.11% per year), and paying 4.80% currently.
Another 12.5% of these funds are in HSTRX which is Hussman's managed Total Return income fund. Hussman has an eye toward inflation-hedged safety and typically has had a fairly high percentage in short duration TIPS. He also keeps 5-20% in gold stocks or gold ETF's or forex and small amounts in dividend paying utilities. HSTRX pays a regular cash dividend of only about 1.5% , about the same as a money market fund, and that's the way to think of it, *except* that it has the flexibility to do a lot more under the right conditions, and it almost always pays a sizeable year end capital gains dividend which I plan to reinvest to preserve the funds's inflation value. (The TIPS ETF's and mutuals I know of are all too long in duration for my purposes compared to HSTRX.)
The remaining 37.5% is largely in the oil and gas trusts that I have discussed so much and in a fund (TYG )containing a lot of pipeline LP's which is structured so as to be suitable for a tax-deferred account. Also included with the trusts is a small position, which could be raised if they get cheaper again, in two bombed-out high dividend closed end funds in real estate and resource stocks, DRP and ETO. The oil and gas trusts and TYG are paying about 9% annually on average. The trusts are of course wasting assets and their estimated reserves lives, ~13 years average at the moment, are very close to their effective stock durations ( see "For the Duration") as measured by the price to dividend ratio. Since the tax deferred funds and their beneficiary are also "wasting assets" ;) this should work out well and keep taxes down in the long run.
The dividend return of this mixture is about 5.3% which is pretty generous at the moment, but except for the trusts the risk is quite low. I plan to continue to trade the trusts once or twice a year on a value basis, selling some when they get too high and buying some when they get too low.
The nice guys at the IRS and in Congress have agreed that we don't have to take out our RMD's from tax-deferred accounts in 2009 since the assumption is that most people had huge losses in them in 2008. I didn't have losses, but I welcome the opportunity to reduce taxes in 2009, the better to fly under Obama radar. Also it allows for some modest compounding by reinvesting the dividends.
The approach this year for taxable accounts is also to minimize taxable income and provide inflation/dollar insurance. All fixed income funds have been shifted into the Vanguard Short Term Tax-free Municipal Fund VWSUX with a duration of 1.1 years, an annual cost of only 0.08%, and paying 3.03% on a distribution yield basis, equivalent to what ~4.15% would be after tax. Approximately 55% of all taxable account funds are now in VWSUX.
Another 11% of funds are in a fund owning my state's longer term AAA municipal bonds and paying 5.8% tax-free which is equivalent to over 8% for a taxable fund.
The rest, ~34%, is in gold and silver, a few metals royalty companies (ROY, SLW, RGLD) I have previously mentioned and the Rydex Managed Futures Fund RYMFX which I refer to as the "Trader Vic Fund" as it operates under Victor Sperandeo's investment principles. The concept here is to hold these hedges "forever" unless they run way up in price. In a sense I hope they don't. I think of them as inflation and dollar debasement insurance for the tax-free income funds. This 34% pays very little or no cash dividend.
The first chart shows the total returns (annualized) of these funds since the inception of HSTRX in 2002:
CEF is used as a proxy for all precious metals in the holdings.
The second chart shows the longer term record since 1988 for the junior funds of VFIJX, and VWSUX and used PRPFX as a proxy for HSTRX as they have largely similar goals. VFIIX/VFIJX and VWSTX/VWSUX have consistent long term records. Even though the whole period was largely a bull market for bonds, these two funds are short enough in duration and high enough in quality that they should perform well as (if) interest rates rise.
Also clearly Central Fund of Canada (CEF), which is a closed end trust holding gold and silver bullion, does very well during inflation and not so well during disinflation while PRPFX and HSTRX are more adaptive to conditions. The same should be true of RYMFX which has only been operating since March 2007 but whose futures trading record under Sperandeo is well documented. CEF is only a part of my metals holdings and I hold it because it is easy to adjust position size with it.
There is very little in the way of "generic" or index equity anywhere. That is both because of the Hussman-inspired portfolio duration idea at my age, and also because with S&P earnings forecasts dropping rapidly, stocks may not be as good values as some of the value people think they are. Plan A is to do very little trading this year, but watch things very closely."
RW, let me tell you a story.
I guess I was burned the most when as a cotton farmer, I thought I was smart enough to speculate in soybeans without growing a soybean crop. I had speculated in other areas with success, so I thought lets get serious about it. I became heavily involved in futures contracts (not options) through a discount futures broker. How hard can it be to make a profit by exploiting price movements I thought. Well let me tell you, small and large movements in commodity markets are random and unpredictable...and by extension so are margin calls when you are out in the middle of a field trying to grow a cotton crop. I learned my lesson. Agricultural futures are for agricultural participants to hedge their risks. Be it a cotton farmer protecting himself from a price collapse or a textile mill protecting themselves from runaway prices. We are view speculators as providing the market with some liquidity. The same can be said for financial risk management tools. They are designed for risk management, not wild speculation.
Last spring, the amount of speculative participants in the agricultural commodity markets was so great, that no business by agricultural participants was conducted because the fundamental market reality was not even close to what the futures markets said it was. Indeed, several large cotton merchants who had been in business for over 100 years were forced out of business, along with some of their farmer clients. It almost broke my cotton cooperative trying to meet margin calls.
Some would say that since cotton prices haven't not changed in over 50 years, that there is no money to be made in the cotton business. It is simply untrue. I am living proof of that.
Similarly, someone could say there is no money to be made over the last ten years by owning the SP500. Again, that simply is not true. It has produced a steady, growing stream of income.
I know that in some cases, financial innovation has its place. I would say the concept of index investing would be one of the greatest financial innovations of all time. One would have been a fool to shun it. As to some of these enhanced return products we see now, don't know yet. The technologies in conducting investing business throght electronic means has been very beneficial and has lowered costs and thus raised returns for investors. I have embraced it fully.
You are correct in that in farming once has to adopt to the times and adopt modern farming techniques. But I would say to you that the fundamental business priciples of agriculture has not changed one bit; indeed they are timeless.
Apologies to all for consuming so much of this blog's space. I hope I have contributed in a positive way and will now let others say what they have to say.
And thanks to Roger for hosting such a delightful blog.
This is the worst post I remember you making in several years of reading you blog.
back from a long winter hike. i really enjoy hiking in the cold compared to the heat.
so a couple of things to respond to.
Further, no serious investor would have made SP500 purchases ten years ago either given that the investment returns were so poor.
candidly i don't even know what that is supposed to mean. all the people who went down 30 or 40% in 2008 would have not bought in early 1998 two year before the peak of the market? jumping past the slew of biases in your comment you are not describing indexing. you are describing some sort of active strategy, an active strategy that had you sell two years before the peak maybe using index funds.
anon 11:48, lemme see if i have this straight. you've been coming here for two years, getting free content and then leave a pissy comment like that? really? classy.
Roger, in 1998 the stock portion of one's portfolio was greater than its orginal allocation. All I was saying is that at that time, disciplined investors were not putting new money into equities at that time. I agree, most people were chasing performance.
Just because the value of my equity holdings from 1998 decreased in value, doesn't mean I was buying then. Not sure where you made that connection.
Anyway, the point of what I was attempting to say was where was (and should) new money be directed? Treasuries yielding less than 2.5% or stocks yielding more than 4%? Call me stupid if you want, but I'll take my chances with stocks at this time. Maybe next year it will be different. Doesn't mean I'm gonna run out and sell all my fixed income investments now, I'm just not a buyer. Hope you can get the distinction.
Guess I should stick to farming and not writing huh? Like I said, I'm a fuddy duddy.
Using historical daily S&P500 prices for Jan 1950 to present and uplifting historical closing prices at 7.35% p.a. pro-rata, results in a flat linear trendline.
http://ih.fotothing.com/79234.gif
Average S&P500 dividends over the 1950 to present period were 3.44%, which in combination with that 7.35% average capital growth rate in stock price implies a 10.8% p.a. total investment return.
That 10.8% average however only holds for where stock is purchased and sold at around comparable levels relative to the time adjusted trendline, such as if bought and sold at price levels that fall upon the time-value adjusted (flattened) trendline.
Where stock is purchased at below trendline levels and later sold at above trendline levels then returns will tend to be greater than the 10.8% p.a. average. Where stock is bought at above trendline level and sold below trendline level then returns will tend to be less than 10.8% p.a. average.
The implications from the graph are that investors might achieve a range of investment returns between 4.4% p.a. total (including dividends) up to 20% p.a. total depending upon when bought/sold relative to the flattend trendline/peak/trough extremes.
Of particular note is that waiting for prices to revert to trendline level generally involves less than 5 years wait time. The 1995/6 to 2003 period being the longest exception.
The present day indications are that an Index purchase at current levels is likely to produce an above average dividend income and potential longer term exceptional investment benefit if later sold at a relative price of around twice the then flattened trendline based price level.
Good post Clive. Glad someone else around here gets the idea of waiting to buy until a good bargain presents itself and then holding.
What I don't get is why so many people around here seem to neglect/dismiss the effects of dividends. Glad you get it Clive.
Buy/hold/dollar cost average into SPY only when above 200DMA.
It's the KISS method to investing.
It's 10 year history is fine.
You have the best of all worlds. You get low cost/fees, tax friendly (plenty of long time horizons above 200DMA), liquidity, low Madoff risks and your buying and holding the asset class with the best historical returns (except when its not).
Roger, I am wondering what you meant by, "you are not describing indexing". What is indexing to you? The poster said that he bought at attractive valuations and then held. What's so active about that?
I thought indexing was a way to gain broad exposure to equity (or fixed income) markets at a low cost.
as i read the comment it seemed to me like timing decisions were being made using index funds. taken to an extreme, day trading using SPY would not be considered indexing. some sort of timing method (with holding periods longer than a day) would not be considered indexing either.
Po-tay-toe, Po-tah-toe. No this is not Dan Quayle posting.
I would say that waiting to purchase equities (or fixed income) at an attractive level in index funds and then holding them is still indexing. Indexing being a method to get broad exposure even without having the resources to assemble a portfolio of at least 20 different stocks. Sort of a pre-packaged investment portfolio.
It is really no big deal though. I like fuddy's approach.
Could it be that investing as we've know it for past 30-40 years is in for some drastic changes? With baby boomers and the horrible markets,somethings got to give. I expect to see mutual funds of all types shrink and dissapear, as a start. How to best prepare for the next 30 years? I won't be around to know.
i've written several posts along those lines over the last few years.
Roger--off topic, but a number of articles have been circulating recently about the inappropriateness of using leveraged ETFs for more than a day's time span (i.e. the commonly held but mistaken belief that, for example, a 2X leveraged inverse ETF will provide 2X a market's negative performance over a course of a few months or longer). Given your use of the SDS as part of your defensive strategy--and the fact that you hold it for longer periods of time than a day--I thought it would be helpful to get your take on whether you think the SDS and other leveraged ETFs are inappropriate/imperfect vehicles to hedge your portolio over time. You have obviously come to grips with this issue, but the rest of us could probably benefit from hearing your thought process.
If there is some good about the current economic (and, dare I say, soon-to-be political) mess, it will be to diminish $4 coffee, whack the Whole Fools overpriced organic charade, the religion of global warming and that big government is better government. Oh - and that diplomacy will eliminate the need for a strong military (Neville Chamberlin is smiling).
Nothing brings folks back to reality like a good depression - or so says my 99 year old mother.
8:39, there was a fair bit of discussion in yesterday's comments.
All large US banks have been nationalized for 20 years.
That is exactly what "too big to fail" means.
All US banks have had a government guarentee for years just like Fannie and Freddie.
The answer is to let all the banks go under.
I am looking forward to the day that the SPX crosses its 200 DMA. Should be a doozy. Of course the problem becomes, is it the simple MA or the exponential MA? With so many people using it, will it remain relavant? Gonna be interesting fer sure.
I remember reading 40 years ago that when the majority of citizens own common stock, the market will crash. The market's original intent was to invest in companies. The last 15 years have been geared toward speculation. We can defintely see a very long period of no growth in the future, similiar to Japan. In the past, most individuals were covered by a company pension. This has been eroded to being negligable in today's society (the premise here was to increase profits for the individual company). With the majority of US no longer having a "safety net", we are in dire straits.
There has been a gradual erosion in the US standard of living over the last 20 years. We are at the point, however, where individuals are finally recognizing this. The US has always been wildly optimistic. Perhaps it is time to be realistic.
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