Think of These as Short-Term Troubles 30 comments
James Picerno
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The monthly numbers for all the asset classes suffered red ink in September (save for cash), as our table from yesterday details. Fortunately, that's a rare episode.
For the 10 asset classes listed in that table, the last time the representative indices all posted monthly losses was August 1998, which was the month of the Russian financial crisis that triggered a range of calamities, including the eventual collapse of the hedge fund Long Term Capital Management.
The crisis that came to a head in September 2008 makes the problems of a decade ago look shallow by comparison. Indeed, the current troubles are deeper and threaten the economy in a way that the '98 ills never did. The main lesson today is that no asset class is immune from financial and economic crises. Nor is there any reason to think that all the major asset classes can't suffer losses simultaneously.
The good news is that an across-the-board fall in the 10 major asset classes is abnormal. But it does happen, and a bit more often such events nearly happen. In addition to August 1998, we came close to a repeat performance of everything going down in April 2004, save for one investable high-yield bond index that stood alone in posting a slight gain. That's a thin reed, though, and so perhaps it's best to say that red ink prevailed everywhere three times in the past 10 years. That's a 2.5% failure rate. It's low, but it's higher than zero, and so we can't be blind to the possibility.
Clearly, strategic-minded investors should be prepared for such times, at least emotionally. But looking over longer periods further lessens the incidence of everything tumbling. Once you begin looking at 6-month trailing returns and longer, the frequency of all the major asset classes suffering negative performance drops significantly. Therein lies the benefit of broad diversification over time. But on a monthly basis, and certainly for weekly or daily periods, anything's possible.
But let's think about the longer periods. Why should we see more stability in a multi-asset-class portfolio over, say, 1-year periods vs. monthly returns? The fundamental reason is that over time, the risks that loom over commodities vs. bonds vs. REITs vs. equities are different. That may not matter in any one month, particularly when all hell breaks loose, as during last month. But the prospect of everything dropping month after month after month is virtually nil. That's not to say it can't or won't happen. Personally, though, we don't worry about that possibility. If all the world's major asset classes post red ink for 12 months straight, the apocalypse is surely upon us and most of us will be preoccupied with such things as finding a loaf of bread and clean drinking water.
Assuming the world survives (which is one of our little biases), we're confident that our Global Market Portfolio Index will be higher a year from now, or at the very least unchanged from current levels. No, we can't promise that forecast, nor any other of our guesstimates. But investing always involves a leap of faith on some level, and that's the essence of our strategic assumption. Meanwhile, keep in mind that when we speak of multi-asset classes, we're talking of its value over the long haul, at least three years out. As for any one month, or even a string of them, the noise risk is omnipresent, and sometimes the noise can be deafening.
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This article has 30 comments:
I'll continue to add to shares that are cheap on any measure of forward P/E, hold them for the dividends and DRIP them over a long period of time.
Let's look into our crystal ball, into the future decades... I see an economy in shambles as a result of greed and spending too far into the future by using credit recklessly and exploiting limited resources at the expense of everyone on this planet. I see oil rising to 200-500 bbl if there is every a slightest up tick in our economy. The result, of course, is the continued stagnation of the economy due to high energy prices.
Alternative energy? How? Our government supports Wall Street greed over everything else. Wind power and other alternative resource development will stagnate; cities will be unable to develop mass transit systems with a $700 billion monkey on our back. Fix Main Street? Don't you think $700 billion for our nation's schools would help Main Street? Don't you thin $700 billion for a national health care program would help Main Street?
Has anyone ever seen the head of Health and Human Services or the Department of Education come out and say something like We need $700 billion for our schools next month or our children's and society's future are at risk! Or, Mr President! We need $700 billion for universal health coverage by next week! We need to protect our citizen's health!
Paulson and Bush are bull crap. Wall Street has gotten our nation into a hole we may never be able to dig our way out of. The Madison Avenue types are out on the blogs, television and radio, telling us it ain't so and to pull out our Visa cards and keep on spending.
What a pathetic bunch...
"Additionally, the Securities Exchange Commission extended its ban on short selling certain stocks through October 17. Should the financial relief plan pass, the ban will expire three business days after its enactment."
Short selling bans are either needed or not. They shouldn't be contingent on the passage of the bill.
To the U.S. House of Representatives: Don't be fooled. You are not a hostage to the corrupt policies of Paulson, Bush and Wall Street. If you vote in favor of this legislation, they'll hold you and the American people hostage over and over. Don't negotiate with the Bush-Paulson-Wall Street free market hijackers!
Perhaps it’s because you’re just not understanding the situation. The great credit superbubble has burst.
video.google.com/googl...
If the above link does not work try this one
www.charlierose.com/gu...
I wonder how much toxic paper his companies are stuck with?
The number of resets & recasts coming down the pike.
The amount bad debt on banks books still marked at $0.80.
The fact banks aren't modifying mortgages at affordable levels (and they want 1/2 the equity!)
This is the engine of decline in this debacle, and until the brakes are applied hard, or it just runs its course, we aren't near a bottom. It will take the market, the world economy and all the big banks with it.
Some banks have withstood the first half, but can you imagine any of them surviving a second onslaught of equal size? If they're going out of business anyway, why bail them out now? Let 'em go and start fixing things sooner rather than $5T later.
This bill has NOTHING to slow the root cause. It will do nothing but delay the inevitable and waste an absolute ocean of money.
Investing now would doom your money to more losses, and subject it to the serious inflation that will follow this printing party. We are only down 30%, which is an average bear market. There is nothing average or normal about this one.
I'm all for dollar cost averaging in as we approach a real bottom, but I'm in cash and waiting. Don't try to catch a falling hydrogen bomb.
Sometimes it can cost $700 billion...
Take care of your neighbors, volunteer for the homeless or food pantries. Hold the door for the old ladies, etc. If you were wise with your money, you will have cash to buy assets for pennies on the dollar.
We survived the Great Depression and WWII. We will survive the Great Depression 2 and WWIII. We also shall display honor and courage as our time comes and we also will be known as the Second Greatest Generation. Our species is on an societal evolutionary path and this is the final stage. Biblical sized proportions to be sure, but biblical sized great global society afterwards.
As for the Bailout, and it is a bailout, the purpose is to extend our massive reliance on credit. One does not cure an addict by refilling his crack pipe.
economy's tanking bro....abandon ship !!!
investmentscientist.co.../
(Website link to the left)
As I've said before, I have a graduate degree in economics, but I've been out of that so long I almost had a heart attack when I learned that 70-75 percent of our economy is based directly on consumer spending.
What we have here is the United States as the consumer, China as the manufacture, I guess agriculture could go to China and several Latin American countries... One big dysfunctional family... Put them all together and you have something called an economy; problem is, they are not together. In the past, when one sector takes a hit, another may get you over the bump. No more.
BTW, the reason I think the crash we are moving into will be much worse than the Great Depression is that our country will be bankrupt and we are far away from the agrarian society we were in the 1920's-30's. During the Great Depression, things were not critical for a major part of the population because they lived on small farms; a large segment of our population had the basics. The crash and economic calamity we will soon be in, bailout or no bailout, will be horrific, since most people are dependent on supply chains for the basics and most live in urban or near urban area.
We will get past this and we will be stronger for it. As Congress votes on this bill to bankrupt our government and population, they may wish to keep one thing in mind. On 9/11, when that airliner was headed to Washington DC to attack Congress, they were saved by a group of people who rose to the occasion and sacrificed themselves for the good of others.
In all of the years since 9/11 there has never been another hijacking in the United States. Why? All the billions thrown into TSA and Homeland Security? No. A hijacker knows that he's a dead man before he even tries anything on a jet today. Ordinary American will sacrifice their lives to defend the principles of our country and to protect others. That sense of duty and sacrifice to help others doesn't cost our government one dime.
Nanny is Washington won't be there to give you back 80% of the largesse you send to them. No longer are you too stupid and greedy to decide where your money will go.
Adios, politicos. Don't let the door hit you in the arse on the way out.
And turn out the lights, parasites.
Just like during the dotcom era when companies received billion dollar valuations even if they had no revenue, during this "easy credit" era companies received loans with little assets at incredibly low interests rates (ultimately subsidized by the printing of money and skyrocketing government debt).
Today, the credit market debt is at $54 Trillion and GDP is at $14 trillion (365%), which is a full 100% above the ratio at the beginning of the Great Depression. It was fun while it lasted, but all businesses and consumers must readjust to a more realistic lending standard; unfortunately, the party was so severe and so long the hangover will be quite painful.
This is why I stand against any Federal bailout that involves more of the same way of doing business; we can't continue to grow our debt substantially faster than GDP. Ultimately, the house of cards collapses on itself.
You need to learn to be more skeptical of "rules of investing" based on such a limited number of data points.
In a funny kind of way, I would actually support the bail-out save one big problem: Nobody, be it politician, economist or business leader, has laid out a future landscape that makes this all possible with a positive outcome.
As you pointed out, debt to GDP ratio is incredibly unacceptable. This has natural consequences... As Bush-Paulson throw good money after bad at the problem... $billions for May and Mac, $billions for failed banks...now $700 billion to bail out Wall Street, then the Senate through in plenty of pork to bribe U.S. Congressmen/women into bankrupting our country...
I don't see a future of the type of sustained economic growth in the United States that would be required to pay of the interest on these massive expenditures, let alone the balance. It's should be apparent that many of the spurts of economic growth during the past decade have been due to false bubbles - tech, real estate, etc. You can't build a sound economy by moving from bubble to bubble.
If Bush or Paulson think that they will pay $700 billion and that the country will turn back the clock three years and that the public will go back to buying homes at inflated prices in California, then swarm the showroom floors at Ford and Chevy dealership, I think they need to seek psychiatric care.
I can't see this future that they are counting on. What I see is unmanageable personal and public debt, as far as the eye can see, coupled with a decline in public sector revenue at all levels of government. The deficit we have now will seem like child's play to what it will be in five years under the conditions I foresee...
I think giving people confidence in our economy is one thing, but Bush-Paulson are just extending the Ponzi scheme with it inevitable outcome. Maybe it will carry them to January, maybe it won't.
Fiat currency economies only last 75 years. We are halfway there.
"It's like a tourniquet — it will stop the bleeding, then we have to set about fixing the way we do business in Washington, D.C."
John! Oh John! With a tourniquet you cut off circulation to the extremity, then you have to cut it off. In this case, the American people are the ones strangled.
But we hope all of the pork that you, Obama and Biden passed out on this one will get all of you through the lean times. You're going to need that extra fat...
On Oct 02 08:55 PM Curbs-In wrote:
> iThinkBig: If I've ever seen anything on this site that I couldn't
> agree with more, is your comments here. Bush-Paulson have been treating
> the American people like we are soft Twinkies. Somehow we can't take
> the truth of what is going to happen to our country and its citizens
> in the short and near term. Many believe, and I tend to agree, that
> this bailout is nothing more or less than an effort to buy some time
> so that a succession government can be voted on next month -- be
> it McCain or Obama.
>
> We will get past this and we will be stronger for it. As Congress
> votes on this bill to bankrupt our government and population, they
> may wish to keep one thing in mind. On 9/11, when that airliner was
> headed to Washington DC to attack Congress, they were saved by a
> group of people who rose to the occasion and sacrificed themselves
> for the good of others.
>
> In all of the years since 9/11 there has never been another hijacking
> in the United States. Why? All the billions thrown into TSA and Homeland
> Security? No. A hijacker knows that he's a dead man before he even
> tries anything on a jet today. Ordinary American will sacrifice their
> lives to defend the principles of our country and to protect others.
> That sense of duty and sacrifice to help others doesn't cost our
> government one dime.
On Oct 02 09:37 PM Post American World wrote:
> IThinkBig--- yes, yes, yes.
> Nanny is Washington won't be there to give you back 80% of the largesse
> you send to them. No longer are you too stupid and greedy to decide
> where your money will go.
>
> Adios, politicos. Don't let the door hit you in the arse on the way
> out.
>
> And turn out the lights, parasites.