Right of the top, I'll admit I haven't ready every post in this thread, so maybe this has already been discussed. But, with the continuing devaluation of the of the dollar and weakening of the economy, what are you doing to protect your investments? Is there anything that can be done? I've tried to be pragmatic about this and not panic, but after reading former Fed Alan Greenspan's (who I thought did a great job while he had the position) less that enthusiastic comments, it may be time to worry. It seems like the only thing the current Fed wants to do is continue lowering interests rates. All that does is further devalue our currency and allow foreign governments to continue buying prime US real estate for pennies on the dollar. Thoughts?
Invest in a healthy mix of growth, agressive growth, growth & income, and international mutual funds with a good track record of growth. Take a long term approach and remember that in 97% of 5 year periods the stock market has grown. It has grown in 100% of 10 year periods. Your 401K or Roth will still be nice and big when you retire. Just keep paying in.
The Fed is doing a poor job. They are helping to prevent us from slipping too deep into a depression, but at the same time they are hindering our economy's progress towards natural stability & growth.
What to do to protect yourself? That is the question. Answers: 1. You can get out of the dollar. You can buy gold. Gold has gone from 250 an oz. to 1,000 since 2000, and correlates to the cumulative total national debt, or the current account deficit. It could be late to buy gold, its already had quite a run. But another way to look at it, is gold was 850 an oz. in 1978, and if adjusted for inflation, that would be about 3,500 today. Another question to ask is, could the US trim the budget and current account deficits, and slow the creation of money to match the growth of GDP? We could balance the budget, it was done just a few years ago. If we got the country in better fiscal shape, the value of the dollar would improve and gold would come back down. Long term if we don't address Medicare (3 times bigger problem down the road than social security), our 10 trillion national debt will soar to 50 trillion by 2050. That could be one reason why gold is going up, long term holders. Gold is also going up because asians like to own gold, always have, and asians are getting expendable income, esp. India and China. Another possibility in golds favor is that the public is not in gold yet, you don't see signs of gold fever. That is probably to come. Easiest way to buy it is GLD on the stock exchange. Another reason gold is going up is the existence of these new gold exchange traded funds (EFTs), which buy gold as people invest in them, and they hold it, taking it off the market and helping drive up the price. Bad news, when the people decide to sell, what was accumulated over a long slow period could be dumped quickly. Gold company stocks are another possibility, but none pay dividends that I have found. 2. Foreign bonds or foreign stocks. If you get into these, when the dollar goes down, you get the growth or interest of the foreign asset, plus its appreciation in dollar terms. Then its really ALL GOOD. Of course, then you have to ask, well which country do I invest in? I have a canadian cd I bought 4 years ago and it has done very well, total return 8% a year. But, when I bought it the dollar was not at an all time low. I just wonder how much lower the dollar can fall starting from such a low point. One nice thing about intl. bonds is you can get a better int. rate sometimes than can be had in the US if the fed has cut real low. Canada, Australia, and Euro bonds seem to have performed well against the dollar, as their govt. are not running such huge deficits. My Merrill Lynch broker put a canadian cd right in my IRA. 3. Real estate, at certain times. Get into hard assets. That one doesn't look good just yet, at least in the overbought markets, Ca., Miami, Las Vegas, and hard hit Michigan and Ohio. I've not had more than 10% out of dollar denominated stuff. I'm concerned about foreign stocks right now, as they ran up very high the last 4 years, and if the intl. economies are linked, that runup will get corrected. A US recession will be felt by all our trading partners. We have seen some falls in the China market already, Japan also.
I think the correct quote is the bold statement is true since 1950. Between 1929 and 1939, you would have held the dow industrials for 10 years and lost money over the interval. I think a little fear and respect for the market is a healthy thing. If you look at the S&P 500 right now, and go back to 1998, you are about breaking even over that 10 year span. There are other 10 year spans where the return is positive, but very low, like averaging 1% a year for 10 years. You would have been better is cd's over the interval. It's all about the valuation level when you buy in. Buy an over valued house and either you will lose when you sell, or make very little (except in insane markets like Cali. was over the last 10 years). Same with stocks. How do you tell if stocks are overvalued? Look for the price / earnings P/E ratio on the S&P 500, you can find it on their website if you creep around long enough. The last 100 years, 15 is average P/E, 10 is very low, and 20 is normal bull market high. If you buy in at a P/E of 15, over the next 10 years you expect on average 6% a year, which used to be 4% growth, which matches he GDP, and 2% dividends, makes sense. If P/E is 20 or higher when you buy in, 10 year average return is 1%, if the P/E is 10, the average return over the next 10 years is 12%. The P/E right now is about 17, in 2000 it was close to 40, which is why I got out. The study worked for me, I've beaten the S&P sitting in mostly cd's.
I heard an interesting statistic on the radio today. It said that the only industry showing growth in the job market this quarter is in the GOVERNMENT sector. How great is that? With the country teetering on recession (or already there) our government continues to grow, not shrink, by adding worthless or unnecessary jobs; unless the growth accounts for the military. Even so, they should be cutting back in other areas to compensate for that. Like I said earlier, I heard this on the radio and haven't been able to provide a link to substantiate it. Sorry if this bothers anyone.
Conservatives, I am a tad bit confused here. Conversative rail against social programs and big government. Can you help me here, but isnt the bail out of Bear Sterns and JP Morgan and providing 200 billion dollars to US Banks, corporate socialism? Sure seems like it to me. I guess its ok when its supposed to help the economy, which it isnt doing. Oh I know why, its a fall out plan, when the deregulation of banks and mortgages occured (which was on the Clinton watch, but pushed by majority republican house and senate) corporations got greedy in the mortgage industry and packaged all these high risk unsecured mortgages as investment vehicles and look what we have now! I was just wondering?
I posted this in another thread, but there was no bailout of anyone. In order for there to be a bailout, someone who was going to lose a lot is fixed up so they don't loose very much, or maybe nothing. That did not happen here. The Bear Stearns shareholders were basically wiped out in a week, they get nothing of the govt. money.
