Saturday, March 07, 2009

Meltdown on a Personal Level

Lately, the financial news has been uniformly crappy. When companies run out of customers and cash, they tend to implode. And as economist Noruierl Roubini notes, we're imploding:

The global recession may continue until the end of 2010 as the response by governments to rectify it is “too little, too late,” said Nouriel Roubini, the New York University professor who predicted the financial crisis.

“Governments are falling behind the curve,” Roubini said at the India Today Conclave in New Delhi today. “This recession can end up becoming even worse.” ...

The cratering economy has treated me like everybody else, and I've taken painful hits right in the middle of my retirement funds. As an added treat, I also get to field phone calls from members who are freaking out ...

A week ago, an artist close to retirement called and told me, "I don't know a lot about investing, and my brother talked me into using a broker he said was very good. The man made me money for seven years, but the last nine months, I've lost half my savings. He's got me 100% in stocks, and when I call to ask him to move some of it to bonds, he yells at me to stay with what I've got, that I'll be fine, and stop watching financial news since it gets me upset."

I pointed out to him that the broker works for him, not the other way around, and that it's his money, not the stock jockey's. Also that it was unwise to be totally in stocks when you were on the cusp of retirement. He didn't disagree.

Another member wanted to take her 401(k) money and buy a house. I said that since home prices were still going down, she might want to wait a while on the big purchase.

Tonight I talked to one of my oldest friends, an economist with a PhD from Cornell and a going consulting business. He's been on the President's Economic Council and he keeps up with the policy makers in Washington. He told me the following:

"Anybody who tells you they know where the market is going is full of it. Roubini has been predicting disaster for years, and now he's right, and that makes him the man of the hour. I've got most of my money in cash, sitting on the sidelines. I don't know where the bottom is, and nobody else does either."

"I listened to Geithner, the secretary of the Treasury, on C-Span last night. Listened to him for hours. He does a good job of explaining overall government policy but a bad job of explaining how to rescue the banks. They're trying hard not to nationalize the financial sector, but the marketplace thinks they will nattionalize, so the marketplace has taken bank stocks down to almost zero. There's no confidence."

We're in a fustercluck and I think we're going to be there awhile, but I sure as hell don't have a PhD to back my opinions up. The one thing I do know: artists have got to educate themselves about basic investing so they can make semi-inteligent decisions all by themselves.

What I've told people for freaking yours is, invest at your comfort level. If you freak out over losing momney with stocks, maybe you should be in a money market and maybe a few bonds. It's better to get lower returns and be able to sleep at night. But here's a few basic rules that I'd follow in March, 2009:

If you're in your mid fifties or older, be weighted more to bonds and cash. (60-90%, depending on your intestinal fortitude.)

If you're forty to fifty-five, have a bond/stock split of 50%/50%.

If you're thirty to forty, have a bond/stock split of 40%/60%.

And if you're somebody that just can't take the whipsaws of the stock market, can't stomach it going down, down, DOWN, then keep everything in money market funds, stable value funds, and bonds. You won't get much in the way of returns if the stock market spikes, but you won't be in the bathroom hurling, either.

The thing of it is -- and I write this to give you comfort -- almost everybody has taken it in the shorts. A trustee on the Motion Picture Industry Pension and Health Plans recently told me: "A year ago, the Plan's money managers said something funky was happening with the markets, and the trustees voted to shift investments to more conservative investments -- which was, as it turned out, a good thing to do.

"But I listened to these guys and I didn't do the obvious thing with my persona accounts. I should have gone home to my wife and said: 'Honey, let's move all this stuff to money market funds and C.D.s, wait a year and see what happens.'

But I didn't do it. Even with all the expert advice I was listening to on the Pension Plans, I kept my own investments where they were. Turned out to be a not great thing to do ..."

The point of this long ramble is: Nobody has the final answer. Nobody knows where stocks or bonds will be in a year, nobody can say with certainty if the banks will be solvent. But you can educate yourself, make informed estimates about where the economy is going, and protect yourself with some knowledge. In the end, only you can know what's best for you.

Simply saying: "I'm an artist, I'm no good with numbers, I'll turn my investments over to somebody else" is not a good option. Investment advisors might be smart and well-informed, but their long-term needs and goals probably don't align with yours.

Be the captain of your own ship. Have a "Plan A" at the ready, also a "Plan B", "C", and "D". Because, when you scrape away al the media hoo ha, all the blather from various economic gurus, it comes down to this: your personal future is too important and valuable to subcontract out to somebody else.

24 comments:

Anonymous said...

The philosophy driving investing since Reagan has been the typical small government mantra - give individual people more control over their own money - they know what is best for their finances. This plays exactly opposite to the mantra of 'Just take 10% from the top of what you earn and don't touch it," a thought that is often the only thing one can do to just keep yourself fiscally responsible in the daily grind. But gone are the days of buy and hold, so what are everyday people supposed to put their faith in instead, save for one's 401K that is flung about at the very end of an upper class whip? They certainly can't put it in CNBC.

Yes, we can educate ourselves to the best of our ability in the market, take classes, read books, and try to make educated guesses. But the fact remains, 99.99% of us do not have access to the wealth of information that a person in the business of markets has at their disposal every single hour of every day. So we hire people with that knowledge to do it. So then, where is the 'people know what's best to do with their own money' philosophy in terms of this reality?

The only thing this overly-simplified concept of people's relationship to their money and their responsibility for it is that it has created an ever increasing gap between investors who know how to work the system and those that are behind the curve when it's time for the avalanche to come rolling downhill. And guess who they choose to save - AIG over the automakers. Both made crap decisions, but they 'have no choice' but to save the financial 'wizards.' and slander the manufacturers for their demands for health and pension.

If they are trying to start a class war, so far they've laid a perfect foundation.

Anonymous said...

Like Roubini, even a broken clock is right twice a day. Nobody has all the answers. You have to be grown ups and make decisions for yourself. Readers might enjoy these other prescient wizards -
http://www.boingboing.net/2009/03/05/why-the-real-estate.html

Anonymous said...

8 years of bush and dick asleep at the wheel has truly ruined America. They may not be to blame for ALL of it, but they did NOTHING to help. Except let terrorists attack on 9/11 and start an un-needed war. And try and privatize government (which, according to the GAO yesterday, cost taxpayers almsot QUADRUPLE the money to do, and was far less efficient). And further deregulation (always a bad move).

Anonymous said...

Roubini is no more of a market wizard than Greenspan was painted to be when things we 'rosy.' His number hit. So does that mean we all run like sheep to his doorstep, too? The financial advisors we trust today are all hoping that Roubini knows how to invest their portfolios. That leaves us with the same exact choice - just another wizard or gold and mattresses. Nothing's changed since the 'miracle' of usury.

Anonymous said...

**8 years of bush and dick asleep at the wheel has truly ruined America. They may not be to blame for ALL of it, but they did NOTHING to help. Except let terrorists attack on 9/11 and start an un-needed war.**

One could also say that 2 years of the Democrats controlling Congress and thwarting every Bush attempt to get them to keep a tight rein on Fannie and Freddie also contributed *just a mite*. Soo...when is your Boy Wonder, your Great Savior gonna fix all this mess?

Anonymous said...

The real problem is that, since the Reagan Era, wages have been declining and are now so low that is impossible to save enough actual cash money for retirement. The ridiculous solution that has been foisted on the American worker has been (and continues to be) "invest in the stock market".

Supporting a paradigm that has as its sole raison d'ĂȘtre the unchecked pursuit of profit is patently foolish. When your neighbor invests in the company that employs you, that company must screw you to increase the value of its stock and pay your neighbor his dividend. This, in effect, puts every working class investor in direct confrontation with his own best interests. Good luck, morons. What did you expect was going to happen?

Anonymous said...

"One could also say that 2 years of the Democrats controlling Congress and thwarting every Bush attempt to get them to keep a tight rein on Fannie and Freddie also contributed *just a mite*"

You could, but it'd be a lie. The Democratic Party has been spineless for almost a decade. Obama is no saviour, just a REALLY smart guy (nice to have one in the White House again) who's saddled w ith cleaning up yet another big mess by obstructionist repugnicans.

Floyd Norman said...

Many years ago, at the Walt Disney Studio, an incompetent director delivered a really, really bad movie.

Walt gave the crap movie to one of his smartest guys in the hope he could fix it. The new director did all he could -- but the movie was still crap.

Nobody -- and I mean nobody can be a "Great Savior" when you inherit crap.

Anonymous said...

That is true Floyd.

As I heard the markets are trying to flush the embezzlement (and other such malfeasance) out of the system. The Government has no choice but to step in so the markets dont take everything down. Putting more good money over bad will just take everything down even faster.

Obama may not be the cause of this, but he can at the very least scare the bejeezus of those that brought this opon us. He must send those folks to Jail and defang the CDS system, otherwise the market will do it and everything is gone. Thats it. We will recover in 2 years. If not, its going to be like Japan worldwide and you know what went down socially there, and its gonna be years if ever when we come out of it. Yes, the Market will take care of it but the Government got to take care of its side.

Anonymous said...

"Obama may not be the cause of this, but he can at the very least scare the bejeezus of those that brought this opon us."

I completely agree. And yet I am not hearing Obama say anything about throwing any of these guys in jail, forcing the Federal Reserve to reveal who they gave $2 trillion to, or punishing the bank CEO's for using all the TARP money for bonuses.

I mean why do Bush, Cheney, Barney Frank, Nancy Pelosi, and all the other politicians who caused this mess get off scott free?

What republicans and democrats have done to this country amounts to treason. Why is no one being held responsible?

It looks like the fox is guarding the hen house...and that is hardly "change". That is business as usual.

Anonymous said...

"8 years of bush and dick asleep at the wheel has truly ruined America. They may not be to blame for ALL of it, but they did NOTHING to help. Except let terrorists attack on 9/11...

One can only marvel at the idiocy and juvenile hypocracy of your post when in the same breath you claim that Al Qaeda terrorism began under Bush, and that all roads for the financial breakdown lead to him as well. If you cold only blame him for your poor grasp of history!

Its 'party before country' for a dunce like you and you'll construct the most ridiculous double standards to prove that point.


Recognizing that the financial meltdown has had years of traction under the previous administration is a fine assessment - but in saying that you must also accept that Al Qaeda was given refuge by the Taliban and left alone to raise funds and coordinate attacks for eight years under the administration previous to Bush's. In Somalia, in Kenya, in Yemen (USS Cole), and with a domestic attack on the WTC, with the only response being cruise missiles that missed their target and demolished a mosque(an act that forged the bond between Bin Laden and the Taliban).

Previous administrations leave the next with problems and Bush's is part of an economic meltdown. Clinton's was one of neglected national security. Complete ineptitude - and we'll never know the extent because Sandy Berger stole classified documents of the highest order and crossed the street to a construction site in the middle of the night and stuffed them under planks of wood. I'm sure they weren't incriminating about their record fighting the terrorist organization that attacked us.

Thats normal behavior. I stuff top secret stuff in my socks and steal it from classified archives all the time. Its perfectly explainable.

Anonymous said...

It is not possible for an individual to see their own investment decisions play out fairly and accurately in an economy that puts fundamental class roadblocks up at every turn and resets the playing field with central bank magic wands. But that's nothing new. Your 'decisions' are not even real decisions. As an individual, you made none whatsoever. The average individual's choice of where to put their savings has as much effect over the outcome of their retirement as casting a vote in a general election.

Anonymous said...

"It looks like the fox is guarding the hen house...and that is hardly "change". That is business as usual."

You may have hit it on the head buddy.

I don't care how much someone is in love with our new Prexy, you have to realize this guy has made major mistakes when it comes to the U.S. economy. Even if someone doesn't want to admit it, deep down inside you have to realize the bad decisions that have caused another bear market in just 2 months.

I wish all the rhetoric about the economy that we heard before the election was actually the focus now after the election instead of letting congress push through programs that do nothing for the people but spend what little we have left.

With every private sector shrinking its time to get a government job. Its the fastest growing industry out there, just don't know who will pay for it. I guess in the end we all will dearly.

Anonymous said...

Wow....wow...

I had no idea that so many ditto heads enjoyed posting on animation boards.

Why don't you guiys just take it back to your Rush and Hannity syncophant sites and realize how obnoxious you are with your attitude towards the owner of this blog.

Anonymous said...

Clinton's was one of neglected national security. Complete ineptitude

Hardly. Those responsible for the first WTC bombing were summarily found, tried, and jailed. Such can't be said of the Bush administration and its handling of the perpetrators of the second WTC bombing.

The average individual's choice of where to put their savings has as much effect over the outcome of their retirement as casting a vote in a general election

Bad logic. A single vote CAN determine a state's electoral contribution to a general election and thus determine the final outcome. Just because you drank the Kool-aid doesn't absolve you of personal responsibility with regards to your personal finances. I'm Joe Average and I haven't lost any of my retirement savings (inflation/deflation being relative and all).

deep down inside you have to realize the bad decisions that have caused another bear market in just 2 months

Ridiculous. Because the brakes are being put on the 12 years of insane deregulation policies by a crazed Republican congress ('94 - '06) and a bunch of out of control, greed-driven type A Wall Streeters are throwing a temper tantrum doesn't automatically transfer the responsibility for the collapse of our economy onto the current administration. The Conservo-publicans tried this same blame game with Roosevelt. Didn't work then. Won't work now.

its time to get a government job. Its the fastest growing industry out there

The Government has never grown faster than it did during the Bush administration. Looks like you're late to your own party.

Anonymous said...

Regardless of what party refuses see what they don't want to. We are all in for a long and painful haul. Lets hope more people will want to go to the movies or see more animation to help them forget their troubles for at least a little while.

I'm looking forward to Dreamworks MVA, Blue Sky's IA3, Pixars' UP and of course the return of 2D with Disney's Princess and the Frog. There will certainly be a few surprises along the way.

Anonymous said...

>>(inflation/deflation being relative and all).

Just wait a bit longer. Gold and mattresses....

Anonymous said...

"Previous administrations leave the next with problems"

Well...problems for us, but more power/wealth in the hands of a few for them.

Does anyone every wonder why it seems that whether a republican or democrat is in office...the final result always seems to be bigger government and more wars?

Both of those things continually line the pockets of big corporations and politicians. More power and more money for a very small group of individuals.

Have you every noticed that our politicians jump from chairman of the board ( or CEO) of one corporation to politician and then back again? It is a revolving door.

I don't care if we are talking about Jimmy Carter, Ronald Reagan, Bush Sr, Clinton, Bush Jr., or Obama...they all end up with a more powerful government with a war or 2 thrown in. And nothing for the little guy.

The American people have been had for years. Let's see what kind of monopolies come out of this depression. Consolidation of wealth and power is all this is.

Anonymous said...

" Those responsible for the first WTC bombing were summarily found, tried, and jailed."


OH REALLY??

Except for the man who made the bombs, one Abdul Rahman Yasin, who returned to his home county Iraq and took a job with Saddam Hussein's government.

Maybe you forgot about him - or maybe you really don't know what the hell you are talking about. So please, for the benefit for everyone, try and KNOW something about the issues you bring up. You're an embarrassment and its clear why you post anonymously.

Anonymous said...

Let's see. For those of us, in the middle class, paying exorbitant income tax, cannot afford to buy a car as often (I'm still driving a 2001 model, wich I bought used). The big three are on the brink and got us to bail them out. Result= higher taxes.

Yeah, that seems fair.

Anonymous said...

I'm old enough to remember that he press was big on Carter but Wall Street wasn't and Wall Street turned out to be right. The media was not big on Reagan but Wall Street was, and again Wall Street turned out to be right.
And now, the media loves Obama but Wall Street doesn't like what Obama is showing them:

Anonymous said...

No, the problem with 'Wall Street' is that investors don't have fundamentals to rely upon because the fundamentals of the American market of last twenty to thirty years have finally been exposed as fundamentally unsound. That is why the Dow clock is being turned back to 1980, and likely a bit further for good measure. Investors are finally realizing that they are investing in something that has no purpose other than to build useless things and make you shop. The best thing to happen to the planet would be for "Wall Street" to find a purpose instead of conveniently pawning that one off to us, the Public, the Great Unwashed, and Civilization in general.

Anonymous said...

Except for the man who made the bombs, one Abdul Rahman Yasin

A pretty major screw up on the part of the FBI but he remains on a number of wanted lists. I'd bet you subscribe to the "Guns don't kill people" blather so why hold the bullet maker responsible?

Your ham-fisted attempts to start a personal fight are very telling. Go away, troll.

Just wait a bit longer. Gold and mattresses....

No disagreement here.

Anonymous said...

...but I thought those responsible were tried and in jail?!?
You sounded so certain.

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