So We Find a Bottom - Then What?

A reader left a comment noting that SPX going down to 600 would be devastating to baby boomers. Maybe it would be devastating, collectively, to baby boomers but I would look at this differently. If 600 ends up being the number, then what? After 600, what comes next? If the bottom comes at some other number, then what? Whatever the bottom, what then happens?

After the bottom it then begins to work back. The timetable may or may not be to our liking, but the bottom is the bottom and after the bottom, prices go up. Regardless of when a bottom comes or how long it takes to make back a meaningful portion of what you are down, the above description is how it will work. Again, the variables are when and how long.

Of course when and how long are beyond anyone's control, so instead of worrying about what we cannot control, we should worry about what we can control (at least partially) like not panicking, staying disciplined and recognizing when others are freaking out.

In the last couple of months, not surprisingly, I have had more contact with clients than normal. There is a balancing act here with realizing how numbers and markets work and being appropriately sensitive to client concern.

As for the numbers and markets and tying in with the reader comment about baby boomers -- it's a good bet that a healthy baby boomer will live to see a new high in the market, by a wide margin probably. The market had a decade-long round trip to nowhere that ended in 1946. In October 1946 the Dow was at 186, ten years later it was at 479. After a famous decade-long round trip ending in 1982, the Dow went from 991 in October of that year to 3226 in October 1992.

Think this time is worse? Ok, say that it is, and it only doubles over the next ten years (much worse result than the other times), a healthy baby boomer will very likely live to see new highs. Think this will turn into 20 years of a round trip to nowhere? Okay,  fine, but that final result would not come in a straight line. There would be plenty of 20% ups to be in on and 20% downs to avoid or short.

If things turn out to be truly different, okay, figure out how to adapt and then stick to it.

Comments

[thehobe:]

Your comments are not insightful or contain any pertinent information. i.e., anyone could have written the article with very little knowledge. Just admit for now, that your 600 target was incorrect(for now).

2008 Oct 28 04:26 PM

[jadziasman:]

The bottom of all bottoms will primarily depend on the moves made by the world governments and the outcome of the Great Unwinding in the next few quarters.

It is foolish to predict one and even worse to buy into what you believe surely must be THE one. The smartest move is to wait out the volatility and then carefully reinvest the bulk of your funds.

It's absolutely frightening to consider that 20% single day advances and declines could become common the next few months. Participants in 401K plans usually cannot direct their retirement administrator to invest their current month's salary contribution on a day of their choosing - even though in all fairness they should have this privilege.

If it wasn't for the fact that the Christian fundamentalists haven't been raptured, I'd say we are experiencing the Great Tribulation right now.

2008 Oct 28 04:53 PM

[bdscott55:]

I am one boomer that has had enough with the stock market. I have to think that there are others out there that feel that they are better off with modest gains provided by bonds, cds, and gold than gambling in the stock market casino. The high volatility just goes to show how screwed up the system really is. These are more like death throes of a failed system than a normal market correction. Add to this the mess that a Democrat controlled federal government is going to create and it just ain't worth the grief.

2008 Oct 28 04:58 PM

[Mike McGinley:]

Good article. I run a small advisory firm in Phoenix and was shaking my head when Dennis Gartman was discussing on CNBC the awful effects of boomers continually selling stocks over the next several years to fund retirement. I have a lot of respect for Gartman but I think this common belief misses the boat. The fact is that most boomers with substantial wealth will always maintain a balanced portfolio with lots of different asset classes. They will probably maintain this until the day they die (at least that is what I recommend). In my opinion, liquidations are a small part of the story.

Boomers without a decent size portfolio will probably work for a longer period (which is a good thing all around). Most of them cannot afford to spend 30 years in retirement and, as such, most will not do so.

2008 Oct 28 04:58 PM

[debtacid:]

It’s amusing that people still use terms like bull, bear, bottom, recovery as though they mean anything anymore. How can anything be valued when the Fed keeps shifting the sand beneath our feet? Since we seem to be following the Japanese recipe for recession management, can’t we assume the market will lose 80% of its value in the next 20 years? A good investor can make money in a rising or falling market and I'm still optimistic about the downside.

2008 Oct 28 05:34 PM

[thedozer:]

after the bottom, you put a socialist in office and the money that would have been evaporated by wall street will go to buying beer and cigarettes for your neighbors while they are standing in line to get their government provided free 800 billion dollar healthcare.

not to drag politics in here but when you have a radical running on a platform of handouts and claiming "the Constitution is fundamentally flawed as it fails to outline the Federal Governments role in PROVIDING for its people" (obama in 91')

he went on to speak against negative liberties.... open your eyes!

you can't look the other way and hope that he's only joking... he is going to sign bills from Pelosi & Reed.... you tell me how you think its going to be

I never thought I'd say... I'd rather have Billary

2008 Oct 28 06:13 PM

[CrisisTheory:]

Jeeze, I wish we could have more economic results like the right wing governments of the last 30 years have provided!

Where did all that debt come from ? Bankers (S&L to TARP), Military-Industrail comples (KBR, DynCorp, et al.) and tax cuts for the top 1%.

And the largest debts in history.

Socialism for the rich! Thats what Republican adminisration has delivered!

2008 Oct 28 06:54 PM

[frank90291:]

Inflation? Deflation? Who knows? The monkeys on Wall St and in Washington sure don't know. They created the problem so why do ppl think they can fix it.
CASH is KING for quite a long time, believe it !!!

2008 Oct 28 07:05 PM

[thedozer:]

crisis

'socialism for the rich' good argument.... makes NO sense.

you know...I would try to enlighten you about the taxes and the top 1%
but you probably don't realize that corporations pass their tax increases right onto you buddy... the simply charge more for the end product!

but since you are probably part of the 40% that doesn't pay taxes... I will enjoy sending you some of MY hard earned money...

just because you are pissed you are tired of ringing up #1's with no onions, just take solace you are getting a pay raise with obama

2008 Oct 28 07:36 PM

[nmelendez:]

If you want to know who messed you up thank GW Bush and the Republican party whom messed up the Dow cycle. Baby Boomers will probably not see these dow levels again. If you look at the normal Dow cycle, back in 1999 we were going down. This was a normal stock cycle correction. What Bush and the Republican party did was inflate the money supply by creating electronic money. i.e. IOU's. If you look at the normalized Dow we would now be at between 3500 and 5000 on the dow and 300 to 400 on the S&P. You have all been HAD!!! Now it's time to pay the piper. Next stop from here is Dow 7000. I am not a Bear but cycles do not lie. We will be at this volatility for many years to come, together with an inflationary recesion. Good luck to all.

2008 Oct 28 09:42 PM

[thedozer:]

cruiser...

it is Bush's fault... assuming he is responsible for the conception of both Bill Clinton and Alan Greenspan

2008 Oct 28 10:53 PM

[Steven Hansen:]

i am a boomer and this article is not based on any evidence. i can point to many 10 year cycles where you entered and departed at the same level.

i do not invest funds for other people. i have no vested interests. there has been no evidence to support that historical cycles are even in play at this time.

maybe in 10 years it will be one-tenth of today or ten times todays dow or s&p.

but there is evidence that we are entering a very, very bad economic period, and that is my investing horizon.

2008 Oct 29 04:42 AM

[pockyclips ...:]

Debtacid:

I've always felt shorting or betting on losers was equivalent to communism,
but i'm afraid your right. Following the Japanese example of priming the pump will probably lead to the same results. Having been born at the absolute peak of the baby boom does not leave me with a warm fuzzy feeling when it comes to stocks.

2008 Oct 29 09:22 AM

[Mowog:]

Once I'm earning $6K annually in dividends and interest, I'll consider moving to Thailand, marrying a local, and having children as my Social Security system. That assumes, of course, that Comrade Obama, his economic advisor Franklin Raines (who got a golden parachute for sinking Fannie Mae), and two compliant houses of Congress don't inflate my USD into nothing.

2008 Oct 30 02:34 AM