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November 15, 2009 – Comments (32)

I am at my second year out of the market and I feel no more ready to re-enter the market now then I did a year ago, then I did when I exited all of my positions.

Certainly there are lots of things that have happened that I would not have predicted.  I would not have predicted that practically every government in the world would jump onto the spend money we don't have band wagon, and spend money to levels of extreme not previously seen.  In Canada the bozos we have in office managed to go from a $15 billionish surplus to a $50 billion deficit.

Many times I have said that Brian Molroney is Canada's more unrecognized Prime Minister for what he did for Canada, which was control our debt and get us on track to the path to paying it backing.  He was the a strong economic voice about the degree of trouble Canada was in because of the debt and there doesn't seem to be a single world leader even marginally his equal in terms of fiscal policy.  They are all set on ensuring we break the system.

So, right now the economy is being run on government debt and government revenue from taxes is dramatically down, everywhere.  The down is from people not working and people not spending.

So, we set up system where the burden of paying the government bills falls on fewer people and governments are going to have to raise taxes.  It means that people that are working are going to have less disposable income.  How are jobs created when people have little money to spend?

Governments are carrying an unsustainable level of debt.  They are running deficit budgets in a low interest rate environment.  Eventually risk has to be built back into interest rates and the burden of debt servicing can wipe out government's ability to continue offering the services it currently offers.

I just don't see how investing now when there is simply going to be a lot of hard times coming is wise.  I can not predict which companies will survive, but I do think some companies that people assume will always be there are not going to make it.  Just as governments are over burdened with debt, well, I think there will be "payback" for the stupidity of taking on debt to do share buybacks.  One thing that I found looking at these companies was that for many the number of shares of did not decline much because of the econormous constant dilution of shares with stock option programs for employees and executives.  So, you are essentially left with companies that squandered all of their profits and future profits equal to the debt taken on plus interest.  Just what the companies did to themselves means that their earnings would decline as that burden takes a significant chunk out of profits, and now add reduced business due to a bad economy.  

When I entered the market about 10 years ago with a financial advisor, already a number of thing that had be taught to me as truth I found lacking.  When I thought these things through I kept coming up with these things were not true for me because of where I was in the age cohort relative to the baby boomers.  So, I decided to pretend I was at the top of the baby boomers and anticipate what they'd be doing next and make sure I was ahead of the game, rather then picking up crumbs again.  I figured that somewhere when they were in their 60s they'd stop adding to their investments and start pulling investment money.  Supply and demand simply says that as the group of retirees grows, it has to have a downward effect on stocks.  Ten years ago I decided that I was going to be in the first group out of the market.

This baby boomer demographic thing affects everything.  For the housing market, well, being at the back end of the baby boomers, demand for housing was good for builders for more then 20 years prior to me wanting to own a home.  It is one of the things in addition to the low rates that resulted in the "truth" that a home is always a good investment.  Baby boomers with disposible income wanting to save for retirement have made far more money available to purchase investments and that has pushed up the stockmarket beyond where it would be if there wasn't a population bubble.

And now it is time for that population bubble to start planning for spending in retirement, not saving for retirement.  There is going to be a continuing growth of money being permanently removed from the market as the baby boom population bubble ages, at the same time companies have done such a good job at destroying their foundation with the massive debt loads.

I am sure that people will continue to make money on the stock market, but I think the masses are going to lose.  I did exceptionally well when I was in the market, but I spent hours upon hours studying it and I just don't have the time for that.  So when I consider how I feel about the market as a whole, if you want to be a low maintenance investor, well, I think overall that is going to be a losing position.

So, I will continue watching the market, but when I think through the population bubble and how that might affect investments, government debt, high unemployment, etc.,  I just can't see the market doing well. 

32 Comments – Post Your Own

#1) On November 15, 2009 at 10:23 PM, HarryCarysGhost (99.70) wrote:

I am sure that people will continue to make money on the stock market, but I think the masses are going to lose.  I did exceptionally well when I was in the market, but I spent hours upon hours studying it and I just don't have the time for that.  So when I consider how I feel about the market as a whole, if you want to be a low maintenance investor, well, I think overall that is going to be a losing position.

I have to rec this just because I took %50 profit off the table

 

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#2) On November 15, 2009 at 10:30 PM, DownEscalator (< 20) wrote:

Excellent write-up. 

"I do think some companies that people assume will always be there are not going to make it."

1979 Fortune 500

1. General Motors
9. Gulf Oil
10. Chrysler
19. Tenneco
25. Eastman Kodak
30. RCA
31. Beatrice Foods
34. Bethlehem Steel
42. LTV Steel
55. Greyhound

This isn't even looking at companies who are still significant (Sunoco) or those that merged with competitors (other oil companies, McDonnell-Douglas) Given our current economic climate, I expect even more giants to eventually fall, save, of course, the banks and insurers.

Unless their renewable energy bets pay off more than I imagine they will, GE is no guarantee to make it another decade.

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#3) On November 15, 2009 at 10:37 PM, meganchip (88.55) wrote:

Great post. Very thoughtful. I do think though, that commerce will continue to happen so there will be opportunities. I agree with msftgev that it certainly won't be an easy time for low maintenance investors. 

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#4) On November 15, 2009 at 11:33 PM, HarryCarysGhost (99.70) wrote:

Calling Outoffocus. how do I put a quote in italics after posting.

Thanx

BudGeVTasr

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#5) On November 15, 2009 at 11:57 PM, djkumquat (47.74) wrote:

thanks, downescalator, for that trip back 30 years! and yes, i'm not too optimistic about GE, either. immelt is a fool, a liar, or both. then again, warren buffett usually knows what he's doing.

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#6) On November 16, 2009 at 12:08 AM, Momentum21 (93.62) wrote:

I did exceptionally well when I was in the market, but I spent hours upon hours studying it and I just don't have the time for that.  So when I consider how I feel about the market as a whole, if you want to be a low maintenance investor, well, I think overall that is going to be a losing position.

Just a thought to consider... 

Did you ever think that your hours spent might have nothing to do with your performance? Luck and time horizon play a role in successful investing sometimes...and oftentimes it is simply greed that can unravel the best laid plans.

Those that think they know can often find themselves in a much larger losing position regardless of how active/passive they are...I speak from experience so this is not directed at you personally.  

I would like to see you make some more picks that parallel your commentary though. : )

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#7) On November 16, 2009 at 12:13 AM, cashkid79 (93.34) wrote:

And now it is time for that population bubble to start planning for spending in retirement, not saving for retirement.  There is going to be a continuing growth of money being permanently removed from the market as the baby boom population bubble ages

How much do you think will be permanently removed from US money supply here (economic variable MS), vs. re-distributed to various levels in the US 'money in circulation'; assume no distinctions are made about % of this money in different asset categories such as 401k/IRAs, RV or beach-front vacation homes, trust funds for children/grandchildren, etc....

.....not sure if I understood what you were saying about how BBers will be permanently removing money from the market unless the places they put the money they remove from the market contributes in no way to sustaining the market (maybe a more clear definition of 'market' would help)

Also, regarding the FEDs exit strategy components that are to take back/re-equalize the money supply after the infusion that was to boost/stimulate US economy; if you were to quantify that number estimate and compare it to the amount you foresee being removed by the retirement age baby boomers over the same sample slice period of time (call it two years beginning 2010 for the sake of comparison), do you think one will have a greater effect during the same period than the other? what effects do you think will be most widespread? during what time-line do you see effects being most significant?

Also, considering the state of US economy now and how the baby-boomers reaching retirement age will cause widespread changes among that group concerning decisions about how they transfer assets to suit and accomodate their lifestyle changes and shifts in priorities - what do you foresee in opportunities/strategic plans that could be implemented to capitalize on and profit (or at least minimize risk-loss) from the transactions that will be occurring (from the perspective of 30-35yr olds)?

Asking because I'm 30 and planning investment/retirement strategies and in understanding the value of planning ahead want to develop my abilities further from people knowledgeable in some specific areas...

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#8) On November 16, 2009 at 2:10 AM, HarryCarysGhost (99.70) wrote:

Dwot don't you feel like you missed the boat on this rally.

IMO you picked the worst posibble time to stop investing.

 

 

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#9) On November 16, 2009 at 2:14 AM, awallejr (83.93) wrote:

If you don't want to play the market then don't. Put your money into CDs or Tbills and move on.  To stay on the sidelines for 2 years is fine, but to do so while playing a caps game is ridiculous.  This is an investment website after all.  Yeah you missed the crash, but you also missed the rebound.  So how about justifying your blogs with worthwhile investment ideas instead of playing the same doomsday crap Alstry or GMX plays.  But at least those 2 have the guts to actually play the game, unlike you who just wants to "sit" on points and doom and gloom us.

As you once said in an EV38 blog, nonsense in=nonsense out.

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#10) On November 16, 2009 at 6:42 AM, TMFBabo (100.00) wrote:

If I remember correctly from previous comments, dwot got out of the market in 2007 or so. 

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#11) On November 16, 2009 at 9:34 AM, drgroup (69.29) wrote:

You are smart to stay out of this market for anything over a 15 minute day trade. Program traders will turn this market on it's hat when ever the brokers need some commission money for that new shiny car or plane. Don't let them short your positions and leave you on the downside.

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#12) On November 16, 2009 at 10:08 AM, awallejr (83.93) wrote:

Except if you notice many quality stocks have been continually rising since March lows even with this volatility.  They are doing so today as well. You sure can play the volatility on a day by day basis.  And you can make a ton if you quess right in the short run.  But options work wonders in both protecting your portfolio and even making money over the long term should you play them off your long holdings.

Staying on the sidelines is for people that don't want to deal with the daily changes to their networth. But then you simply miss great opportunites, and those with the fortitude to deal with the everchanging values had and still have chances to make good profits.

 

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#13) On November 16, 2009 at 10:41 AM, drgroup (69.29) wrote:

awallejr.... good points, well taken.

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#14) On November 16, 2009 at 11:34 AM, davejh23 (< 20) wrote:

Why would anyone criticize someone for staying out of the market since 2007?  Assuming Dwot has been invested for more than a couple years, staying fully invested and adding to positions on the way down and on the way up would still have caused huge losses.  If you just started investing, this might have resulted in great returns over the last year.  However, if Dwot has a portfolio she's been contributing to for 10 years, she would still be down 30% had she stayed fully invested.  Criticizing someone for saving themselves thousands of dollars seems ridiculous...had she timed the market perfectly, she could have done better, but she's still far ahead of most people...even those that are up 100%+ this year...

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#15) On November 16, 2009 at 11:59 AM, Bays (30.22) wrote:

"In Canada the bozos we have in office managed to go from a $15 billionish surplus to a $50 billion deficit."

The deficit is now only $927 million and will soon be a surplus again.

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#16) On November 16, 2009 at 12:10 PM, SkinneeJ (28.14) wrote:

The million dollar question...  If you are not in the market, then where do you put your money?  It seems that cash guarantees you a negative return over time, especially with the printing presses fired up.

Also, is it really true that baby boomers are "pulling their money out of the market"?  Wouldn't their advisors have been telling them to rebalance their portfoloios to keep more cash\bonds already as they approach retirement?  Wouldn't they already be "out of the market"?  They should be living on dividends at this point and spending that money on vacations, prescription drugs, recliners, flat screen tvs, and depends undergarments.

Also, how do the new generations of Americans fit into this picture?  Aren't those baby boomers kids having kids now?  Wouldn't they be saving for retirement in 401Ks like the baby boomers had previously done?

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#17) On November 16, 2009 at 2:07 PM, fifteenfifty (< 20) wrote:

It is a big open ended question how the Boomers will affect the economy and markets going forward.  Sometimes I get the feeling that these people simply don't have any money left, and will be eating dog food in their golden years.  But obviously 100% of them can't have caved to instant self gratification and unmanagable debt... we hope.

The varous money managers tell people to lean towards bonds in/near retirement.  At the moment, I'm rather fearful of bonds as the goverment is broke at every level, and I'm not at all excited about putting any of my cash near that giant Hoover sucking sound. So I don't know what I'd do if I were in that age bracket.  Seems the whole generation is hoping that they can just ever so barley squeeze through and kick the bucket before the whole system collapses behind them (thanks guys!).

 

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#18) On November 16, 2009 at 2:54 PM, RainierMan (80.44) wrote:

I'm as skeptical as many bears about the economy, but I do not believe this approach of totally avoiding the market is a good idea. You can be in the market to some extent and take risk management steps that let you sleep at night, and have at least some exposure the the upside. This requires no sophisticated technical skills. It just requires making small changes in your investments along the way, and not falling asleep at the wheel. You don't have to be "all in" no matter what to experience some of the upside to this market. 

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#19) On November 16, 2009 at 4:07 PM, awallejr (83.93) wrote:

"Why would anyone criticize someone for staying out of the market since 2007? "

I'm not.  The market isn't for everyone.  Many can't handle the swings in values and prefer steady, even if slow, growth from bank accounts.  But this is a stock market investment website.  Some treat it more as a place to "soapbox" their personal agendas. If you read many of her blogs, they are clearly bearish.  Fine. Then give stock picks which you think would coincide with that thesis.  I submit she just doesn't want to risk her score.

I've given plenty of ideas which I felt others in this "community" might want to consider.  I don't mean my portfolio notes, they are simple sentence quick reasoning behind my picks.  I refer to my actual blogs, both what I write and when I respond in other people's threads.  And to be frank had you followed those suggestions you would have made some really nice gains.

And it is those ideas by others I am interested in. 

As an aside, Marc Faber on Bloomberg today outright said  staying all cash in this market is the wrong thing to do. 

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#20) On November 16, 2009 at 5:15 PM, dwot (67.29) wrote:

Thanks for so many comments.

DownEscalator, good list.

Momentum 21, I got out right at the top in 2007.  My return over the previous 15 months when I got out was up 200%, that is, I tripled my retirement funds.  I think the triple had a lot to do with the time I spent on it rather then the market.  And, the time I spent on it is what prompted me to exit.

cashkid79, I am making the assumption that people will need to spend some of their retirement savings in retirement.  By market I mean the stock market.  Certainly there will be some that have enough that they only live on investment income, but if right now they are rolling investment income into the market and they start to spend that instead that is less demand for stock.  The other thing that will happen is as people die positions will likely be exited and the wealth distributed to family members.  I think the children of the baby boomers will not be investing that money but instead reducing their massive debt loads.   I am not really sure how to answer some of your questions.

msftgy, I wasn't invested in the oil bubble either.  I do not feel there is any foundation behind this rally so, no I don't feel like I missed it.  If I was able to look at the rally and find good reasons for it I would feel like I missed it.  I don't think it is sustainable or justified.  The market does crazy things all the time and I consider this rally one of them.

awallejr, you said you quite visiting my blog because you didn't like it.  I wish you would keep your word.  You have simply never had much nice to say on my blog and discontinuing your visits and comments would suit me fine.  I have little liking of control freaks, even through blogging, "You should..."  Quit telling me what I should and should not do.  All of your critism is because I am not interested in doing what you want and what you move to with non-compliance is put downs.  Keep your word and go away.

Thanks davejh23.

Bays, I don't have time to check your figures but I find that hard to believe.  Do you have a source?

SkinnieJ, lol, I bought a house and I like being a mortgage-free homeowner.  The house I sold in 2008 I got about $300 per sq ft and the house I just bought I paid $47 per sq ft.  The retirement savings isn't doing much right now, but seeing how I have 3 times what I did 4 years ago I am not concerned about taking my time.

fifteenfifty, so many of those bonds are scary these days because of what companies have done.  I am still thinking about what to do, but if I see opportunity, I am ready to take it.

MichaelinWA, I never intended to get 100% out, but where I had my money simply ignored my request to move it and they gave me one heck of a scare.  I was going to continue to have about 20% in the market.  What is interesting to me is there are some saying money is safer with a broker, but when I looked in to it they are self insured and I have preference for government insurance right now, even though I do not trust the long term solvency of government.

 

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#21) On November 16, 2009 at 5:32 PM, dwot (67.29) wrote:

Here is a blog with the type of stuff that concerns me.  This is on Private Equity.

So, now there is a trillion reasons to look into how private equity can affect investments.

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#22) On November 16, 2009 at 10:02 PM, HarryCarysGhost (99.70) wrote:

Dwot thank you for your reply. My question was poorly worded since I commend you for getting out in 2007.

I wanted to know your thoughts on the rally and it seems like we are in total agreement, since I took money off the table recently. ( during the rally it seemed like everthing was on a fire sale not so much now)

But given my investment time frame I would not be comfortable not being in equeties.

Thank you again and Happy Thanksgiving.

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#23) On November 16, 2009 at 10:35 PM, awallejr (83.93) wrote:

Sorry Dwot if you don't like the criticism then don't blog.  Otherwise it becomes fair game.  Just like mine do. If you aren't in the market and don't intend to be, then you are really no different than "that guy" in a yahoo mesage board thread who doesn't own the subject stock yet bashes it on a regular basis.

I guess it's fine for you to insult others (like your "nonsense" comment to EV28 in his thread).

 

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#24) On November 17, 2009 at 7:13 AM, outoffocus (22.81) wrote:

Calling Outoffocus. how do I put a quote in italics after posting.

Holy.... Lol I didn't even get to this blog until Monday night and didn't finish reading until this morning.  Well if you read this, highlight the quote and click I.

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#25) On November 17, 2009 at 10:58 AM, Bays (30.22) wrote:

Canada's trade deficit cut in half in September: Statistics Canada

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#26) On November 17, 2009 at 11:04 AM, Bays (30.22) wrote:

Dwot,

I wouldnt lie to you.

I think you'll find this link much more useful.  Enjoy.

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#27) On November 17, 2009 at 4:52 PM, dwot (67.29) wrote:

Bays, that's a trade deficit.  I didn't say you were lying, but I found it hard to believe that the deficit had been reduced to that degree.  I am talking about the government deficit, how much taxes are short in terms of covering what government is spending money on.  You have provided a link to a trade deficit.  They are different things.

Here is an article on the deficit from September, $55.9 billion.

awallejr, you have been nothing but constantly insulting and arrogant and controlling.  Once again, you attempt to tell me what to do.  You said you weren't interested in my blog, fine, go away.

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#28) On November 17, 2009 at 6:16 PM, rocksnot (28.92) wrote:

dwot, wonderful as always.  Ignore the idiots.  I hope you'll always remember that there are many more of us that love reading your posts than these few who take time out of their days to try to tear you down.  You've done so well, with real money, that jealousy is inevitable. 

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#29) On November 17, 2009 at 7:08 PM, Bays (30.22) wrote:

Yes youre right. Sorry about that.  But on a brighter note we will soon have a trade surplus again!

 

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#30) On November 17, 2009 at 7:14 PM, topsecret09 (34.57) wrote:

Down the tubes...........

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#31) On November 17, 2009 at 7:22 PM, awallejr (83.93) wrote:

"Once again, you attempt to tell me what to do."

Not telling you to do anything, just "suggesting." 

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#32) On November 17, 2009 at 10:13 PM, HarryCarysGhost (99.70) wrote:

Holy.... Lol I didn't even get to this blog until Monday night and didn't finish reading until this morning.  Well if you read this, highlight the quote and click I.

Thanx Outoffocus. Don't know why I never noticed that before.

Felt bad for meganchip but I had to point out something that funny.

Msftgev

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