Is it Time to Pull Out of the Market?

[Orion53]

At the very end of Episode 947 Jack recently indicated that he believed the time to exit the market was coming very soon.  He was clear that he believed there was still time, but thought a "confluence of events" was coming by fall that could lead to an economic disaster.

I tend to agree with him, but wonder what impact a Romney win might have in delaying a depression/recession a few quarters longer.  I'm not a Romney, nor Obama (Romama?) fan, but Republicans are perceived as more business and tax friendly, so markets could respond positively.

The Euro crisis is deepening despite recent good news.  I tend to agree with Jack that TPTB are trying to keep it afloat til the fall elections, and we may see the Fed step in at that time.

Municipal bankruptcies are on the increase, yet you don't hear any other troubled cities enacting much in the way of austerity measures.  The fed is keeping rates depressed, and promising QE3 type measures.  Housing starts are up as a result, which is a bright light in the equation

Unemployment and underemployment numbers are stagnant, and have been that way for a long time.  The market "rebound" is just not showing up in the labor market, and that is the sign of a major problem.  Kids coming out of university are facing dire straits with hiring way down.

What are any of your thoughts on this?  I know we are a bit prone to dark thoughts in this community, so especially welcome those that disagree with Jack and me.

[nelson96]

My wife and I ask ourselves the same thing.  We can do a lot with a BOL if we just had a crystal ball. . . .  (1.) You have to ask yourself is can you do okay after losing about 35% off the top (early withdrawal penalty and tax).  (2.) If we don't have a collapse, in your lifetime, will that 35% loss (along with additional interest you would have earned) keep you from living comfortably when you retire. . . .  Those are the two biggest questions we ask ourselves.

[TexDaddy]

I stopped participating in that crime scene several years ago.

[Alan Georges]

I tend to agree with him, but wonder what impact a Romney win might have in delaying a depression/recession a few quarters longer.  I'm not a Romney, nor Obama (Romama?) fan, but Republicans are perceived as more business and tax friendly, so markets could respond positively.
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What are any of your thoughts on this?  I know we are a bit prone to dark thoughts in this community, so especially welcome those that disagree with Jack and me.

I started writing a too-long post, but deleted it to summarize with: (1) stasis until the election, (2) then the unraveling continues afterward no matter who gets into office.  There will be a different feel to this unraveling depending on the election's outcome, but the net result will be the same.  (3) If the presidential election is challenged, a la 2000, this will be punctuated by a few months of civil unrest.

And let me state for the record that I am now, have always been, and will remain a fan of Romana: http://en.wikipedia.org/wiki/Romana

[bigbear]

Agreed that we'll tread water until the election.

I think the crux is going to be jobs.  Because if people are working, then they are in the IRS income column not the expense column.  Student loans get paid back.  Fannie/Freddie don't have to bail out as many bad loans or failed banks.  TPTB will continue pushing stimulus, QE3, and whatever other spending/hidden tax measures until legit Fed income increases for an extended time.  We've been deficit spending for so long now, that one election isn't going to change the course (more like a different tact into the same headwinds).

If Romney wins: Can opening drilling and domestic energy production create enough jobs to counteract decreased tax revenues (from extended across the board tax cuts)?  Some drilling comes at a cost (fracking knowns/unknowns - health, environmental...), but could provide a few economic boosts (jobs, increase tax base, decreased unemployment payouts, lower energy cost across the board, energy 'independence'?). 

But whatever happens is prolonging the inevidible as a culture shift in expectations will have to take place (living standards in the face of third world competition, the role of gov't/education/family, personal responsibility...).  And that doesn't happen quickly and rarely voluntarily.

If Obama wins:  He doesn't really have a jobs plan other than US gov't spending (stimulus projects) financed by debt or penalizing companies for off-shoring.  His fiscal plan seems to be forgive debts so that consumption spending can continue.  I think the trajectory increases the odds of a swifter failure.

[Smurf Hunter]

To the OP question - the "market" is not exactly the same thing as the "economy".   

There could always be some freak good or bad news that causes a spastic reaction in the stock market.  I think what we need to figure out is:

1) what will make the next crash long term?
2) what criteria does the majority of the investing public  (sheeple?) use to decide this?

personally I have my traditional  IRA (accumulation of  401k roll-overs) 75% in cash.  At this point I'm only getting 1-2% annually between the feeble money market rate and a few equities paying dividends.  If I were to cash out of that account, I'd lose more in taxes than I'd lose if 100% of my equities went to 0.

The only scenario where it could possibly make sense to exit from a pre-tax retirement account, if there was a critical cash needed emergency.  From a wealth perspective, if a handful of my blue chip dividend paying stocks actually went to zero, that probably means the US dollar is toilet paper and the zombie horde is fast approaching.

[endurance]

If Romney wins: Can opening drilling and domestic energy production create enough jobs to counteract decreased tax revenues (from extended across the board tax cuts)?  Some drilling comes at a cost (fracking knowns/unknowns - health, environmental...), but could provide a few economic boosts (jobs, increase tax base, decreased unemployment payouts, lower energy cost across the board, energy 'independence'?). 

I really doubt the change in presidency will make a major change in the number of active drill rigs in the US, unless you want to credit Obama with the largest increase in new oil rigs coming on line ever...  And that decrease in gas rigs has a lot more to do with the surplus of natural gas right now pushing prices down than what administration is in office.

I suspect ANYTIME between now and 2015 we'll start to see the beginning of an oil and credit crunch that is going to send the global economy into a tail spin.  Trying to figure out when is a fool's errand.  I believe in staying diversified so you don't get pummeled by inflation or deflation.  Silver, gold, dividend yielding stocks, short term bonds, cash, productive land--It all belongs in a portfolio, but some things need to be trimmed back to 10% from time to time and some should be allowed to grow to 30-35% from time to time.

[KellyAnn]

I disagree because I thought the time to "get out" was about 3 months ago.
At that time, I moved the money in my company-sponsored 401k to the safest investment possible in the 401k.
In the case of my companies 401k, the safest option was a savings account.
I haven't stopped contributing, because my employer matches at 80% of the first 5% contributed.  An 80% return on my investment is just too good to pass up.
I also direct what my husband does with his 401k account.  Unfortunately, he doesn't have a savings account like option.  We chose instead to put it in the very safest option available to him.

I wouldn't withdraw the amount in either of our 401k accounts, I'm only in my mid 30's and wouldn't want to pay the penalties & fees.  If I were to leave my current employer, I would rollover the 401k into an IRA that gave me the kind of investment options I wanted.

[Smurf Hunter]

I disagree because I thought the time to "get out" was about 3 months ago.
At that time, I moved the money in my company-sponsored 401k to the safest investment possible in the 401k.
In the case of my companies 401k, the safest option was a savings account.
I haven't stopped contributing, because my employer matches at 80% of the first 5% contributed.  An 80% return on my investment is just too good to pass up.
I also direct what my husband does with his 401k account.  Unfortunately, he doesn't have a savings account like option.  We chose instead to put it in the very safest option available to him.

I wouldn't withdraw the amount in either of our 401k accounts, I'm only in my mid 30's and wouldn't want to pay the penalties & fees.  If I were to leave my current employer, I would rollover the 401k into an IRA that gave me the kind of investment options I wanted.

I'm in a very similar boat.  I contribute enough to get my employer's maximum match, and it's all going into some hyper conservative wealth preservation fund.  Your match % is incredible.  I was excited to get 50% of the first 6%. 

Funny, I recently got a phone call from a Fidelity rep who manages my 401K account.  He was worried I wasn't getting enough ROI.  I explained that I'm getting 50% ROI via employer match.  He didn't really see it that way.  If you compared the post tax take home pay with the contribution+match - it's close to double ($100 pre-tax + 50% match vs. 25-30% inc tax on $100).

[dk1138]

And let me state for the record that I am now, have always been, and will remain a fan of Romana: http://en.wikipedia.org/wiki/Romana

Time travel FTW!  I used to be a huge fan of the show and had a crush on this character.  Thanks for reminding me how old and geeky I am. 

Seriously, I do think both "sides" benefit from stasis and criticism until after the election.  I'm very unconfident of being able to predict "when" something will happen, but I am looking for ways to ease out of the casinos markets. 

I certainly am not feeling too much "leisure" about it, just looking for good exit points. 

Case in point: We took some IRA money (above the allowance) to help buy a house on 1.5ac that we want to keep for the long-term.  I'll probably pay penalty to use more IRA money to pay the tax bill on that this year. I figure this is less exposure to (1) the markets and (2) future tax rate increases.  As Jack points out, this is very regulated money. 

I am looking forward a great deal to his further thoughts on this matter. 

Best,
David

[KellyAnn]

I'm in a very similar boat.  I contribute enough to get my employer's maximum match, and it's all going into some hyper conservative wealth preservation fund.  Your match % is incredible.  I was excited to get 50% of the first 6%. 

Funny, I recently got a phone call from a Fidelity rep who manages my 401K account.  He was worried I wasn't getting enough ROI.  I explained that I'm getting 50% ROI via employer match.  He didn't really see it that way.  If you compared the post tax take home pay with the contribution+match - it's close to double ($100 pre-tax + 50% match vs. 25-30% inc tax on $100).

My employer matches 100% of the first 3% and then 50% of the next 2%.  But it works out to 80% if you contribute the full 5%.
My guess is your Fidelity rep was concerned that you weren't racking up enough fees and expenses for his company lol.

[FreeLancer]

I don't trust my intuition when it comes to pulling out of the market, or when to go all in. 

I don't trust the coitus interuptus form of family planning, either.

[tamo42]

If you have money that will be penalized for withdrawal, you could always structure a permanent portfolio type of arrangement.

[TexDaddy]

To me, the penalty is going to be either:

A) When the gunverment nationalizes all 401(k)s or

B) When the US Dollar Zimbabwes.

[MTUCache]

To me, the penalty is going to be either:

A) When the gunverment nationalizes all 401(k)s or

B) When the US Dollar Zimbabwes.

This.

Personally, I'm not worried about the DJIA. They'll keep it floating between 12.5k and 13.5k through the election and any "crash" afterward would be propped up so it doesn't get under the 10k. They'll do this the same way they've been fooling everyone for the last four years... by adjusting the money supply to keep the numbers looking the same even if the value there is nil.

The real question for me isn't where to put your dollars... it's whether you should be denominated in dollars at all.

That 4% "return" these analysts are all proud of don't amount to much when any housewife can tell you the real inflation numbers are double that at the grocery store. Impossible to predict the inflation over the next few years with so much inaccessible money out there being used to offset debt being defaulted on, but if even a few of those billion ever do hit Main St watch out... being on a fixed income is going to hurt.

[FrugalFannie]

We have decided since we know almost nothing about what our 'retirement' money is invested in (truly) and we are tired of having our government tell us when we can have our money. And despite what all the 'experts' advise about keeping our 401K's in tact (the same people who failed to warn us before we lost $60K in retirement funds years ago) we are pulling out all our money. We are investing in ourselves and hard assets.

I used to joke that 'we will have a wonderful retirement, we just need to get there.' The joke is on me. We need to get there. I would rather pay the penalty for early withdrawal and get my finances straightened out. Given what is going on right now I think the best ROI is to stock up on food, gas, skills, community, etc.

As for the timing, I would prefer to miss the top of the market than to wait too long and pull out mid-crash.

[FreeLancer]

Spent way too much of today reviewing old money board posts like this to remind myself where the collective investment mindset was back in the day.  It's not looking like the group-think aged well.


Since 2009, anybody foolish enough to leave $10,000 in boring old VTSAX is sitting on $41,500 today. 

Moving $10,000 from an IRA to a hole in the ground netted maybe $6000, if you're lucky.

[David in MN]

There was this one weirdo who basically called the top in GE and Bitcoin and posted about mirroring a Vanguard portfolio to avoid the load and get all the dividends. Rumor has it he's done quite well shorting GE and investing in South American mining concerns.

Money is a toxic topic. I have my money friends who can have adult conversations but around here... nope. Too toxic. So I shrug and assume all of you are running Fourier Analysis and Ordinary Differential Equations on the stock market and reading the quarterly prospectus of every company in the DJIA.

Everything I say about money is a farcical opinion without any predictive modeling software and intense knowledge of company corporate structure and press releases.

It's not unique to forums. I get treated like shit in my own family because I know the CEO, CFO, operating profit, margin, same store sales, COGS, and on and on. I've come to realize there's me, Larry Kudlow, and Maria Bartiromo and we make the rest of the world feel real dumb.

It's what it is and why I don't talk about it here.