Looks like final number is 678 down. Thats dow 8579. We are now down 39.6% from the peak closing price (14,198). A forty percent drop from the high's. I figure I'm down right at 50% from my high. Getting a little brutalized because of the energy bias. All the money I spent for toys and home remodel and debt reduction was out of my equities account, so that slowly biased me the last 18 months towards the cash tied up. Good thing in retrospect. Wouldn't have thought so last year when I was up so much the previous 18 months. I figure Stacey's family trusts are down a million dollars on a single stock alone. Of course, that single stock, Chevron, is way too big a holding for them. Not so much anymore....
That's called unintentional portfolio rebalancing. Major
I thought when we had the first 778 down on the busted deal that that might be a bottom. I resisted answering Seb's quandry's that day, because frankly when things are this ugly I fear giving advice, its too hard right now. And I've always been good id'ing flyers and the good future momo stocks. I've beaten the market every positive market year I've followed it since I was a student. I usually beat the market in slightly down years. But in go bust years, I go bust. I killed the market in 85 and 86. I got wiped out in 87. And I killed the market again in 88. So, anytime I see a potential bear market I try to tread lightly. I just didn't see the market going down another 15% after that bad day. So, I jumped in with a silly bet on some of my worst hit stocks. I made 25% on that the first couple of days on mixed market days. But then got killed on it, probably down 25% now or more on that bet. Ouch! That wasn't that big of hit relative to my overall net worth, but it does reinforce the idea that I should never try to catch the flying daggars. I just don't have the bear market gene. I'm good at valuations and trends. I'm not good at irrational panic.
I believe its out of control now. I'm not sure they can save it. All American car companies will go bankrupt without major intervention. It would appear that Toyota is getting way way uglier than anybody would have dreamed possible. Who can afford a car? And why would anybody buy a new car with an endless flood of nearly new luxury cars flooding the auctions and used lots? I'm thinking about bailing on our 335 and buying a used M3 instead. Even a new 2008 M3 might get a better deal than my corporate wholesale deal on the 335, because of the .9% financing available. BMW has been doing great even as other companies are dying, yet suddenly last month they were down 30%. Its tough to trust that any company is safe.
The biggest investors in the US market are insurance companies and as they lose 40+% of their portfolio value they have to recapitalize or they are basically shutdown. That is happening across the board. Banks like BofA that I thought were bulletproof still have to raise capital to fit within the feds plans of picking up distressed assets and to build reserves for new business. Yet the latest BofA $10 Billion offer had trouble. If BofA can't raise capital, what bank can? That tosses every bank and insurance company into doubt now worldwide.
The futures are stable afterhours, so the US sell off isn't still in freefall, but I'm pretty spooked. There is so much collateral damage from all this right now, that I'm not sure what can be trusted in terms of banks, brokerages, etc. I'm afraid of muni bonds which are the hottest investment going right now, and where I planned to put 30% of the trusts held in probate when they clear. But I'm worried about a wave of municipal bankruptcies now.
Trillions of dollars in net worth have been wiped out. That will put a drag on consumption for years. Deleveraging will contract the supply side and reduce jobs further crushing demand. Its a vicious cycle that doesn't just go away because you assume full employment (sorry-vague Keynes joke mocking the classical economists pre-1939).
The only solution is massive overwhelming government intervention worldwide. I have libertarian leanings too, but I'll never commit fully, because I understand as an economist that pure capitalism doesn't work. Pure capitalism is brutal. Its funny that so many small business people and entrepreneurial types embrace libertarianism. They don't understand that under pure capitalism they would not exist. On a pure capitalist libertarian game board the biggest bully would make the rules, enforce the rules and own the game.
I favor competition. But that requires rules and somebody to enforce the rules and decide disputes fairly. Some government regulation and intervention is necessary. Imagine trying to hold a Superbowl or World Series without any referees or umpires? But that said, the ref's and ump's shouldn't become to big an element in the game.
Because we've had an imperfect system to this point on so many levels... Fannie Mae and Freddie Mac clearly demonstrate the unintended consequences of government intervention in free markets. But its done. The market is now broken and can't fix itself. You have to intervene, even though intervention is partially to blame for getting you in the mess to begin with. You can't argue about what should have been done, you have to fix the problem you're in immediately to get the game going again. Then when things are moving under their own power you figure out what needs to be changed so it doesn't crash again. These mortgage securities got AA and AAA ratings ratings. That is just completely fraudulent. The umpires and referees were not asleep, they were locked out of the stadium. An example of the lack of government regulation that caused a market failure. So, where we stand today is the result of both government intervention creating a market failure and deregulation creating a disaster. There has to be a balance. The game needs rules to make it worth playing. It needs fair and unintrusive enforcement that fosters competition. That's where we need to be in the future. What we need now is to keep the game running. We have to figure out the fastest way to keep it alive. That requires massive and immediate mindblowing intervention. Insane, I know, and unlikely to work very well, but it has too. And too costly? The burden is on the taxpayers? Our great grandchildren??? Think this through. All your whining and complaining will do nothing to protect the kiddies. The damage is done, the question is how to minimize the damage.
We have taken trillions of dollars in value out of our markets, just erased it. What is the tax revenue loss on that? We are facing the very real threat of losing maybe as much as 4 trillion dollars a year in GDP. What is the tax revenue loss there? And through it all we face the prospects of a dramatic decrease in the standard of living. So, $700 Billion bailout? Another trillion dollars in treasury interventions and bailouts??? If we spend $2 trillion on trying to fix this collapse is it really that costly to the taxpayers? Not if it even partially works. If we do nothing we may cost the taxpayers a lot more than $2 trillion.
