Roger Simon on our economic woes:
Let’s get a bit of perspective on things. Yes, yes: my 401K is a 201K now, too. As I write, the market is hovering around 8000, down from a high of more than 14,000 not so many months ago. In October, unemployment jumped from 6.1 to 6.5 percent–ouch! Inflation this year is about 3.7 percent, up from 2.7 percent last year (and 1.6 percent just a few years ago). Not good, what? How does it compare with, say, the golden age of Ronald Reagan. Well, by the end of 1982, unemployment was 10.8 percent, up from 8.6 percent the year before. The Dow was 700–that’s seven hundred . Inflation peaked in 1980 at 14.76 percent, dropping over the course of 1982 from 8.39 to 3.83. Thinking of buying a house? The prime interest rate in 1980 touched 21.5 percent. In 1982, it went from a high of 17 to a low of 11.5 percent. It is about 4 now.
What, Sherlock, do you make of all these numbers? Here are two things: One, the market, and all associated economic indices, fluctuate. Two, we are a lot richer now than we were in in 1980.
Does that make you feel better?
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indeed, markets fluctuate. Americans, even with their 201Ks are for the most part blessed with fabulous material wealth. At present, a bevy of economic excesses are being wrung out of the economy. The financial markets have probably baked in most of the negatives and sooner or later will move substantially upwards. Personally, in retirement in May of 2007 I moved from an 85% to 15% equities position in mostly Vanguard Index funds; this past weekend I doubled the equities position to 30% on the assumption that the equities market is somewhere near its bottom.
Contrary to conventional wisdom, I think Paulson and Bernanke have by and large done well dealing with the credit market seizure and recession; also, it appears that Obama has appointed some very able, centrist financial folk to his administration. One well understands that the economic reality is still fraught with peril and that we could morph into a severe recession or even depression; however wise investors need to shoulder major risks to in the long run prosper in the markets. They, also, need to have the sense take profits and bail out when markets become seriously overpriced.
Peter, I have to disagree in part with your assessment of Paulson and Bernanke. So far, their big public actions have had almost zero foundational effect. There are lots of moves that haven’t gotten headlines in anything other than investment papers/releases, and those have done pretty well.
The larger, $700 Bn plan, and the other bailouts haven’t had any effect other than psychological until the last couple weeks. That money wasn’t really put into use until quite recently. Psychologically the effects were mostly good, but the actual money didn’t get put into play until just recently. By the time the much noted bailout money got put in, the markets were long past their “crisis” stage. Other movements had long since resolved the “crisis”.
I think the bottom is still a ways out, but even if it still dips down more, you’re coming in a good spot for equities. I’m not getting back into appreciating investments until January or February, and we’ll see then. I wouldn’t be surprised to see 7000 broken, though I’m not expecting 6000 to be broken. Shorting the market though – that’s still having some VERY nice effects on balance sheets!
President-elect Obama has done a good job assembling a very credible economic team, and if he holds to his present indication to hold off on economy-killing tax increases, I think we will see a significant overall market increase next year. The rest of this year will continue to be rough as portfolios are harvested for losses for mutual fund window dressing and tax reasons. Next year will be bumpy to be sure, as we will continue to see some rough news for a while, but the overall trend will be upward for equities.