Is the stock market going to tank?

[Brock Landers]

Benny...youre about 8 months late...congrats on your 180 though, being a perma-bear takes years off your life

[4matic]

Benny...youre about 8 months late...congrats on your 180 though, being a perma-bear takes years off your life

Yeah, I was a permabear for years in the 80's and part of the 90's. The fact is bear markets are short and swift and then you will get sideways higher markets. Being a bear you will eventually be right but all those years of consternation is exhausting.

[Benny Profane]

Benny...youre about 8 months late...congrats on your 180 though, being a perma-bear takes years off your life

Eight months late for what?

[Benny Profane]

I think I know where you're going, but, elaborate, please.

[Benny Profane]

Well, anyway, this is always fascinating when they do these surveys. What are people smoking, indeed.


WSJ
THE INTELLIGENT INVESTORJANUARY 16, 2010
Why Many Investors Keep Fooling Themselves
By JASON ZWEIG

What are we smoking, and when will we stop?

A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years.

Robert Veres, editor of the Inside Information financial-planning newsletter, recently asked his subscribers to estimate long-term future stock returns after inflation, expenses and taxes, what I call a "net-net-net" return. Several dozen leading financial advisers responded. Although some didn't subtract taxes, the average answer was 6%. A few went as high as 9%.

We all should be so lucky. Historically, inflation has eaten away three percentage points of return a year. Investment expenses and taxes each have cut returns by roughly one to two percentage points a year. All told, those costs reduce annual returns by five to seven points.

So, in order to earn 6% for clients after inflation, fees and taxes, these financial planners will somehow have to pick investments that generate 11% or 13% a year before costs. Where will they find such huge gains? Since 1926, according to Ibbotson Associates, U.S. stocks have earned an annual average of 9.8%. Their long-term, net-net-net return is under 4%.

All other major assets earned even less. If, like most people, you mix in some bonds and cash, your net-net-net is likely to be more like 2%.

The faith in fancifully high returns isn't just a harmless fairy tale. It leads many people to save too little, in hopes that the markets will bail them out. It leaves others to chase hot performance that cannot last. The end result of fairy-tale expectations, whether you invest for yourself or with the help of a financial adviser, will be a huge shortfall in wealth late in life, and more years working rather than putting your feet up in retirement.

Even the biggest investors are too optimistic. David Salem is president of the Investment Fund for Foundations, which manages $8 billion for more than 700 nonprofits. Mr. Salem periodically asks trustees and investment officers of these charities to imagine they can swap all their assets in exchange for a contract that guarantees them a risk-free return for the next 50 years, while also satisfying their current spending needs. Then he asks them what minimal rate of return, after inflation and all fees, they would accept in such a swap.

In Mr. Salem's latest survey, the average response was 7.4%. One-sixth of his participants refused to swap for any return lower than 10%.

The first time Mr. Salem surveyed his group, in the fall of 2007, one person wanted 22%, a return that, over 50 years, would turn $100,000 into $2.1 billion.

Does that investor really think he can get 22% on his own? Apparently so, or he would have agreed to the swap at a lower rate.

I asked several investing experts what guaranteed net-net-net return they would accept to swap out their own assets. William Bernstein of Efficient Frontier Advisors would take 4%. Laurence Siegel, a consultant and former head of investment research at the Ford Foundation: 3%. John C. Bogle, founder of the Vanguard Group of mutual funds: 2.5%. Elroy Dimson of London Business School, an expert on the history of market returns: 0.5%.

Meanwhile, I asked Mr. Salem, who says he would swap at 5%, to see if he could get anyone on Wall Street to call his bluff. In exchange for a basket of 51% global stocks, 26% bonds, 13% cash and 5% each in commodities and real estate—much like a portfolio Mr. Salem oversees—the institutional trading desk at one major investment bank was willing to offer a guaranteed rate, after fees and inflation, of 1%.

All this suggests a useful reality check. If your financial planner says he can earn you 6% annually, net-net-net, tell him you'll take it, right now, upfront. In fact, tell him you'll take 5% and he can keep the difference. In exchange, you will sell him your entire portfolio at its current market value. You've just offered him the functional equivalent of what Wall Street calls a total-return swap.

Unless he's a fool or a crook, he probably will decline your offer. If he's honest, he should admit that he can't get sufficient returns to honor the swap.

So make him explain what rate he would be willing to pay if he actually had to execute a total return swap with you. That's the number you both should use to estimate the returns on your portfolio.

Write to Jason Zweig at intelligentinvestor@wsj.com


http://online.wsj.com/article/SB1000...Tabs%3Darticle

[AKPogue]

Well, anyway, this is always fascinating when they do these surveys. What are people smoking, indeed.

Do you actually think that guys that do these jobs are going to say don't invest in the stock market because it might tank and your money would become worthless? If they said that then they would be out of a job. It would be like a ski area saying it is not going to snow here this year so don't come. You should know by now, marketing, marketing, marketing!!!

[Benny Profane]

Do you actually think that guys that do these jobs are going to say don't invest in the stock market because it might tank and your money would become worthless? If they said that then they would be out of a job. It would be like a ski area saying it is not going to snow here this year so don't come. You should know by now, marketing, marketing, marketing!!!

Reread the first sentence. He's talking about all investors expecting 13.7%. At least the pros are a little more realistic.

[AKPogue]

Reread the first sentence. He's talking about all investors expecting 13.7%. At least the pros are a little more realistic.

I read it, as I said before he is selling his product.

[Benny Profane]

Interesting op-ed from '05.

http://www.vanguard.com/bogle_site/sp20051003.htm

[ICEHOCEY77]

Now watch the market bomb.

someone needs to go make sure Benny hasn't offed himself

[Benny Profane]

You guys really don't get it. Gerbils in a wheel, all of you.

[retirwntm]

benny the mush. way to bring on the correction

[BigDaddy]

I've just had a revelation. I've been wondering where to go in '10 after hiding in safety for all of '09,

You missed about a 40% increase, then.

Now, you get in... I get out.

[Missing Sock]

benny the mush. way to bring on the correction

when the pizza delivery guy is giving you stock advice its time to get out......

[khakis]

I've just had a revelation. I've been wondering where to go in '10 after hiding in safety for all of '09...and, of all things, I realize that the best choice is a Vanguard target retirement fund, which is comprised of stock and bond index funds, very low cost. You literally can't beat it...So, that's it. It's such a load off my back. Have fun, and good luck. I'll be back to rant about the sins of Wall Street, but I have seen the light. Adios.

That's brilliant! Aren't you glad you figured out how to win the game?

waitaminute...

vangaurd.com

Target retirement fund. Already pre-diversified depending on how soon you want to retire.

Done.

Check the performance of those things in the past few years. So much for contemporary financial advice. I pity those who targeted 2010.

[ame="http://www.tetongravity.com/forums/showthread.php?p=2504905"]So you have $1,000,000.... - Page 2 - Teton Gravity Research Forums[/ame]

[grapedrink]

You missed about a 40% increase, then.

Now, you get in... I get out.

40%? i think you mean 75%. VTI (vanguard total stock market index etf) 52 week range is $33.26 - $58.35.

[4matic]

There's short term support around 1080-1050 SP00 with 50 point increments down to 850. There's not much long term support above 750 in the SP. I suspected a first quarter pullback so seasonally it sets up well for long term investors.

A meltdown in commodities will be also good for equity longer term.

No opinion on gold except it was a good short on the last rally to 1140.

[grapedrink]

WASHINGTON – The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

continued...

http://news.yahoo.com/s/ap/20100131/...ilout_watchdog

[Benny Profane]

Conspiracy theorists - check this out:



Marketwatch
Jan. 5, 2010, 5:47 p.m. EST
TrimTabs suggests government manipulated stocks
Analysts say government's financial rescues have fueled conspiracy theories

By Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.

"We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement Tuesday.


The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds.

"We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?"

The Federal Reserve or the Treasury, Biderman said, could have easily manipulated the stock market by purchasing $60 to $70 billion worth of futures of the S&P 500 Index (INDEX:SPX) on a monthly basis.

Conspiracy theories on the rise?

Market analysts, however, were quick to debunk the theory. Yes, the government had a heavy hand in rescuing the financial system and the economy as the system started collapsing in late 2008 and throughout 2009. But the huge boosts of liquidity through the system found their way to stocks by the usual means, they said.

"The idea that this is magic is nonsense," said Barry Ritholtz, market strategist at Fusion IQ and a market veteran. "This was a normal behavior in a recessionary bear market. We saw the Dow plunge 5,000 points in 6 months, which had never happened before and created a dramatically oversold market."

Yes, the Federal Reserve slashed interest rates to near zero and Congress allowed banks to keep their bad loans off their books, allowing them to pretend they were solvent, he said.

But "you can't short stocks when the Fed is at zero," Ritholtz said. "Our own institutional clients came on board" as did other big institutional investors, he said.

Conspiracy theories about the so-called "plunge protection team," or PPT, have been on the rise ever since the U.S. government started to bail out financial institutions in late 2008 under the administration of then-President George W. Bush, according to Dan Greenhaus, market strategist at Miller Tabak.

The PPT is a nickname given by some to a group established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate governmental response to market meltdowns.

Noting that the Fed has been buying Treasurys and mortgage-backed securities to keep interest rates low and support the economy, even firms such as Sprott Asset Management have started to accuse the U.S. government of running a Ponzi scheme.

"There's a lot of backlash against the government right now and the hate for the Fed has gone into overdrive" in some corners, Greenhaus said. "The fact that the government stepped into the abyss [angered] a lot of people, and the fact that things are better a year later flies in the face of some long-held beliefs about free markets."

As to the scale and power of the 2009 rally, it actually trailed previous recoveries from bear markets, according to research from Miller Tabak.

"While the absolute percentage gain off the recent lows has been more powerful than anything since the Depression era, there is no denying that historical rallies in the equity market have recouped a greater percentage of the declines from the highs," Greenhaus wrote in a note.

The stock market, as measured by the S&P 500, plunged nearly 57% from its 2007 highs until it reached lows in March of 2009.

But even after rallying 58% in the seven months after the March lows, the market remained 31.5% off of its 2007 highs. That's nearly the same amount recovered during the market rally of 2003, as the market began to recover from the bursting of the tech bubble.

In other instances, such as 1975, 1962 and 1938, the market had actually recovered a much bigger portion of its losses seven months after hitting lows. And in 1983, it was actually 7.3% above its previous highs.

Does anyone have some thoughts on this? I bring it up again because I heard a very sensible fund manager put forth this same argument on CNBC today, and on Maria Bartiroma's......

show, of all places. (Hubba hubba, baby. Pump and dump me, please)

.......which is basically propoganda hour for people schilling stupid deals.
This person (forgot his name) wasn't a wild eyed one, but, basically was wondering, "Who is buying stocks?" It's not companies, who usually jump in at this point, and the retail investor (you and me) is still in bond funds and cash. So, the implication was that the Fed is buying the market to, well, pump and, I guess, dump when fools rush in.

Is it even possible?

[Spats]

Is it even possible?

Money is just numbers in computers they control. Anything is possible.

[retirwntm]

you guys need to loosen the foil hats. the govt. is manipulating the markets but its right in front of your faces - via ZIRP. barry ritholz, who's a smart guy and conspiracist watcher himself explained it succinctly:

"The idea that this is magic is nonsense," said Barry Ritholtz, market strategist at Fusion IQ and a market veteran. "This was a normal behavior in a recessionary bear market. We saw the Dow plunge 5,000 points in 6 months, which had never happened before and created a dramatically oversold market."

Yes, the Federal Reserve slashed interest rates to near zero and Congress allowed banks to keep their bad loans off their books, allowing them to pretend they were solvent, he said.

But "you can't short stocks when the Fed is at zero," Ritholtz said. "Our own institutional clients came on board" as did other big institutional investors, he said.

in fact, that whole article you copied & pasted has several reasonable explanations. there have been mkt. rumors about excessively large SP futures & options contracts which have tended to be bullish. there was a huge lot of VIX contract trades done near the end of the year that was very bullish on the VIX being in the 20's - which assumes low volatility and usually higher markets. whoever booked it made a good bet, but i'd guess GS before USA.

[Brock Landers]

How did the government manipulate the stock market aside from the FOMC operations and the allowances to banks about loans? I dont see how that will boost the stock price of some mid cap steel maker any more than improved fundamentals with respect to receiving financing.

[grapedrink]

January 14th, 2010

I've just had a revelation. I've been wondering where to go in '10 after hiding in safety for all of '09, so I grab a great book by John Bogle, "Common Sense on Mutual Funds", updated edition to the end of '09, Amazon.com: Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition (9780470138137): John C. Bogle, David F. Swensen: Books and, of all things, I realize that the best choice is a Vanguard target retirement fund, which is comprised of stock and bond index funds, very low cost. You literally can't beat it. He argues over and over again that a low cost index fund always beats managed funds and trading over the long run, with tons of historical data. He's a wise old man, and, I'm afraid, when he and Volcker and Buffet pass away, which will be soon, the world will be a much less civil place, and much dumber.

So, that's it. It's such a load off my back. Have fun, and good luck. I'll be back to rant about the sins of Wall Street, but I have seen the light. Adios.

Now watch the market bomb.

it's like rain on your wedding day

[4matic]

How did the government manipulate the stock market aside from the FOMC operations and the allowances to banks about loans? I dont see how that will boost the stock price of some mid cap steel maker any more than improved fundamentals with respect to receiving financing.

During the 87 crash and the LTCM meltdown The Fed was widely rumored to be buyng stock index futures to offset index arbitrage losses. Index buying would cause a midcap steel company to rise as baskets of stock are bought to offset the discount.

[retirwntm]

yeah, brock, do you mean directly - as the conspiracists speculate or indirectly?

4matic has it, and the whole PPT thing above from benny is pretty well established as a "theory"...in that the govt. will actually step in to the futures mkts. and buy S&P, Dow & NASD future contracts.

indirectly, ZIRP pretty much sends all money looking for yield in a zero interest rate environment - out of bonds and into stocks, commodities, etc. it also makes borrowing money free, so banks & hedge funds can perform easy low risk carry trades.