Thanks to everyone who responded to this blog and who emailed us at nbrmail@nbr.com. Stocks fell for a sixth straight session today, even after a worldwide coordinated interest rate cut. Have we reached the point of “maximum pessimism” or is there still more to go?
We received an interesting e-mail from a 72 year-old widow who’s Riding Out the Storm by:
Depending on my IRA and SS income for financial support. In the early 90's I was employed by a Regional Bank and on an M & A team reviewing mortgage loan portfolios from over 45 failed S & L's. I retired in 1995. I have managed my own stock portfolio since that time.
Current Status
1/1/08 my IRA portfolio balance was 550k.
My MRD taken to date is 22k.
10/07/2008 my IRA portfolio balance is 347k. (Down about net 35%)
I did not go to cash!
Asset Allocation
15% cash
33% Preferred stock (financial)
8% Energy MLP
44% Dividend paying Closed End Funds
Strategy
All assets are dividend paying. Though they currently have lost principal value, they produce $55,000 annually, in monthly, quarterly and semi-annual dividend payments to IRA.Based on current market value, the yield is 15.85%.The theory is that unless the whole banking system collapses and goes bankrupt, the dividends should stay with perhaps only minor reductions. Of course, the risk is curtailment of dividends on the non-cumulative preferred stocks if the bank fails. Dividends have not yet been reduced on my holdings for the past year-to-date. Last year the portfolio produced $50k+ in dividend income.
So, while I am losing principal value of the holdings only temporarily (hopefully), the income stream is still being produced. I realize there is a degree of risk associated with this strategy and not going to cash. However, at least there will be income flowing into my IRA, tax free until I draw it out, as opposed to just stock depreciation and no income.
Again, please let us know your strategies for Riding Out the Storm, even if what you’re doing isn’t working. As promised, we will read all of the entries we received and include some others our program and on our website.
Comments
From nbrmail@nbr.com
Dollar Cost Averaging - Buying
During the "panic selling" I'm taking the opportunity to bargain hunt
and to practice dollar cost averaging investing. I'm buying strong
financial companies such as Citibank and Bank of America and related
ETFs, and Automotive firms such as GM and Ford to hold for the long term
(3 to 5 years). I'm dollar cost averaging, buying some shares every
time the market drops 500+ points. Let the masses sell. I am also
buying shares of total market index ETF funds. There's a great old
saying in the investment business, the crowd is usually wrong, nothing
good comes from panic. I do not watch any other business or financial
TV programs other than Nightly Business Report as most others are
noise. I have also joined a bowling league to keep my mind on other
things rather than the amount of money I'm loosing each day in my
portfolio. My job was eliminated in February of this year so investing
in a market that is falling is very difficult for me. Looking for a new
job also keeps my mind on higher priorities then a financial market in a
state of panic. Fortunes are made in the future.
Robert J. Pellegrini
From nbrmail@nbr.com
SUSIE GHARIB SAID LET US KNOW WHAT YOU THINK WILL FIX THIS FINANCIAL CRISIS:
IT'S EASY AS ABC:
A)TEACH THE GOVERNMENT(S) TO SAY
"WE CAN'T AFFORD THAT"
B)MAKE GOOD RETURN FOR BANKING DEPOSITS
A REQUIREMENT FOR BANKS SO THAT PEOPLE HAVE A PROFITABLE REASON TO DEPOSIT MONEY INTO BANKS FOR CERTIFICATE OF DEPOSITS, ETC., AND THEIR RETURN WILL COVER TAXES AND INFLATION AND SOME FOR THEMSELVES TO REPAY THEM FOR THE USE OF THEIR MONEY.
C)REINSTATE "USUARY LAWS" MAKING RIDICULOUSLY HIGH LOAN PRICESINTEREST RATES ILLEGAL.
Linda Weinberg
From nbrmail@nbr.com
Several important questions have been asked during your show, namely: What does the government have to do to stabilize the credit markets ? Why did the market react negatively to the FED's drop in rates ? What has to happen to return confidence to the investor ? ETC. The answer to all these questions are extremely complex and difficult to analize. The administration and the congress are bending over backwards to help the banks and other lending institutions at tax-payer's expence. However, they have totally ignored one of the major sources of credit: The bond holders. They forget that responsible investors know that investing in a bond does not mean to "buy" a bond(As the jargon goes). But that it means to enter into a credit contract with the borrower, where the details of the said contract are detailed in the bond description(Interest for the use of the money and the date certain of the capital's return). How does the administration and congress expect to return confidence in the markets when their best comment in regard to bond holders is that "bond holders will need to get a hair cut with the equity investors. They are creditors !
JP Morgan had been in sale negotiations with WAMU for some time, the FDIC stepped in, flushed the creditors (bond holders) and five minutes later completes the sale. How can the government expect confidence from the investor with this kind of action by the FDIC in collution with the treasury and the FEDS. When did bond holders become second class citizens. Bond holders are also equity investors in need of confidence.
Be assured that as long as this systemic flaw exists, the markets will continue to be moved by spaculators and not investors. All failures in the last few weeks have been by investment graded organizations. What is the responsibility of the rating agencies and the SEC ? Will the bond holders have to continue to pay (get a hair cut) for the inefficiency of our regulating authorities ? I hope the government does not forget this important source of credit. Thank you
R. Charles
From nbrmail@nbr.com
Susie & Paul,
Maybe I'm over simplifying this, but if anybody takes a look at a Dow chart from 1928 to today . . . one can visually see the general area where the market "should" be today, given a reasonable average(~6%) rate of return. A nice, smooth, gentle rise would put us somewhere around 8000. The tetonic peaks we've seen in the past 10 years are getting shorn off. Underneath these mountains was a lot of fluff. We'll soon get down to something solid.
John Paterson
Dear Mr. T,
Maybe you can sell some of your numerous gold chains to help fight inflation. (Maybe you’re not THAT Mr. T.) In any case, there is a common theme that’s running throughout nearly all of our responses. To successfully ride out the storm, you should try earning more money while spending much less.
One blogger is a high school teacher who works 4 jobs in order to put his son through college without taking out student loans. A lot of NBR viewers advocate trying to live with no debt. (I know that’s much easier said than done.)
Another writer is conserving electricity while trying to conserve gasoline.
Please keep your ideas and posts coming.
Denise Royal
Can the United States expect hyperinflation like so many other mostly underdeveloped countries in places like Latin America or Africa. The Icelandic currency is apparently in a free fall ant Iceland has been called the "canary in the coal mine". It makes sense to me that when we are burdened with debt "printing more money" is an acceptable solution. This is devestating to consumers, and lenders are short changed. What does the US do to prevent hyperinflation? I really have not heard of this fear. What I do know is that in the past year alone basic food prices have climed significantly: Milk, eggs, flour, rice, is all up 7-20%. Need I say gasoline?