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https://www.nytimes.com/interactive/2018/12/10/business/deal...


The Stock Market Has Wiped Out Its 2018 Gains. But if You Step Back, It’s Still Riding High.

By STEPHEN GROCER and KARL RUSSELL, The New York Times, DEC. 10, 2018

Worries about global economic growth, trade and the strength of corporate America have been battering stocks. While that’s cause for concern, it is important to put slides like this in context....

In the last 20 years, there have been 10 corrections. Only two turned into a bear market, defined as a decline of 20 percent from its high, amid the recessions that began in 2001 and at the end of 2007. [end quote]

Wall St. Ignored Signs of Trouble for Months. Now It Sees Risks Everywhere.
By Matt Phillips, The New York Times, Dec. 9, 2018

...
China, the world’s second-largest economy after the United States, is growing at its slowest rate in nearly a decade. The export-driven economies of Japan and Germany — the third and fourth biggest economies in the world, respectively — both contracted in the third quarter.

The United States has so far been an outlier. Thanks in part to a burst of deficit-fueled stimulus, a large chunk from the tax cut, the American economy this year is on track to grow at its fastest pace since 2005. ...

But even in the United States, there are emerging pockets of weakness, particularly in parts of the economy that are sensitive to rising borrowing costs. Pending home sales have declined for eight straight months, as interest rates on 30-year fixed mortgages have climbed. Monthly auto sales have plateaued, prompting job cuts at General Motors and Ford....
[end quote]

There are plenty of risks listed in this article.

The historic perspective shows that the current small correction is common and may not become a concern. On the other hand, the market is overvalued. A few worries may not cause a dramatic drop. But the world economy is riddled with "fingers of instability." It's hard to predict when one will trigger a recession...or even a financial crisis.

https://www.mauldineconomics.com/frontlinethoughts/fingers-o...

Wendy
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In the last 20 years, there have been 10 corrections. Only two turned into a bear market, defined as a decline of 20 percent from its high, amid the recessions that began in 2001 and at the end of 2007. [end quote]

In both periods there were unprecedented central bank interventions that, by almost any measure, were also immense in scope, quantity and global coordination.

So, one has to wonder how valid the following take-away is: The historic perspective shows that the current small correction is common and may not become a concern.

Simple take would be because the impact of the observations by WendyBG that follow that sentence: On the other hand, the market is overvalued. A few worries may not cause a dramatic drop. But the world economy is riddled with "fingers of instability." It's hard to predict when one will trigger a recession...or even a financial crisis.

I don't know how to evaluate the shakiness of the market except to note that volatility spikes usually are precursors to trend changes....this market can't seem to hold onto either big rallies or big sell-offs and that is the very definition of volatility.

I've been mulling over the assertion made a few weeks ago on another thread that corporations don't have to pay off debt.

What I did in the thought exercise was to break it down into unit measures....the individual..."Does an individual have to pay off debt?" If so, why....if not, why not?

As a former mortgage originator, and often in that role cast into being a credit counselor, the answer is obviously that one needs to either live within ones means or be frozen out of the credit market.

My experience in that business had me draw the conclusion that most people did not earn enough money to support their lifestyle and the shortfall was made up by using credit cards. It was very often not about living large, but about making too little for the needs.

So, putting normal expenses on credit works for the individual until they get to a certain threshold, and then they start using one credit card to pay the other and the snowball has already at that point gotten too large to stop. The end result is bankruptcy.

So, in these scenarios, the lenders get stiffed by the bankruptcy process and the the debtors get frozen out of the credit market for a number of years. Unfortunately, the income doesn't increase (especially these days with automatic pre-job credit checks), the expenses don't really go away, and as soon as possible the funding through credit cycle begins anew.

Conclusion is that for a segment of the population, living expenses higher than income potential results in serial defaults. That can't be good for creditors.

Looking then at municipalities, hardly a day goes by where news isn't about the issue of previously negotiated pension obligations having become impossible to meet. Thus credit to many municipalities is likely to become increasingly expensive as their credit ratings are lowered. What does that do to the obligations?

Conclusion is that pensioners will get a haircut, public infrastructure will exhibit more and more deferred maintenance, and perhaps some bond payments will be missed....which puts both secured and unsecured creditors at risk in those municipalities.

Why wouldn't the same thinking apply to some corporations?

Is this type of thinking coming into the mainstream awareness and causing a loss of confidence in the markets?

I don't know the answers....but it seems that the problems presented from unit size on up are not specific to one household, one county, one region, one country....thus I think the "fingers of instability" may be quite apt.
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So, in these scenarios, the lenders get stiffed by the bankruptcy process and the the debtors get frozen out of the credit market for a number of years. Unfortunately, the income doesn't increase (especially these days with automatic pre-job credit checks), the expenses don't really go away, and as soon as possible the funding through credit cycle begins anew.

Conclusion is that for a segment of the population, living expenses higher than income potential results in serial defaults. That can't be good for creditors.



Yupper, just reading an article about Sears Canada bankruptcy, not pretty and to add insults to the people who signed up for extended warranties that are no longer being serviced they are still expected to make the payments to the company that bought out the Credit cards. }};-@

The logic used to justify this defies my definition of logic.

Methinks a whole lot of (to name one segment) retailers are peddling as hard as they can and going backwards?

Anymouse

https://www.msn.com/en-ca/money/topstories/sears-customers-t...
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Pos: "I don't know the answers....but it seems that the problems presented from unit size on up are not specific to one household, one county, one region, one country....thus I think the "fingers of instability" may be quite apt."

I have no answers but the U.S. budget deficit is relatively large and growing:

https://www.cnbc.com/2018/10/15/us-budget-deficit-expands-to...

The trade deficit is large and growing:

https://www.cnbc.com/2018/12/06/international-trade-surges-t...

U.S. household debt is large and growing:

https://www.reuters.com/article/us-usa-fed-debt/u-s-househol...

Corporate debt is large and growing:

https://www.google.com/search?q=corporate+debt+u.s.&oq=c...

Jgcspouse's state pension is 75% funded which sounds good but it used to reach 100% in bull markets and we are in the late stages of a deficit fueled bull market and only 75% funded:

https://www.fredericksburg.com/opinion/editorials/editorial-...

I will be fully retired 12/31/2018 and that is the economic picture that I am dealing with.

So:

We sold the beach house and put the proceeds into cash in an FDIC insured account presently earning 1.25%.

I undripped my main investment accounts in October of 2017. The result is that they are accumulating cash which causes my one year returns to fall behind every time the market surges and to catch back up every time the market drops because we have 'too much cash'.

My whole life insurance policy just reached the point where dividends pay premiums so I revamped it to let dividends pay premiums until our income reaches the point that we can cash it without paying a big tax bill. In the meantime, we no longer spend money on the whole life policy (except for the fees) while is grows without adding to our tax bill.

We are going to withdraw about 3% from our deferred accounts and put that money into cash partly to protect ourselves from over sized RMDs when we turn 70 and partly to increase our cash buffer in early retirement.

I cannot help but think that wendybg and I are not the only boomers who are starting to batten the hatches with reduced spending and increased savings in a country fueled mostly by debt.


So...

How will this unwinding compare to 2009?

I don't know.

But my personal defense will be increased cash and reduced spending.
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We sold the beach house and put the proceeds into cash in an FDIC insured account presently earning 1.25%.

Jgc123,

Sorry to hear you sold the beach house. I seem to recall you only bought it a few years ago. I might have preferred to sell the primary residence and convert the beach house into a primary residence (preferably in a no-income-tax state - such as my favorite, Amelia Island, Florida).

Congratulations on making it to retirement in good health. That is a luxury that not everyone is able to enjoy. Even if you're following Wendy, and cutting superfluous spending, I might suggest that you take advantage of youthful vitality to do the adventure travel thing, even if it cuts into the kids' inheritance.

I truly admire Wendy immensely, especially her brilliant mind and her legendary self-discipline. However, as much as I admire Wendy, I truly ENVY her brother, Jeff.

Jeff has spent the most active years of his early retirement globe-trotting and venturing into more remote corners of the world than a person could comfortably navigate if they wait until they start to feel their age.

Again, congrats on your reaching retirement. If you'd like to rent a nice place at the beach sometime, please drop me a line. Rental real estate is one of the few ways to get better than minimal returns on investment, at least until interest rates rise substantially.

If you decide to shop for another beach or island property, I suggest you check out Amelia Island. It's the farthest point West on the entire East Coast of North America (longitudinally West of Cincinnati) and the closest place to Heaven on earth for me.

;-)
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jgc123

The only caution I would recommend is if/when the Governments print money that gets out into the public, the velocity of money may then speed up and thus inflation may be greater than your return on CDs, thus it may become a similar situation to what happened to the folks who retired in the mid-1960s and then went through the insanity of purchasing power degradation during their "golden years".

This is all conjecture and may not have merit or come to pass in which case the thought experiment creates no harm, however few buy hazard insurance believing they'll actually need it...

So, if the sequence of events mentioned in the first paragraph unfolds, do you have a plan for dealing with it? If not, think about it, you have time, but I don't have a crystal ball to predict how much....
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"So, if the sequence of events mentioned in the first paragraph unfolds, do you have a plan for dealing with it? If not, think about it, you have time, but I don't have a crystal ball to predict how much...."

Rising inflation is on our radar as well.

Our house is paid for.

We still have more stocks than cash which should serve as an inflation hedge.

Our one pension (spouse) and Social Security entitlements have some inflation adjustments and I am deferring my Social Security which serves as an additional inflation hedge.

Our cash is not in CDs at the moment. It is in savings. If rates go up in response to inflation, so will our savings interest (I guess). If not, I have some flexibility to pursue stocks, bonds, preferreds or whatever holds up best in the near future.

On a more extreme note, I am learning to slice and dice veggies and clean dishes so jgcspouse will cook more. We take long walks and I cycle and we bird all of which are inflation resistant.

On an even more extreme note, we loaned money to our younger daughter and her husband to buy a small farm in Augusta County. They already have a small house built, a greenhouse built, 2 small pigs, and access to unlimited produce at the community garden at which my daughter is executive director - google Project Grows if you are bored and have free time.

Anyway, we are looking at selling our over sized home and paying cash for a smaller home in Augusta County.

So yes, we are serious about battening down the hatches in the face of what we consider to be great economic uncertainty on the eve of our retirement.
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...

I cannot help but think that wendybg and I are not the only boomers who are starting to batten the hatches with reduced spending and increased savings in a country fueled mostly by debt.


Actually as long as you don't have debt yourself or needy family, retiring on pensions and fixed withdrawals is easy. You find out how much you have coming in and spend a bit less than that?

Of course while that works fine for Canucks I'm not sure about the US healthcare expenses.

Good luck and Congrats to both of you.

Tim <retired, don't ask me to do anything I don't want to do>
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