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alstry (36.19)

A IMPORTANT Foolish Survey.....

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May 26, 2009 – Comments (22)

In keeping with the less caustic Alstry and greater emphasis on change....... 

What would your personal financial situation look like if the Stock Market CRASHED 90% (like S&P earnings in the past 20 months) and your home value dropped 50%???????

What would happen to your friends/neighbors if the above happened AND they lost their jobs or incomes reduced materially while insurance, food and fuel prices rose????

What do you think the effect of the above would be on our economy???????????

All responses are GREATLY appreciated......thanks in advance.....

22 Comments – Post Your Own

#1) On May 26, 2009 at 5:37 PM, jddubya (< 20) wrote:

Wrong.  Not an IMPORTANT survey.  These are rhetorical questions.  Not survey questions.

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#2) On May 26, 2009 at 5:42 PM, Varchild2008 (85.85) wrote:

I can't speak for anyone else but I have been sheltering myself from that kind of calamity slowly..

1)  I have a savings account I regularly put money in....

2)  I have a job that ain't going away no matter how bad the economy gets....

3)  I don't live in a House yet...I'm in an apartment.  So, if I did live in a house... I guess I'd ditch the House and live in an apartment or condo.

4)  A 90% crash in Stock Market does not mean a 100% crash in dividend pay-outs.  I have some solid companys with quarterly dividend pay-outs that have a 50% or less exposure to America's economy.   (referring to (WHR) for example).

I'd do just fine.

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#3) On May 26, 2009 at 5:45 PM, Varchild2008 (85.85) wrote:

Oh I forgot.

5)  I live close enough to work that I can WALK to work.  So, I couldn't care less about fuel prices.  I can WALK to my grocery store as well.

I am pretty much taken care of even in complete Anarchy.

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#4) On May 26, 2009 at 5:47 PM, alstry (36.19) wrote:

Var,

Thanks for your perspective...at this point, all I am looking for are perspectives and preparations to a black swan event......not whether such an even is likely or not to occur.

I purchase life insurance on myself for my family....not hoping that I am going to die......which in fact is what must occur in order for my bet to payoff.....but simply insuring against such a liklihood of a black swan event.

 

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#5) On May 26, 2009 at 6:41 PM, Mary953 (75.92) wrote:

I agree with jdubbya's reaction and Varchild's foresight. 

I would rework the furniture in the various rooms so that my family and friends had a place to come if they needed one.  I have, as have my family and friends, been preparing for the worst and hoping for the best.  And we have, to quote the Declaration of Independence, "a firm reliance on the protection of Divine Providence"  so we would pray in the expectation that God would hear and answer. God has a way of creating miracles when you need them the most - even financial ones.

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#6) On May 26, 2009 at 6:47 PM, alstry (36.19) wrote:

God is the Greatest.....He loves to help those that help themselves......remember how everybody laughed at Moses.....what Fool would build a boat in the desert???

I guess black swan preparation even applies to God.....

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#7) On May 26, 2009 at 7:14 PM, VintageCat (< 20) wrote:

We own our homes free and clear.  We are located adjacent to and within walking and biking distance from the city's downtown core.  Many services are within a reasonable walking/biking distance from the house. We are less than a block from the city's many miles of bike paths and trails.  We bought here specifically in the mid-90s seeing that fuel had nowhere else to go but up.  We did not want to be trapped in a commute suburb with fuel going out of sight so we paid more for the house per square foot than we might have otherwise but have never regretted it for an instant.  Houses in this neighborhood will be among the last to go down in value and even now it's rare to see a real estate sign up without the "sale pending" sign for more than a week or so. It's true what they say about location, location, location.

We have at least 3-5 years of living expenses (in somewhat reduced circumstances) taxes, etc. in series EE bonds and cash on hand without any additional income.

We both have federal pensions which for now seem fairly secure.  We both realize that this may change. 

We need nothing but food, fuel, utilities and occasional medical care. For any need that arises, we are second hand scroungers so we usually outlay very little for "things".  We are not big spenders.

Insurance including life is well taken care of.

Very little money is invested in the stock market.  Anything riskier than treasuries is money we can afford to lose.

Homes reduced in value by 50% is about where we bought them so not too much worry there other than the loss of equity.  Our mobility might be hindered somewhat if we decide to wait to sell.

I would say that at least 75% or more of our neighbors are in the same or better circumstances being old/long time residents in the area.  The other roughly 25% that bought in at the top, especially the aspirational buyers that stretched into buying in this area, are in deep deep carp.  In fact one neighbor that works for an auto dealer has a grown daughter with her child and a live in girlfriend all bunking into a 3 bedroom, none too big place probably to make ends meet.

For the people living paycheck to paycheck, a bigger mess than we are in now would be devastating applied over a large portion of the population.  Personally, we have lived for years well below our means to be able to withstand a lot of pressure when things go wrong.  I hope it's enough but by the time it gets round to folks like us, it will be a grim day indeed.    

 

 

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#8) On May 26, 2009 at 7:19 PM, jegr5347 (< 20) wrote:

Arrrrgh? Alstry I think its Noah, not Moses.

FYI who cares how close you live to work or the grocery store if banks are not extending lines of credit to farmers, supermarkets and delivery companies.

Who cares if you walk, trot or skateboard places when it costs a farmer $1.50 to produce a gallon of milk he can then turn around and sell for $1.20.

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#9) On May 26, 2009 at 8:41 PM, alstry (36.19) wrote:

jegr,

thanks for paying attention....I guess my example was really more of a basket case.

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#10) On May 26, 2009 at 8:53 PM, ralphmachio (26.73) wrote:

If the stock market crashed, I'd have more money than I've ever had.

I don't own a home, but If prices got cut in half, I'd buy at least 10 acres of farm land, somewhere in the north east, in the hills. I would grow as much food as possible, and try to feed those within a reasonable distance until things get normal, or whatever.

this is kind of what i want to do anyway, so take that into consideration 

there would be no economy if it fell by 90%, just barter within communities, a whole lotta panic and desperation.

The most important thing is to be far away from large concentrations of people. I've seen justification of obscene acts in the name of protecting ones family. With the scale of denial, I expect equal mayhem as those who could not bring themselves to see what was right in front of their face will be the most berzerk. When the "this can't happen in america" crowd gets hungry, look out!  

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#11) On May 26, 2009 at 9:02 PM, MikeBobulinski (< 20) wrote:

Not sure why it matters.  I was under the impression that you foresaw some major catastrophe occurring between now and September.  Further, I thought I read that you think we are heading towards tent city style accommodations.  So why are you suddenly inquiring as to how the items you have named might affect us?

1.  Stock market crashes 90%? No major impact to my personal finance other than perhaps delaying my retirement until such a time as the market recovers and my retirement funds recover.  Since I am about 25 years from an actual age based retirement, I don't foresee a market crash as an issue.  The indirect implications of such a crash and the chaos it would cause in economic terms, I could not say.  I imagine, that my nest egg would not hold out as well as desired.

2. Home value dropping 50%?  If it dropped an additional 50% from its current value, it would be worth less than what I paid for it ten plus years ago.  I would end up being severely upside down on my mortgage, but moving is not on the top of my list at the moment...so I could afford to wait it out.

3.  Issues for my neighbors?  Since I do not know what my neighbors individual financial situations are, nor do I make it a point about being nosey about such matters, I imagine that they would not be in a happy state of being.  Especially if they became unemployed.  Many of the problems you mention can be waited out if the income stream remains steady (as in you get paid something).  When the income stops, that is when the real problems start.

4.  Effects on our economy (assuming you are talking about US economy)?  With our economy based on consumer spending to a great extent, I imagine our economy would suffer greatly.   This in turn would cause a re-alignment of thinking, and eventually the American populace and government would have to steer away from consumerism and towards something more productive.

Since most of this is extremely speculative with regards to where things are actually going to end up...too many moving parts to be able to definitively predict where things are going.  I say this knowing that your belief is that you are always right (or that Alstrynomics is all about being right), but I wonder why the "I predicted a top at 8300" (when things have flirted with going higher and in the past month have closed a couple hundred points over that level on more than one occasion) tone changes when things do not go 100% as predicted.  Not saying you are wrong, but you have not been 100% correct in everything that I have read so far.  But time will be the true teller of this tale...and I, for one, will work to insure that I am around when the tale is told.

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#12) On May 26, 2009 at 9:18 PM, alstry (36.19) wrote:

Guys...my query is not speculative....the fact is we are running out of money.....revenues are evaporating, income is evaporating, and profits are down 90%....it is not much further to go before profits are down 100% and tax revenues are simply insufficient for government to function.

I am just curious to see how you guys project a very foreseeable change.........sometimes people can be staring something right in front of them by deny its existence because it takes them out of their comfort zone.

The one thing we can't deny....as a society, we are running out of money......just ask the governors of just about every state in the union and the mayors of just about every city.

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#13) On May 26, 2009 at 9:55 PM, MikeBobulinski (< 20) wrote:

Not disagreeing with you.  Perhaps your questions might be better served if you asked about the impact that unemployment would have on you.  Perhaps adding this one question (see question 1 below, to lead the others might work better:

1.  What would the impact to your personal financial situation be should you become unemployed?

2.  What would the impact to your personal finance be should the market crash? (much in the manner that you asked) Housing market continue to slump or get worse? Unemployment continue its death spiral? Etc.

3.  What do you think the impact would be to your neighbors, friends, and family should they face similar circumstances?

4. What do you think the impact to the economy would be should the above occur?

Without question one being asked, you are asking us to make guesses varying in degrees of education about things we may not have direct knowledge or immediate exposure to.  The number one impact to anyone's personal finance is going to be income based.  Without employment or some kind of income, the others are a moot point.  No income, no ability to pay anything that is financed.  No ability to pay anything financed, and the banks reclaim their portion of whatever they extended credit on.  Folks get displaced in suitable numbers, and then all of the bad things that you have been harping about come to fruition.

The problem is that right now there are areas of the country that are really bad off.  No one denies that.  BUT there are also areas of the country that are not so bad off.  It may be a matter of time before we are all in the same boat.  BUT my number one concern at the moment is job and income security, not whether or not my house will be devalued or whether or not the stock market will crash.  My view might be short sighted in not understanding the long term impacts of such crashes to the levels you are predicting, but if my income matches or beats my obligations, then my ability to ride this out is pretty solid.  If my income is unable to keep pace with my obligations, then changes will need to be made.

For instance, when gas was upwards of $4 a gallon in my area, my spending habits changed to insure I had fuel in my car to get me to work and back.  Extra trips for frivolous things such as eating out, buying the kids a new toy or any toys, etc, went away.  Spending in my household became more necessity driven than anything else.  Should my income woefully undershoot my obligations, then I do not know for certain what I would do as I would have to handle things on a case by case basis, but the general picture would be something along the lines of trying to work with any creditors to come up with an acceptable arrangement.  Should that not work, then I might need to look into bankruptcy protection and what it entails.  But I am not their yet, nor do I foresee being there in the near future.  My income beats my obligations and my nest egg while not 100% secure should supplement my income should my obligations go haywire. In the meantime, while things are on a decent footing for me, I am putting more away for that potential rainy day.  I am paying down my obligations and getting rid of any that do not carry acceptable rates (as in all but an emergency credit card with the best rate available to me), working on getting down to buying only necessities and making due with the "toys" that we already have.

This may not be overly supportive of a consumer driven economy, but it is allowing us to live through this tough time and to (as you put it) prepare for harder times that may be ahead.  I say "may" because I do not pretend to have any better ability than the next at predicting where things may go.  I will say this, I do not think that the ride will be an easy one, and I am working on preparing my family for making do with what we have until things turn around... 

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#14) On May 26, 2009 at 10:01 PM, alstry (36.19) wrote:

Thanks Mike.....

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#15) On May 26, 2009 at 10:46 PM, VintageCat (< 20) wrote:

Since we all seem to have gotten the question wrong and fielded wrong answers, I guess that it's all dependent on the level of crisis.  Worse comes to worse, we'll pack up our cargo trailers with our most important belongings, pickle and board up or sell the houses and head to the ancestral farm in the midwest to farm, garden, raise animals and the like.  

Both my husband and I have trade worhy skills and are hard workers. We can between us build or fix practically anything, fly a plane, sail a boat, go across rugged terrain in off road vehicles (without the chaps), grow our own food, sew/repair our clothes, milk cows or goats, catch and clean fish, do a decent job of first aid and most importantly we have the tools and supplies to make it all happen.  I know most of the local edible plants and what to do with them as well of those of the mid-west. We can most importantly think on our feet in a clinch.   

Remember Junk Yard Wars?  We would have been competitive. It's a matter of self reliance.  I don't expect to be in this posture though, but if we are, so be it.  We will live by our accumulated skills and whatever our money/possessions may be worth.  That's our TEOTWAWKI plan.

If that's what you were asking....  

 

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#16) On May 27, 2009 at 1:39 AM, AdirondackFund (< 20) wrote:

We just had a Black Swan Event.  Three missles and an underground nuclear test should have rattled the markets ... and it didn't.  Instead, we got defiance from markets which is heating up today's rallies as well.  This is madness.  Markets should have sold off on the news.

For the next two months I'm expecting markets to fall, but if everytime an enemy of ours does something stupid, causing the markets to rally in defiance as they have, who knows.  Maybe Iran could Nuke Israel and the markets will rally substantially on the news.   

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#17) On May 27, 2009 at 1:48 AM, ozzfan1317 (82.30) wrote:

My Dividend paying stocks would just pay me more. I go to college

so no worries on the job market just yet. Waiting to buy a house

unitl I have enough saved and me and my Fiance get married.

I would be just fine  It just means I could some great companys for cheap.

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#18) On May 27, 2009 at 1:50 AM, portefeuille (99.65) wrote:

Maybe Iran could Nuke Israel ...

Not a very likely scenario since possession of "nukes" seems to be "the other way around" ...

 

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#19) On May 27, 2009 at 1:52 AM, AdirondackFund (< 20) wrote:

Another thing.  Germany announced a 6% decline in exports in Q1, a further decline from Q4 of '08.  This is HORRIBLE news, and their market rallied as well citing 'it's going to get better'...or more precisely that it can't get any worse.  This is maddness as well. 

Do you remember the March 6th Obamamatic in Columbus, Ohio touting the stimulus package and the saving of jobs for Police recruits?  Here's what ended up happening.

http://www.cnn.com/2009/POLITICS/05/26/ohio.stimulus.police.cuts/index.html?iref=werecommend

Not only did the 1.2 Million the Feds gave them to keep the recruits going not work, but that money is now gone.  Incinerated.  Except, of course, for the interest and service on the debt that was incurred.  We incinerate money, and then make the monthly payment as a Nation.  This is kinda nuts, I say. 

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#20) On May 27, 2009 at 1:59 AM, AdirondackFund (< 20) wrote:

Sorry, Port, the idea was tongue in cheek.  I wasn't being any more serious or reasonable than the markets themselves.  It seems now National Security Policy to always rally markets whenever we are challenged.  Why is that?  Are they afraid Kim is short?  LOL.   

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#21) On May 27, 2009 at 2:14 AM, portefeuille (99.65) wrote:

Germany announced a 6% decline in exports in Q1, a further decline from Q4 of '08. 

It was a 9.7% decline (see here).

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#22) On May 27, 2009 at 2:43 AM, AdirondackFund (< 20) wrote:

Yeah Port, you're right.  It's late.  I was probably thinking 6% more than Q4 of '08 decline.  I guess Kim Jong Il is pretty determined to make some dough on his shorts. 

http://www.bloomberg.com/apps/news?pid=20601087&sid=azuBScNJT4Oc&refer=home

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