Joseph L. Shaefer

We’ve Survived Worse Markets (and Economies) Before – the 1970s

H T Love --

Thank you for such a thoughtful response. While Ms. Pelosi is a particularly egregious form of politicious bee-ess-us horribilus, no, I don't think she's markedly worse than any in the 1970s or before -- just more shrill.

Politicians have always made it personal because their entire fragile little egos are wrapped up in whether they can continue to parlay lobbyist's money into votes rather than having to get a real job.

And at the national level, the 70s were so discouraging that our wilting confidence about our role in the world and our economy led us to elect a President whose primary platform was his inexperience in leadership. Not to draw any parallels to our current situation, but Jimmy Carter’s sole claim to fame was that he was an “outsider” who couldn’t do any worse than the previous couple guys.

As it turned out, he could...


On Nov 26 07:26 PM H. T. Love wrote:
...I think the long-term outlook is much more desolate than your past experience might indicate.
As one example of a shift that /may/ imply an increased level of difficulty in recovery, let's take an example of a view implied by one Nancy Pelosi.

... "Back in the day", a response such as this would have been political suicide and totally unthinkable, in my opinion. But now this sort of attitude is pervasive I think.
Your thoughts on the effects of this shift (and other concomitant
shifts) in attitudes would be most welcome.
Thank you,
HardToLove

Did the January Effect Start on November 1st This Year?

On Nov 24 06:35 PM Curious Bystander wrote:

> I'm not being argumentative, but when exactly have you been in a
> situation even remotely like what we have now? The economy has fallen off the edge of the map, you know that one part that says "Beyond here, There Be Monsters".

----------------------...
Yours is a question that deserves an answer, Curious Bystander. And it is:

I began investing in 1969, and entered the securities business after leaving the United States Army in 1972. What ensued was the best possible preparation imaginable for the current times.

From January, 1973 to October 1974, the market slid sickeningly day after day with almost no respite, from 120 on the S&P 500 (a number that must seem quaint to younger investors) down to 62 -- a 48% decline not unlike the most recent tumble

Worse, while it “rallied” over the ensuing years, by March 1978, it was still only at 88 – taking 4 years to rise just 25% -- and in April 1980 it was only at 102. It took the election of Ronald Reagan and the diligence of Paul Volcker to shake off the lethargy and begin moving the economy forward. Still, the malaise they had to overcome left the S&P at just 103 in August 1982. When lower taxes, tighter credit and higher rates to reward saving finally kicked in, the markets recovered.

So I spent 8 years “before the mast” in a market that not only fell as far as the most recent but took much longer to recover much less than this one has. (Not to mention the Crash of 87 which saw the S&P drop from 328 to 223 in six weeks, the Asian Contagion, the Latin American credit debacle, Long Term Capital, and other problems too numerous to mention.)

Taking just the 1970s for illustration, the prognosis was every bit as bad as it is today. Every lousy employment or home price or consumer confidence report today you can find by looking at the microfiche in your local library during the 1970s market. The thinking shared by nearly everyone was that America’s best days were behind us. The problems were too overwhelming to be solved. "Beyond here, There Be Monsters" was the ruling belief. And yet we recovered.

That is why I will go short individual issues for weeks or even months when I expect declines, but I won’t sell this country short. West of Wall Street and Washington, we still know how to roll up our sleeves and get the job done.

Did the January Effect Start on November 1st This Year?

Investing1 just unleashed the following diatribe...
"mindless blather about nothingness is more appropriate. Why is it that financial advisors are always telling their clients to go head long long when the market has turned to a short side bias?"

Ummm -- before getting that off your chest, did you bother to do any research and note that we were SHORT until March, LONG in March, SHORT over (too much of!) the summer, and now LONG again?

No doubt your rant applies to some advisors but, as I'm certain you will learn as you progress toward your degree in finance, RESEARCH will save you embarrassment -- and FLEXIBILITY will save your portfolio!

I don't know what the market is going to do tomorrow. I can only rely on my experience, having been in similar situations a few dozen times over the past 40 years. Since you "know", perhaps your recommendation of MZZ will work better for you. I prefer research and flexibility...

Wishing you much success in your investing endeavors,
JS

7 ETFs to Short Right Now

On Jun 05 11:07 AM Living4Dividends wrote:
Joe - Excellent article.
... I am not a big fan of shorting either. Your potential for loss is unlimited...
...While BRIC has recently run up, and may be indeed overbought, these could well emerge to be the healthiest economiesout there.


Living4Dividends,

Thank you for your literate and thoughtful response. In 40 years of investing and being an industry professional, I have seldom shorted. It takes a major confluence of events and a sense that the “sudden volume” all on the buy side at the end of every day and the clear manipulation of news and numbers is happening for a reason. I believe that reason is to pull in unsuspecting investors, who wouldn’t touch banks and brokers just two months ago, and convince them to buy over $100 billion of new equity, allowing TARP loans to be repaid, bonuses to be reinstated, the government to declare their plan a success, and the pain to be spread, as usual, among the common stock investors.

As for shorting the BRICs, I don’t want to confuse their “prospects” for growth with their “timeline” of growth. They will clearly be an engine for global growth (though I’d rather play that growth via established firms domiciled in representative capitalist democracies with good corporate governance and minimal red tape. You’re welcome to check my article, “Looking to Buy BRIC? The ‘ABC’s are Better” for my full rationale…) I believe the share prices of virtually all companies comprising the ETFs in question are now priced for perfection. They have gotten far ahead of their potential to surprise on the upside and well within the range that any brief stumble will result in a massive outflow of investment.

Joe

7 ETFs to Short Right Now

I've never heard of them. But I'll take a look this evening after I conclude the June issue of Inv Edge... Thanks for the lead,
JS


On Jun 04 04:29 PM raytayzmd wrote:

> ....there's an easy solution to such skepticism...there are now several
> websites where you can actually manage a hypothetical portfolio and
> record trades for everyone to see...one example I can think of is
> "covestor.com"...that's the surest way to trim doubt and collect
> true believers...but, oddly enough, hardly anyone selling investment
> advice ever do that...I wonder why....

7 ETFs to Short Right Now

Right now -- SHORT-term bond funds like SHY and BSV, some gold, the rest cash... We take capital preservation seriously.


On Jun 04 11:02 AM Baboon wrote:

> >I recommend only small positions in these ETFs.
>
> What do you recommend for big bets?

7 ETFs to Short Right Now

We're not greedy. We'll take 100% any day! //grins//

PS -- I like your call sign, VP of Common Sense...

Joe


On Jun 04 10:58 AM VP of Common Sense wrote:

> I forgot the overriding effect of being short, which is the maximum
> gain is 100% unless one expands their position regularly.

7 ETFs to Short Right Now

On Jun 04 07:24 AM Futurist wrote:

... I am curious as to to why you would short instead of buying the reverse ETF's such as the FAZ instead of the FAS?

...My second question is to your market allocation. Did you pick 10% because with triple exposure its the same as risking 30% of your portfolio or are you scaling in to these shorts?

JS: Futurist, I see a fellow reader has already answered question 1 -- I couldn't answer any better! Given the time decay and daily bias, in this case I believe we'll do better by shorting.

And you drew the right conclusion on question 2 yourself. I believe these are volatile //enough// without placing more in the portfolio. We effectively get a triple hedge for the price of a single position. XLNT questions, thanks!

7 ETFs to Short Right Now

Most dialogue on SA, certainly among our regular readers, is constructive and thought-provoking. Every now and then, I receive some drive-by sniping like this, however!

If the individual had actually read the article, rather than just find one headline he didn’t like, he would have seen the article concluded with these exact words:

“We will sell 50% of all if/as the market rises toward 8500 or so and will sell more if it goes to the 9000 area. We will also place our first limit order for the first of the inverse ETFs we plan to buy: EEV at a limit of 36.”

In fact, we sold most everything a little earlier. By selling between 8000 and 8500, however, we enjoyed most of the rally. (In our Investor’s Edge ® portfolio, we sold many positions “too early.” But having made outsized profits from our bank preferreds – also a matter of record – we are still well above the returns of the S&P this year.) We’re not piggish. We don’t mind selling some // positions // too early, as long as we are solidly profitable on the // portfolio. //

I can cite a number of // positions // that didn’t pan out. Only liars, scoundrels, and rearview-mirror snipers bat a thousand on every position. But as long as we beat the averages every year since we set up our model // portfolios // in 1998, I reckon we’ll keep doing what we’re doing !



On Jun 04 07:43 AM raytayzmd wrote:

> ...of course, on March 30, Joe was advising everyone not to be an
> "April Fool":
>
> seekingalpha.com/artic...
>
>
> ...given the S&P 500 has gone up 160 points since then, one might
> consider whether his opinion is a good "contrary" indicator.