In a different era, these sort of stories made me edgy - usually when the retail investor (no offense to those future investors of mine) ;) - gets bullish, I want to take the other side of the trade. But we live in a new era of ever increasing asset prices paid for by slow but systematic destruction of currency. Or put another way, we cannot lose. (as long as you live in a nominal world, rather than real world) So I am pulling in my contrarian horns and welcoming these investors with open arms. The water *is* fine - just ignore the fact that if the US dollar is down 15% on the year and the stock market is up 15% you really made zilch.

Why Americans do not raise a fuss that there is no chance to ever save money anymore in (wait for it) relatively risk free saving accounts or CDs, is beyond me but everytime we crash the first step is to crush savers by dropping rates to the floor, and making sure every American knows the only way to make money at a rate than can stave off inflation is to buy risky assets. Remember saving in America is BAD, and spending / consuming / speculating /daytrading real estate is GOOD - one only need to look at government incentives and policies the past few decades to see this. Rinse. Wash. Repeat. Ah for the days of 6% on a 5 year CD - they seem quaint. Risky assets it is!

Eventually this fun game ends - as it always does. See March 2000. See 2008. Please make sure to have a chair when the music stops... could be Monday morning, or could be some Thursday morning in 2014. We never know when it will happen, we just know it's the exact same bubble/burst economic & asset cycle that we now have institutionalized. But it is clear why the powers that be do it, and I can't blame them for self preservation at any means possible - as the American people roll over and allow it to repeat.

Via New York Times

  • Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.
  • Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.
  • When the financial crisis hit, some of Wall Street’s prophets warned that individual investors would be lost for years. The gospel of building a diversified portfolio, buying regularly and holding on till retirement, appeared dead.
  • But despite a rout that erased fortunes and upended retirement plans, few smaller investors have folded their portfolios or cashed out: While they are poorer today and still leery of the markets’ returns, many are still chasing the gilded promise of profits and wealth.
  • Inertia has really ruled,” said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.”

Wall Street wins again ;)

  • And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive.

Ever feel like we are being herded? Sort of like sheep. (or is it sheeple?) Look you stoopid (sic) sheep, stop eating in those safe areas. We have wolves to feed (Wall Street) and the kind and gentle all knowing shepherd (Uncle Ben, or Uncle Alan) wants you to graze in that area over there... yeah, by the cliff. Where wolves can corner you much more easily. Err, I mean where the grass is greener. So get your darn money out of a savings accounts or CDs and bring them over here.... yes, here is a pamphlet to make you feel better about it... yes it says right here .... 8% long term returns in the stock market. Can't lose. As long as you have a 150 year time frame. What's that? Performance in the past decade? [Apr 17, 2009: Decade of Losses, Forces Investors in their 30s to Start Over] [Oct 7, 2008: 2000s Stock Market Worse than 1930s] [Mar 26, 2008 - WSJ: Stocks Tarnished by Lost Decade] Umm, let's not talk about that... have I told you about this great grass we have over here by the cliff? Very tasty.

  • Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April.

********************

Oye vey! What a low bar we've created in America for investing; it's anecdotal story time. Considering my ultimate goal let me say I should be thrilled this is what it's come to, but in the bigger picture it is sad. :)

  • “I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.

Look, I got into this so called stock market so I could retire and make a nice annual return, maybe help put kids through college, all that jazz. As told to me by everyone ... on Wall Street. I'd just dollar cost average and listen to CNBC - I would win. The market only goes up over the long run. Ok, so maybe the path has been long and winding. And yes, I lost a ton... but I never gave up on the stock market and even though I've lost my shirt, I still have enough money to eat. Further, I found out my stamina for losses is much higher than I anticipated and in the end that is all that matters. I win.

Again, as a prospective mutual fund manager... I can't ask for more than that. What an attitude; I'm heartened. I hope to attract countless such investors who allow me to lose multitudes of their money and just shrug it off, and keep sending into monthly allocations as long as they retain the ability to have enough money to eat. That's a win-win for both of us.

It's not quite so cheery for everyone; some were in this more than the constant ability to still be able to fund their appetite.

  • But many are more deeply scarred from the financial and psychological effects of their losses. Last autumn, as his retirement account was plummeting in value, Joe Mancini decided to sell some financial stocks and seek more conservative investments like bonds, gold and metals funds. Even though he was able to cut his losses, he and his wife are still down about 30 percent.
  • A few years ago I was hoping to retire when I got close to 60,” said Mr. Mancini, who is 58 and works for an electronics equipment distributor. “I can’t even put a date on it now.”
  • Robert Furey, who works at a computer company in Naples, Fla., said he had followed all of the conventional rules of investing: he planned for the future, bought a diverse array of stocks, bonds and index funds and never tried to time the markets. He lost a decade’s worth of gains when the stock market plunged, and said he did not know whether he would ever trust the markets again. “I was a deer in the headlights,” he said.

Just from anecdotal experience, speaking to many in the 40-60 crowd, the latter two experiences seems to be a lot more of what I am hearing than the hope earlier in the piece. Multiple bubbles crashing in a decade tends to strain the faith. But thankfully, hope springing eternal is one of this country's top qualities. I only worry for these people above when the costs of the current prosperity - by doing the exact same things that caused previous boom/bust cycles, only at a steroid like level this time around - are born once more. And they will be, in spades.

But until then, let's enjoy the ride... that now seems ever so familiar.