A good article on Financial Panic

http://www.clusterstock.com/2008/10/cramer-panic-now-and-sell-everything

Excerpt:
"For what it's worth, we agree that the market will likely go lower over the next year. We also agree that people should not have any money in the stock market that they need in the next five years. But the point is that "those assets" never should have been in the market in the first place. The stock market is always unpredictable and dangerous over such timeframes, and people should never count on it to fund near-term expenditures.

We also couldn't disagree more with Cramer's recommended strategy of suddenly selling everything now, with the market down 30%+ from the peak. This is market-timing at its worst. Adjusting your long-term investment strategy because you've realized that you can't stomach risk is one thing. Panicking and selling because the global economy and markets are temporarily collapsing is another. After more than a decade of being overvalued, stocks are finally approaching fair value, and, time and again, emotional selling based on market conditions has been shown to be a terrible investment strategy.

For those with horizons of a decade or more, moreover, the current crash is actually good news. If you're saving for retirement, you will do best if stocks crater like this and then stay down for a decade. The dividend-reinvestment will make you continually buy more shares at lower prices, and when the market does eventually recover, your gains will be compounded."

One thing I've wondered about for quite a while: I was told many years ago: "Never invest anything in the stock market that you can't afford to lose". But all those IRAs are invested in the stock market, and there's no guarantee that the people making the decisions on them know what they're doing.

Isn't there something better to invest in? Diamonds, gold, real estate?

Sue

Real estate? Good time to buy now, disastrous time to sell. Gold and diamonds? Security issues, and lack of intrinsic value: society values them, but they are not usually in your PSK because of intrinsic value.

The stock market is the only investment medium that consistently stays ahead of inflation. Investment of assets, like everything else in life, is a gamble. Market is a good long term bet, lousy short term bet. Alternatively, you can take your money to the pony track, bet the favorite to show, and make 7-10% over the medium term. And you get to watch the horses. Which is great if you like horses. Which I do not. Personal favorite: invest in chocolate. It has appreciated in value steadily, and if the bottom falls out of the economy, you can eat it. Chocolate will get you through times of scarce money better than money will get you through times of scarce chocolate.

I'm still trying to find a tax lawyer who can put my fantasy football league inside a Roth IRA. Still working on it. I'm dollar cost averaging into the office pool about who makes it through Dancing With the Stars, too. Should be able to retire in...well, I'll need to get back to you on that. With Misty May's ankle problem...I'll need to rejigger my position somewhat...

Sue, Izzy's comment just about sums it up. At any given time, something is doing well, whether it's stock, gold, Tickle Me Elmo's or whatever. Too bad no one can reliably pick the winners before they go up.

Even over the long-term, I'm beginning to wonder about stocks. Even over really long periods of time, when you look at countries like Japan, you have to wonder. Remember when everyone was afraid of Japan, Inc.? Remember when people thought that the Japanese might literally buy the whole country out from under us? Does anyone remember the peak of the Nikkei stock index? 39,000 in 1989. What was today's close? 10,000. Japan's stock market has never been close to getting back to even since 1989, and their economy is still lackadaisical to this day. Similar to our problem right now, they had assets that became way overinflated in value, like real estate, but that bubble finally popped. I don't know--harbinger of things to come?

And another thing has been bugging me for the past couple months. I finally got around to reading Kunstler's The Long Emergency. When you look at these charts of stock market performance, they go back pretty far, like the late 1800's. But they really only go as far back as the discovery of oil in this country--plentiful, cheap oil to power a young, booming, rapidly industrializing country. What happens when oil is neither cheap nor plentiful? Can we expect the same economic performance going forward? To be honest, I'm starting to wonder since I read that book. Thinking about our infrastructure, our foreign policy, where our food and daily goods come from, I realize how utterly and completely dependent we are on cheap oil.

China's meteoric rise could be hamstrung by the fact that they have finally started developing in the latter half of the Age of Oil. Bummer for them.

This is a *really* good time to buy stocks, and that's what I'm doing. I was broke during the 1987 crash, and started saving then for the next one. This time I'm ready.

Two years ago, I might have suggested the Trekkie Monster portfolio, but even that sucks right now. Blasted Facebook. :P

I would say diversify. Military and security stocks, not sure if any of the big property management companies are traded but they aren't a horrible idea. Small scale solar and wind power manufacturers. Water futures if they are being traded yet, but I haven't heard anything. Maybe national and municipal bonds, but don't be afraid to shop outside of the US.

For something more concrete, maybe part of a graveyard or mortuary.

You can have either potential growth or safety with your investments - not both.

9 point investment plan
Summarized:
1. Make a will
2. Pay off your credit cards
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

It seems to me that Cramer's advice is about 6 - 12 months late. I have to wonder about his credibility when his timing is this far off.

IMO, which is worthless concerning financial matters.

As long as you beat the rate of inflation plus a little more, it doesn't matter what you invest in. If you're looking for safer stocks, its good to remember what people always need. Hygiene/medical products, core household cleaning items, energy, etc. and research companies based on who makes what, brand, and market share. And of course look at 52 week hi/low, P&L, etc. (moral judgements aside and with a hint of cynicism) This is generally true, but especially in desperate times, alcohol and tobacco are steady sellers.

I finally got around to reading this blog post. I don't understand, they quote Cramer verbatim, but still screw up the fact that Cramer didn't say to sell "everything". Various people on TV and blogs have heaped such abuse on Cramer for telling people to sell everything in stocks the other day. He never said that.

It's very easy to criticize, and especially to pick on a TV show host. Why would someone with a show about picking stocks tell people to get completely out of stocks 6-12 months out? That's just not practical. That's like blaming Jerry Springer for bad advice about keeping a happy marriage and harmonious home life. If I were paying Cramer to be my personal financial advisor, then I certainly wouldn't be surprised if he suggested I reduce my stock exposure, maybe 6-12 months ago, but I would not expect that when he has a TV show about picking stocks.

Also from that same blog post, "If Cramer really doesn't "want people to get hurt," he should stop telling them to try to pick stocks and time the market and start telling them to just gradually invest in a globally diversified portfolio of low-cost index funds."

Actually, he does recommend just that for most people.

I agree, what I heard Cramer say was that if you need cash in the next 5 years, you are better to take it out now than to leave it sit. Sounds identical to the recommendation at the top of the quote to me.

I just looked at my 401k and my IRAs. All are invested the same, 65% into moderate risk stock funds, 35% invested into bond funds. Overall I have made money in the past quarter, and expect to continue in the 4th quarter, though not as much. Overall my stocks lost, but the bonds have done so well they offset the stocks and then some, yielding a net gain! I thought about re-proportioning my investment profile to increase my bonds and decrease my stocks, but I think it would be better just to leave it. As was stated previously, with the stock values dropping and my horizon at or near 20 years, I will be able to buy more stock shares now at a reduced price and watch them grow later when this mess is over with. If I shifted my investment and bought fewer stock shares now, my long term returns will be reduced. One thing we know from the past; no matter how big it falls, it always rebounds to a higher level later on.

I never liked hedge funds, and index funds have always made the most sense. Hedge funds are for professionals, and can get away from you fast if you aren't paying attention and don't have the ability to respond quickly, which is exactly what's been happening lately. Index funds don't react like that. For index funds to move that much in such a short time, the world market would really be on the verge of collapse; the sort of thing where you see big investors getting into rocket ships to find another planet to live on.

My additions in red.



To point #9 - I disagree slightly, as the "percentage of portfolio" folks can be highly motivated to make you money, and the investment advisor I'm using for some of my interests has made some moves in the last 8 weeks that have kept his fees up, because he's managed to hold a defensive position that's been holding up way better than the market on the whole.

But all in all, solid, tough advice, especially #2, but in fact last month was the biggest "pay down" month in 20 years - people paid more debt off than they charged! That's incredibly rare.

Because now that the stock market has tanked, many people will gain more by paying off debt than by investing money in low yield investment vehicles.

Are you privvy to more detailed industry info, Martin? I just ask because from news stories, it's not clear to me what August's consumer debt numbers actually represent. For one thing, from what I read, most of the decline is in auto loans, and I've been hearing that banks are getting quite picky about handing out new auto loans. So maybe the oustanding debt is lower because fewer new car loans are being made than usual? Or people paying down/paying off their car loans faster.

On the credit card side, people could be charging less (I'd laugh but wouldn't be surprised if the reduction in credit card debt is offset by an increase in debit transactions. "Charging $100 for that new hand bag on my CC is bad. But by using my debit card, I'm being responsible when I buy that oh-so-cute bag for next week's party!" People have such weird financial logic sometimes.). Or they could be paying down/paying off the CC balances faster. I've also read that some people are getting their credit limits lowered by the banks lately. Wow, when's the last time anyone ever heard that happening?

And I believe that student loans also fall under the "consumer debt" umbrella. I've also been hearing that student loans are harder to come by lately, too. The start of the new school year might contribute to an August dip. I'm wondering how many students weren't able to attend classes this fall because their student loans didn't come through? It's unfortunate that higher education in our country requires so much debt. Even community or junior college isn't that cheap unless you're working and going to classes at the same time.

Well I think we are all in the last chance saloon and the last roll of the dice.



This graphic kinda sums up the sentiment at the moment.

I'm beginning to plan for a national central command economy with all that entails over here in the UK, which they had during WW11 and post WW11 up until the early 1950s (food, clothing and energy rationing). Its going to be a big change in lifestyles for many.

Dropping interest rates as a concerted global action (with the US dropping its interest rate by 25%) when the money supply is being radically inflated is an act of complete desperation.

Heck I might even go and buy some Tulip bulbs for the garden just for the irony.

Tulip mania

Not privy to anything special, it's in all the financial news today:

http://www.bloomberg.com/apps/news?pid=20601087&sid=araFtj3EAFFw&refer=home
"

According to the Fed, total consumer borrowing dropped at a 4.3 percent annual rate in August, the most since January 1998, during the Asian financial crisis.

Revolving debt such as credit cards decreased by $612 million during August and non-revolving debt, including auto loans, dropped by $7.3 billion.

Late Payments

The number of credit card bills paid late increased in the second quarter, according to the American Bankers Association, rising to 4.54 percent from 4.51 percent in the first quarter. The average bank card delinquency rate over the last two years is 4.44 percent. "

Addendum to #2

If you care about your heirs and have accumulated any assets in your lifetime, you may also want to consider a revocable living trust in addition to a will. There are several benefits that a will alone doesn't offer. Consult an estate planner before settling on just a will.