How many more Black & Blue Mondays?

If you’ve been reading my blog for some time, you’ll know that I’ve been banging on about moral hazard as it relates to governments bailing out banks. However, after events these past 10 days (most of which were spent in Canada), I am not so sure anymore.
Meaning, I have had a slight change of heart because the market has become completely irrational and the actions by various governments across the globe has not helped the situation. Despite billions being pumped into the market to increase liquidity, confidence remains extremely low and banks are still not lending to each other. So things are getting dire. And so I have come to believe that perhaps a comprehensive global plan is needed. All this piece meal action is making things worst. The banking crisis that started in the US has truly gone global and recession is on the horizon in the US, Canada as well as a number of European countries. Heck, the UK and Ireland are already in recession.
So here’s hoping that the finance ministers from the G8 nations and other key global players can get together and work something out. In the meantime, my advice to all of you out there is to spread your risk. Better yet, put your liquid cash in one of the new super banks (i.e. Bank of America, Citigroup, JP Morgan Chase, and HSBC). While I wouldn’t bet my life on it, I seriously doubt that these banks will fail anytime soon. As for the others like Barclays, Royal Bank of Scotland, etc. — well I’m not one to speculate, but things are not looking good.
For those of you in the US with money in a 401K plan, if you don’t plan to retire in the next few years, just forget about it. Considering the massive losses already, never mind the tax penalties you’ll encounter for any withdrawal, it is just not worth taking the money out. Perhaps switch to less risky investments in the plan. Beyond that, do nothing else. Remember, the market is in a serious slump now, but it will bounce back eventually.
Finally, beyond spreading your risk, think about what is really important to you. Money should never be the end all. Take it from someone who walked away from an extremely lucrative paying job in the middle of this financial crisis (more on this later). Crazy? Not really. As events over the last few weeks/months have shown, 100 year old institutions with all their wealth can disappear overnight. Thus, as our time here on this earth is short, it is important to find and focus on our true passions. It is important that one’s life has real purpose and meaning.

3 Comments
  1. Always interesting to read your takes on the market. I, like everyone else, has been getting slammed. Lucky for me, I rolled over my 401k 10 days ago and it’s sitting in cash. Even then it was down 23% for the year. But that’s much better than my brokerage account which passed the down by 50% barrier today. It’s sickening.
    I’ve been flirting with the idea of buying short and ultrashort ETFs like:
    PSQ DOG SH MYY SBB RWM QID DXD SDS MZZ SDD TWM SJF SFK SJL SDK SJH SKK SMN SZK SCC SKF RXD SIJ SRS SSG DUG REW SDP EUM EFZ EFU EEV EWV FXP
    I’ve been watching these funds make double digit gains daily in the last week or so, but I haven’t been able to pull the trigger on any of them. Sucks for me.
    I really think we haven’t seen the end of the financial crisis, at least here in the States where the economy is driven by consumer spending which must be seriously on the decline with home equity non-existent, credit cards tapped out and confidence on the wane. In the interests of my long positions, I’d like to think that we’ve hit bottom, but I doubt it.

  2. Arrh, when do you plan to retire? I’m assuming not for another 30 years. As such, unless your investments were in really risky products, I’d say leave your 401K money where it is. The market will bounce back. It always does. Sure it will take longer but in that you don’t plan to retire for many years to come, time is on your side.
    As for trying to play the market trading individual stocks, considering the cost associated with trading, that is a zero sum game that should be left to the professionals.
    In this economic climate, I’d only day trade with money I could afford to loose permanently. I just don’t think we’ve seen the bottom yet and it’s really hard to tell when that my happen.

  3. While I was contributing to my 401K with my old employee, I had no problems holding on when the market went down because I was buying on the cheap. However, as I had left the company and was no longer contributing to the account, I didn’t want to limit my options to the handful of crappy mutual funds selected for me by the no-nothings in our benefits department, so I rolled it over. It was already down 23% for the year and headed further south. I had the money in cash out of the market for the last few weeks, which was extremely lucky.
    So I agree with 100%. don’t think we’ve seen the bottom yet either. I think there are many other shoes to drop. Bank failures around the world in Iceland. Massive sell offs in the major markets and all the minor ones. The coming shopping disaster this Christmas that is going to cripple the US economy. I’m not a panic seller by any means. At a certain points, stocks just get to low to sell. If you believe the fundamentals of the company underlying the stock are still strong, you just have to wait it out. Like you say it’s going to take a long time for them to bounce back, but until you sell them, there is no realized loss. On the other hand, there are going to be some hand wringing conversations with accountants come December and investors will be selling the worst of their holdings to maximize their capital loss tax deduction, which will only put more downward pressure on stocks.
    Last night before I hit the sack, I put in orders to buy QID, DUG and SJL. I probably should have done it a few days ago, but better late than never. When I woke up the news that there was a global agreement on lowering interest rates and the market was up, it looked like a bad idea, but I just bought more. In the time it took me to take a shower, the DOW shed 300 points and I was in the black.
    Nothing pains me more than to have to short the market. I still have long positions in my brokerage account, my ROTH IRA, my traditional IRA and in my current 401k, plus many other DRIPs and mutual funds. But I can’t sit idly by and watch my dilligently crafted portfolio evaporate whilte I feel that the world economy is going in the shitter.

Leave a Reply