Monday, November 21, 2011

Waiting for the Fat Lady to Sing

"It ain't over 'til it's over."  Yogi Berra
Currently, our investments are mostly in cash, except for my company stock and company stock options.  I'm still waiting for a big market downturn, which I thought would happen in the summer of 2011  To me, the market is way underestimating the the downside risk.  Let me count the issues:
  1. Greece
  2. Italy
  3. Spain
  4. Congressional Super Committee deadlock
  5. Growing U.S. deficit, debt, and entitlements
  6. 9% unemployment and lack of hiring
  7. Higher tax rates inevitable
  8. Local government bankruptcies
  9. Housing non-recovery
  10. Bank exposure to sovereign debt crisis
  11. Increasing student loan debt
  12. Fed policy of low interest rates
  13. Inflation inevitable
  14. Continuing economic uncertainty
  15. Lack of leadership by the political class
There are likely more out there, but these are the ones I can quickly list.   I can see one, two or maybe up to five of these issues being resolved, but not the majority.  Eventually, the reality of these issues, and other issues still to surface, will come back to haunt the market.  

So for now, we will continue to stay on the sidelines waiting for the (inevitable) market decline to happen.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial  or investing advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC


Financial Independence said...

Some of the stocks keep bringing in 4-5% annual only from dividends.

Why do you want to stay away from them? Do you think if market will go down they will bring more?

On the other hand..In the current climate there is no insentive to save the money. I recently did some calculations and the results are very much frustrating, to be brutally honest. Have a look yourself - they are all published.

If you invest $ 40, 000 a year over 35 years, at modest inflation rate of 2% and administration fee of 1-2% you need stock market to perform at 4% just to preserve value of your money and higher to gain anything.

This means that you are only preserving money you are investing at a very high risk. So it is just plain wisdom - is there a point to be frugal and try to save, if you ended up loosing money?

Feeding financial industry or living your life in full now?

Super Saver said...

I am being risk adverse. First,if a stock paying a 4-5% dividend drops 10-20%, 2-4 years of dividend earnings are erased. Second, dividends are not guaranteed if the market declines as evidenced by bank stocks. Finally, if the market drops, the dividend yield will go up.

I'm usually not a fan of market timing, but when the situation looks this bad, I think choosing safety (i.e. cash) is the prudent option.