Stock Market Plummets: Falls to levels not seen since 1997.

[SactoGuy18]

I think this stock market crash could lead the return of the following:

1) Currencies valued based on real tangible assets such as a mix of gold, silver and platinum, the three primary metals historically used in monetary transactions.

2) The separation of banks and other financial companies along the lines of the Glass-Steagall Act.

3) Much tighter minimum margin requirements to trade in commodities and stock futures. This will dramatically slow down the out of control speculation of commodities and stock futures, since if you have to put up 15-20% of the cost of the item to trade the item that cuts out most of the "make a fast buck speculators."

I would suggest possibly doing some drastic changes in national taxation systems to better favor savings and investments, but that's a more long-term prospect.

 

[Rodimus Prime]

Not necessarily, and I'm not snap-shotting one year, but looking at the last 12 years. Historically, we've experienced long periods of good returns and long periods of bad returns. We are approaching negative rates of return very close to levels experienced during the Great Depression and lasting well into the post-war era. It's a bit Pollyanna to think of this as merely a "trend" when the magnitude of the event is historical, and it's entirely possible that many millions of people will not live to see their equity return. You may be willing (and young enough) to bet that market performance will regress to the mean, but that's not something everyone can afford to do.

And yet you STILL are taking a snap shot of one bad year that had a HUGE drop.

The long term rate of return is still pushing 10%.

 

[maestrokev]

It's a bit Pollyanna to think of this as merely a "trend" when the magnitude of the event is historical, and it's entirely possible that many millions of people will not live to see their equity return. You may be willing (and young enough) to bet that market performance will regress to the mean, but that's not something everyone can afford to do.

You can't argue with the naivete of youth, people who've never been through a Savings Loan crisis, Asian meltdown, tech crash etc. They've been drinking the Kool-Aid - "over the long term everyone makes 10% annually!"

Like I said, you don't drive looking through the rearview mirror, so why do people think that history is such a good predictor of the future?

As you've pointed out, young people are bitter because they feel Social Security is an investment they've made rather than an option of last resort safety net. I do feel sorry for all those in their 50's that have had their retirement plans thrown into chaos - especially if they have children in their 20's who they are still supporting.

 

[Rodimus Prime]

You can't argue with the naivete of youth, people who've never been through a Savings Loan crisis, Asian meltdown, tech crash etc. They've been drinking the Kool-Aid - "over the long term everyone makes 10% annually!"

Like I said, you don't drive looking through the rearview mirror, so why do people think that history is such a good predictor of the future?

As you've pointed out, young people are bitter because they feel Social Security is an investment they've made rather than an option of last resort safety net. I do feel sorry for all those in their 50's that have had their retirement plans thrown into chaos - especially if they have children in their 20's who they are still supporting.

Well in some say IJ is right. I am young. I turn 26 in a few months so I am young enough to bet on the market going back to is 100+ year trend of 10% a year. I can afford time wise to eat these years losses. Heck considering my 401k did not start until May 08 I really had very little to lose.

I know my parents are going to be dealing with a huge lose of there retirement on paper and hopefully things will turn around for them before they retire.

I feel sorry for the older people who do have to struggle with retirement now.

As for SS I never planned on betting on it. I always saw it as a system to help out the poor which I do not intend to be under. My plan is anything I get from SS to be gravy money.

 

[IJ Reilly]

The analytic mistake you're making here is treating an average as if it is a trend. They are quite different things. Bear markets can last for a long, long time. The most recent lengthy bear market lasted for most of the 1970s. The market didn't fall like a rock, as it is doing now, but it went sideways for nearly ten years. Some are predicting that over the next ten years, the markets could behave in much the same way.

 

[Rodimus Prime]

The analytic mistake you're making here is treating an average as if it is a trend. They are quite different things. Bear markets can last for a long, long time. The most recent lengthy bear market lasted for most of the 1970s. The market didn't fall like a rock, as it is doing now, but it went sideways for nearly ten years. Some are predicting that over the next ten years, the markets could behave in much the same way.

maybe but I am also thinking in 30+ year terms. Not in 10 year terms.

Even if you take the past 30 years it still works out to be between 7 and 8%. That is factoring in the huge drop the 60% drop in a matter of months. That should tell you something.

10 years of this I still come out on top because I 30-40 years away from retiring.

 

[Unspeaked]

maybe but I am also thinking in 30+ year terms. Not in 10 year terms.

Even if you take the past 30 years it still works out to be between 7 and 8%. That is factoring in the huge drop the 60% drop in a matter of months. That should tell you something.

10 years of this I still come out on top because I 30-40 years away from retiring.

I'm really with IJ Reilly on this one.

I'm not saying it won't be possible to make a great return in 10+ years time, but I think the days of buy and hold 10% annualized gains are over. Even when thing were going well, several financial advisors (the ones without their heads in the cloud) were saying this, and it holds doubly true today.

The numbers you keep quoting - going back to the last turn of the century - include periods of tremendous growth and a world that for the most part arguably only had two "super powers." The conditions were ripe for huge gains. Also, up until 60s and the advent of mutual funds, the market was a rich man's game. You could even argue that this help true all the way to the 80s (or even the 90s and the popularity of online discount brokers and sub $100 commissions).

I just don't think the environment exists any longer - neither domestically nor abroad - to expect long term 10% gains in the stock market. Think about it... this isn't much more than Bernie Madoff was promising his clients and look where that got them.

Again, with the proper research and timing one can still make a decent return - in fact, with those two conditions met one could have probably made a decent return in 2008 - but this is no longer your parents or grandparent's days of buying 100 shares of US Steel, AT&T, IBM or Microsoft, sitting back, and retiring.

 

[IJ Reilly]

maybe but I am also thinking in 30+ year terms. Not in 10 year terms.

Even if you take the past 30 years it still works out to be between 7 and 8%. That is factoring in the huge drop the 60% drop in a matter of months. That should tell you something.

10 years of this I still come out on top because I 30-40 years away from retiring.

I've been investing for 30 years. You think maybe I haven't been? I can't say with any assurance that I've managed a 10% annualized return over that time period, at least not on most of my investments. Fortunately I bought AAPL in 1997 and held on. Even with a 50% drop it is still a good investment. Everything else? Not good at all. What I'm saying is it takes more than just buying in, it takes luck. People my age, we're pretty much out of luck. Maybe you'll get lucky, maybe the big crash of 2045 will wipe you out a few years before you're ready to retire. Nobody really knows in advance, that's the point.

 

[sushi]

Nobody really knows in advance, that's the point.

That's true.

Yet, in these times there are individuals out there saying that they do.

 

[IJ Reilly]

That's true.

Yet, in these times there are individuals out there saying that they do.

You can count on the fingers of one hand the number of people who accurately predicted this situation. Today Berkshire Hathaway releases its quarterly report, and it's expected to be very bad. This is Warren Buffet we're talking about, one of the world's most respected and consistently successful investors. And yet, he invested in banks during 2008. If Warren Buffet didn't see this coming, then what the hell are the rest of us supposed to think, let alone, do?

 

[oscillatewildly]

You can count on the fingers of one hand the number of people who accurately predicted this situation. Today Berkshire Hathaway releases its quarterly report, and it's expected to be very bad. This is Warren Buffet we're talking about, one of the world's most respected and consistently successful investors. And yet, he invested in banks during 2008. If Warren Buffet didn't see this coming, then what the hell are the rest of us supposed to think, let alone, do?

Buffett - Didn't a lot of his wealth come from restructuring companies, rather than general stockmarket investing?

A large number of people knew this was coming, it's just the majority of them were in denial.

If anyone in the UK is in any doubt where house prices are going, take a look at a house price chart with an overlay of average earnings for the period 1970 to now. Unemployment has only just begun to gather pace.

 

[IJ Reilly]

Buffett - Didn't a lot of his wealth come from restructuring companies, rather than general stockmarket investing?

I was referring to Berkshire Hathaway, his investment fund. Buffett's investment strategies have consistently outperformed -- but even he didn't anticipate the magnitude of this market panic. The point being, if even as someone as savvy as Warren Buffett gets burned, how are the rest of us going to avoid it?

 

[Unspeaked]

Dow 7,062.93 -119.15


And we're just one semi-bad trading day away from a sub 7,000 Dow...

 

[maestrokev]

There seems to be a general misunderstanding of how the stock markets work among younger investors here. There's a bit too much trust in businesses and capitalism and that long-term all the bumps will even out.

I still believe in investing but I pray that I don't hit a "bump" right before retirement.

Even Alan Greenspan didn't see this coming.

 

[tigres]

Not to get OT, but you can add increased costs to the consumer for the next 20 years + as this will only be the beginning of a "trend" for our everyday consumer needs. http://www.engadget.com/2009/02/28/obamas-proposed-2010-budget-juices-carriers-for-more-cash/

Now, as we may be on an investing topic but it is important to throw another mechanic into the engine. We may all find our savings dwindled and hacked enough to hit us in our investment dreams of the future. They may state no new "direct taxes" to those who's gross is <250K, however they will hit us all everyday, and everywhere, for every good from every spectrum.

Hence, it is my consensus that consumer spending that is expected to spark the economy will be heavily burdened by the taxing of goods and services across the spectrum that our nation cannot or refuses to live without.

After the tax, I hope we have the $ to even consider to invest.

 

[the vj]

Yes but...

Back in october the euro was $1.6 now is $1.2 ¿? I mean, if the US is in such bad shape how come is getting stronger?

 

[Rodimus Prime]

Back in october the euro was $1.6 now is $1.2 ¿? I mean, if the US is in such bad shape how come is getting stronger?

The entire world is in bad shape right now. The dollar and the yen are viewed as safe currencies and when times are bad people tend to park there money in what are considered safe.

It follows that trend when times are booming the dollar and the yen tend to go down. When times are bad they tend to get better.

 

[IJ Reilly]

Also, the US economy hit the skids before the EU and the US Federal Reserve started cutting government lending rates before the central bank in Europe.

 

[DZ/015]

The US is also spending like a drunken sailor on shore leave to "stimulate" the economy. Look for this to devalue the dollar as the year goes on. Buy Euros and Pounds now.

There is money to be made in this market, both by shorting and going long. I have done both. And not too badly, either. I have covered all of my short positions at this time, for I feel a bounce coming. I'm not saying a permanent recovery, just a bit of a bounce.

For those nearing retirement, I feel your pain. I'm over 40. I have lost approximately 45% of my 401k investments. Mostly because I placed my trust in mutual funds. Those days are over. I now am actively involved in where my money is going. At least now if I lose capital, it is by my own choice. Not some fund manager.

 

[jackson4lee]

can anyone predicted when the market will recover?

 

[DZ/015]

can anyone predicted when the market will recover?

No. But I will make the bold prediction that the market will recover, eventually.

 

[Metatron]

When it comes to investing you can manage it yourself or let a company do it. If you let a company do it, put it in a lifetime fund so that less money is put into stock as you get closer to retirement. If people did this, everyone over 50 would have a maximum loss of only 25-30%. Anyone who has lost more then this is making bad investment choices.

 

[trule]

Back in october the euro was $1.6 now is $1.2 ¿? I mean, if the US is in such bad shape how come is getting stronger?

One factor is that US based consumers and companies are selling foreign assets and bringing home foreign profits to pay local US dollar debts, which creates demand for dollars and the price goes up.

You can be sure that no foreign Governments or Wealthy individuals are looking towards the US dollar or anything on Wall Street as being a good investment. They might invest in USD denominated assets but its not to make money, rather its to protect the value of there existing USD denominated assets. Its somewhat absurd, success will be defined as not loosing too much after taking into account the inevitable inflation, failure will mean the US dollar collapses as does the value of their USD denominated assets.

Another factor is the panic to USD treasuries for their perceived safety, which also creates dollar buying, they may be safer than stocks right now, but mid term with all the printing going on its only a matter of time before inflation destroys the US treasury investor.

And that leaves Gold, which is doing remarkably well in all currencies ...

 

[IJ Reilly]

When it comes to investing you can manage it yourself or let a company do it. If you let a company do it, put it in a lifetime fund so that less money is put into stock as you get closer to retirement. If people did this, everyone over 50 would have a maximum loss of only 25-30%. Anyone who has lost more then this is making bad investment choices.

That's ridiculous. In order for "maximum" losses in this market to be "only" 25-30%, the investor would need to be very light in equities, and probably be 50-70% in government bonds (because many other types of bonds have also been slammed). Please find me a credible investment advisor who would tell "anyone over 50" to have virtually no equities in their portfolio.

 

[trule]

That's ridiculous. In order for "maximum" losses in this market to be "only" 25-30%, the investor would need to be very light in equities, and probably be 50-70% in government bonds (because many other types of bonds have also been slammed). Please find me a credible investment advisor who would tell "anyone over 50" to have virtually no equities in their portfolio.

So long as you loose less than the next guy you come out in front In a deflation everyone looses, the differentiating factor is how much. 25% loss sure sounds better than 50%...my mother had a cash option, so she actually made a good 5% this past year, she is now twice as wealthy relative to stock only investors