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27 comments:
One quick point I need to make. When a client trusts you or any one else with their wealth,(-)20% or simalar returns should never happen. You are the expert,that's why they paid you.
One of the things that I find curious about this market is that the sell-siders aren't pounding the table like they were last fall (or should I say autumn.) The buying-opportunity-of-a-lifetime chorus is eerily quiet. Even Buffett seems to be lending instead of buying. Maybe they're just being drowned out by the anti-Washington rants or maybe they don't think it's a good time to buy anything but gold. A good sign???
UPDATE 1-Soros sees no bottom for world financial “collapse”
8:21 PM ET 2/20/09 | Reuters
(Adds earlier comments from Paul Volcker)
NEW YORK, Feb 20 (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
“We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”
His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.
Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.
“I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,” Volcker said. (Reporting by Pedro Nicolaci da Costa and Juan Lagorio; Editing by Gary Hill
Roger, I'm still having a hard time trying to figure out exactly how you add value for your clients. Anyone with a 50/50 equity/bond allocation in index funds with some of the equity side in international index funds is down less than half of the U.S. stock market too.
I myself count myself in the camp with a Vanguard index portfolio. The income my portfolio generated last year was basically unaffected by this mess we're in. The portfolio yield has increased as the underlying value has decreased, but essentially it doesn't really matter. For me, the only matter of real concern is where to put new investment funds. Just another point of view.
US has had a bubble economy for the last 20 years. Subtract MEW from GDP for the "growth" years of 02, 03 and 04 and you get negative GDP. The jig is up. Reversion to the mean in stock markets and housing is occuring. With an over correction, 20-40% more declines to come.
China will rip your face off. Govt. loans we're used to buy stocks in Chinese/State owned companies to prop them out. They are communists after all. Watch your fingers.
For your colleague's overall portfolio to have lost more than the U.S. stock market is remarkable. Perhaps it is just a random event in that his clients stepped into his office and like what they heard as opposed to stepping into your office Roger and liking what you would have presented.
I wrote earlier in the week about the devastation of my in-laws portfolio at the hands of their "financial advisor." It is interesting that in today's WSJ, Jason Zweig discusses that some people want to try some sort of hail-Mary pass to boost the value of their portfolio. He opines such moves usually have bad endings. I would agree. Well, that is exactly what father in law wants to do. If it fails, they live at subsistence levels on social security and handouts from their two children (which is going to basically be me since brother-in-law does not have the means to help). If it succeeds, he will be confusing luck with skill and continue to make stupid bets until he does fail.
The selection of their financial adivsor was on the basis of "he's a great guy and says we'll never run out of money." They made zero effort to educate themselves nor did they attempt to understand the plan and its risks. Now they'll pay the ultimate price for ignorance in this matter. Sad, indeed. My wife has had her eyes opened wide this past week and I sense a new appreciation for my thrifty and conservative ways that were formerly labeled "cheapskate" by in-laws.
I think financial education is key. It should be mandated in our public school systems right along with sex education.
Forgive the long post, but its is helpful to share with like-minded folks. Any insights would be appreciated.
"Anyone with a 50/50 equity/bond allocation in index funds with some of the equity side in international index funds is down less than half of the U.S. stock market too."
Well, no. They're down a little more than half, actually. IIRC that would put you down 20% or so in 2008 and the S%P 500 was down 37%. It varies a bit depending on what bond index you're using.
The other half of the equation is, of course, who invests in a 50/50 portfolio? If people do, they don't talk about it.
"...comparing the current situation to the demise of the Soviet Union."
Soros makes himself look like an idiot with statements like this, but of course most people just say "WOW IT'S SOROS." I don't see bread lines at stores. I'm not paying $100 (or $7b rubles or whatever) for that loaf of bread. I don't see people fleeing the country. I don't see a dearth of foreign capital.
Soros usually has an agenda. You just need to figure out what it is.
I suspect the habit of talking your own book never really leaves you, Soros's old colleague Jim Rogers certainly has it, as does PIMCO's Bill Gross and all the rest.
In Soros's case this may probably be taken literally; his 2008 book, The New Paradigm for Financial Markets, discusses the formation of a 25-year 'superbubble' and its likely consequences.
Pretty hyperbolic and I doubt it spells the end of capitalism myself but, right now, I wouldn't take a lot of bets on what (or when) the final outcome of this is one way or another.
Roger, you strike as me as too nice a guy, fundamentally, not to have some compassion for those whose lives get screwed up through the fault of others -- when your firefighting crew shows up at someone's home in flames, do you lecture them on "risks" and tell them that others took precautions that other, more responsible homeowners took? You may think that, but I doubt that stops you from helping them out. I see the same with conditions today -- people need help more now simply because macro conditions are so bad that losing one's job now or some such disaster means much more than when the unemployment rate is 3.5%. What is so friggin' wrong about erring on the side of compassion?
Roger, Any update on when you see the US markets turning around? If I recall correctly, last fall your take was Q2 of '09 or there abouts. Also did not see S&P dropping much below 750-800. Are conditions now even more uncertain in your opinion? Seems like most are now looking to end of this year or beyond. The overall mood would indicate we're entering the "despair" phase of the cycle.
Great interview by the WSJ with Roubini, re: bank nationalization temporary...
http://online.wsj.com/article/SB123517380343437079.html
Great interview by the WSJ with Roubini, re: bank nationalization temporary...
http://online.wsj.com/article/SB123517380343437079.html
"The other half of the equation is, of course, who invests in a 50/50 portfolio? If people do, they don't talk about it."
I am 50/50 and I talked about it...smart ass. Know it alls like you ruin this blog.
This is for Drone. I'll chime in too.
"Well, no. They're down a little more than half, actually."
From today's WSJ. 52 week returns:
Vanguard Total Stock Index -40.7
Vangaurd Total Bond Index +4.2
50/50 -18.25
50% Total Stock Index -23.35
50/50 < one half total stock
Get your facts straight smarty pants!
52 week for 50/50 ISF.L (-32.3%) and IBGS.L (+20.3%) is a combined down of -5.4%
I think this article is very appropriate for a lot of people right now... Stay the course and buy hold rebalance...
http://www.nytimes.com/2009/01/11/magazine/11wwln-lede-t.html
"Get your facts straight smarty pants!"
Come on..
1. you included no international equity, as the previous poster suggested
2. -23% is not less than half of -40%.
Hey Drone,
-18.25% is less than -20.35%. What don't you get?
I believe the point was someone who was adequately diversified has not suffered the full loss of the stock market without any sort of special effort. Google lazy portfolios.
roger,
I am somewhat amazed at your positive expectations. Jumbo and prime mortgages are now walking to the precipice. Subprime will seem like a fun day at Astroland if the predictions on default rates spiking for the jumbos and primes come true.
But I'm really surprised by the expectation that "if we remember to look elsewhere," we'll find (some) market that is turning up.
How does that square with the broad expectation amongst professionals (and I think one that you've espoused), saying the US will be quicker to adapt and first find a way up from the mat? I may be incredibly provincial but I'm not buying the concept that globalization hasn't locked us into much more synchronicity than diversity (in terms of asset values)... ashes, ashes, we ALL fall down.
Looking at put call ratios (dollar weighted and all equity), it would be anomalous to see the US markets turn up right now. If anything, there is (much) more blood to be spilled.
And that brings me to the last point. No one (reputable, anyway) is suggesting a "v" shaped economic recovery, and I simply don't see the rationale behind anything like a "v" shaped market recovery. (Bear rallies, sure, but "miss the big leg up"? ... not bloody likely.
In fact, the level of investor sophistication may be higher now than at any time in the past: and even if on the individual investor level it's not, more money is in the hands of institutions (401-k mutual funds) than ever before. And those are professionals. They know that there were bear rallies in the '29 -'32 time frame, but that you didn't really "miss the leg up" unless you left the market completely and stayed out through '37.
The seductive reasoning (for too long) has been "it is unlikely to go much lower before it goes much higher". I say, even at these levels, why NOT just get out now, and place buy stops 20% higher than the January highs? (If you believe that this devaluation is seriously overdone, missing that 20% rise won't be too high a price relative to what you can expect to make "in the long term".) Or, if you like the 200dma, just place buy stops appreciably above the relevant 200dma, and stop all the whingeing. (sorry, Kiwi term)
A good trader I know said "they don't give medals for being early and wrong... the good trader is the one that is around to trade another day, even if that means being a little late - and right."
I think the same applies to long term investors in this market. I say, stay short or go to cash, and wait out the uncertainty with pre-defined buy-stops. The uncertainty will be gone when banks are able to sell mortgage portfolios and Level 3 assets w/o gov't backstop. Or, more plainly, when the worry is more about what GE is going to buy instead of when it's going to cut its dividend.
The risk of SPX 550-600 is real, the risk of SPX jumping to 1050 (and staying there) is not worth betting your retirement - or your kid's education- on.
R in NY
I do not believe the US will be first off the mat or more precisely provide leadership. I don't ever recall thinking or writing that. If I created that impression or actually said that then that was the contradiction. Big bear market rally? Yes I still believe that can come but providing lasting or cyclial leadership? no.
Roger- a recent article by John Serrapere that I thought you would find interesting...
There is also one at index universe with an interview with Harry Dent whom is predicting a 60% bear market rally in 2009 followed by a huge decline into Great Depression 2.
http://www.indexuniverse.com/sections/research/5358-defend-to-advance-minsky-moments.html?Itemid=7
I read John's stuff hot off the presses.
Perhaps no one noticed that Hollywood, Wall Street and the US government have merged to convince Americans that the they really are NOT corrupt! That the hype that they have been feeding us is really true and all those nasty rumors are untrue. THIS is an investment environment? What is any investment worth when earnings are backed up by massive and uncontrollable debt. The treasuries efforts remind me of the alchemists that tried to produce gold from lead....and the national debt is really an illusion that doesn't have to be repaid. The markets will recover? Isn't that the same thing that the optimists claimed in '07? Who needs T bills.....say what! Ask a trader if he would be an investor.
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Mortgage plan is NOT a bailout, here is the key point you all are missing.
The context of the bill applies only to PUBLIC mortgages.
Those dumped onto taxpayers by Fannie, Freddie, and Paulson's bank giveaways.
So, the Taxpayers are on the hook for any and all forclosure already.
The only choice Obama has is how to limit long term loses to the taxpayers.
Is it better to let everyone forclose and lock in taxpayer loses?
Or is it better to have loan mod programs so that a big chunk of the funds get paid back to taxpaers?
There is a big Republican and Banker anti-Obama noise campaign going on currently that you need to get past.
I'm a Ron Republican but this is a good bill for taxpayers by Obama.
The only arguments should be what is the best level of loan modifications and how to maximize the return to taxpayers.
Remember Private mortgages are not included in the bill, only mortgage already owned by the TAXPAYERS!
Around the world in 80 secs shows little in the way of other countries turning up
http://www.gummy-stuff.org/markets.htm
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