Thread: Long Term: Buy and Hold

Wimpy,

One of the nice things about the TSP is that risk is really marginal. I play the 100% game with my power account because I like the leverage that can be applied - not of course in the real sense - but I have enough of an accumulation that I can make a difference in my potential gains. I can afford the inherent risk because there isn't that much risk - and the ability to dollar cost average helps to smooth over any mistakes I may make. There is only one way to build a power account and that is by saving over many years - I've arrived. You may wonder just exactly what is a power account? IMO anything over the $400,000 mark qualifies for the designation. That sum of money will allow any participant to have a position of over 30,000 to 40,000 shares of the fund of their choice. That's the type of leverage I'm talking about and I know there are many TSP participants out there that command that kind of power. Going forward it will be even easier for the newer generations to save with no caps placed in the way - and this is the site to help them learn what to do with the money when they finally arrive too. So Wimpy, get on board and let'er rip - it's time to have some fun.

Birchtree,

I’m on board…just on a different train. The let’er rip part is not my style, but I do appreciate the entertainment value it has…at least as a spectator sport

I am actually quite bullish on the ‘I Fund’ mainly because I’m very bearish on the dollar. With Bernanke’s appointment as Fed Chairman, I’m even more so.

A bull and a bear are simply opposite sides of the same coin. There is a time to sow and a time to reap…a time to buy and a time to sell. For every buyer there is a seller and for every seller there is a buyer. The only unknown, before the transaction, is at what price the trade takes place. If we were all Bulls who would we buy from? If we were all Bears who would we sell to? It takes both Bulls and Bears to make a market. I’m not married to either critter.

Selling 1/3 of the ‘I Fund’ into strength and buying it back on weakness seems like a prudent and additional way to gain shares (accumulation) and still have 2/3 invested in a Fund that I believe is in a long term bull uptrend and therefore will appreciate handsomely.

I believe in the very near future (1-2 years) the dollar will slide far and fast. By NOT selling 100% of the ‘I Fund’ during normal price rises it leaves room to take advantage of an unforeseen ‘event’ that could take the dollar much further down and the ‘I Fund’ much further up.

I wouldn’t want to be sitting on a suitcase full of cash (destined to lose much of its value) while the ‘I Fund’ train is pulling away from the station in haste. Since these unforeseen ‘events’ tend to happen at the most inopportune times, I don’t advocate being out, on a 100% basis, of a fund that is fundamentally in a long-term up trend. I could see possibly letting go of an additional 15-20 per cent in a power uptrend move or an additional 50-55 percent in a stage 3 parabolic rise, but for normal trading conditions 1/3 would be my limit…especially with Bubble Ben Bernanke in charge of the printing presses.

The only time I would consider working myself out of the ‘I-Fund’, on a 100% basis, is when there is a fundamental monetary policy change, by the powers that be, to drastically rein in the triple deficits as happened when Paul Volker (sp?) was appointed Federal Reserve Chairman. Until that time, I would not want to be sitting on the sidelines with a suitcase full of cash and 100% sold out of the ‘I Fund’.

The accumulation (with new money and also via dry powder from previous selling into strength) of more shares that are and have a potential for appreciating is what I call a ‘power’ account. I’m more interested in calculating percentage gains versus dollar gains. My small accounts are just as important to me as my larger accounts and the measuring stick I find most useful is percentage gains. I’ve found that if I take care of the percentages, the dollars have a way of taking care of themselves.

My view of dollar cost averaging has changed over the years. The ESF and PPT actions of late (last decade) tend to smooth out much of the dips in the general equities thereby reducing much opportunity for gaining cheaper shares, as has happened in previous years. That also serves, at least perceptually, to eliminate some of the risk inherent, but only as long as the ESF and PPT are supporting it. Once that pillar of artificial support is removed things could slide pretty quickly and my preference would be to pick up those general equities more near the bottom versus buying all the way down…I’m cheap and wimpy

The biggest risk I see in the ‘I Fund’ is the lack diversification of the Asian consumer base away from the U.S. I think the Asian markets are feverishly working to diversify their consumer base, but still have a significant way to go in spite of their motivation and current zeal in doing so. They feel very vulnerable to a dollar devaluation because they are holding such large amounts. With anticipation of Bernanke’s helicopter air drops of cash to one and all…the Asians have broken out in a cold sweat.

This appointment of Bernanke will, as a natural result, realign the Asian community into a more cohesive unit and in my opinion could lead to a competing Asian currency somewhat like the Europeans accomplished with the Euro.

These are certainly interesting times and we all wish to not only preserve what we have, but to also prosper. This a great forum to learn from one another and I appreciate all those that share their point of view so freely.

Wimpy, you have certainly done your homework.
I also have little faith in holding the dollar\S for the long run. I think that the temporary boost of our war economy will be met with a great deal of economic recession; the longer we are sustained by dependance on the war economy, the greater the ensuing depression will be.

But then again, look to domestic matters. Hurricane Katrina has been estimated to cost more than the war in Iraq and Afghanistan combined. How will this effect the markets? No doubt this will create a great many jobs in the long run. I foresee yoyo investing in the dollar, and possibly a largescale market crash inside of a year or two.

I think the best bet is on bonds and G fund all the while grinding out a few % on S and I funds in the second half of the year. From my viewpoint, the I fund is less likely to see another landslide -20%, where is, the dollar just might. Let me know.

I'm looking for the trend in interest ratesto be up for the next couple of years with a slight pause and/or arelatively short lived retracement in 2008 before topping out in the 2011-12 time frame. 25-30 per cent interest rates would not be out of the question. I would not want to bet against thistrend by being in the F-Fund during the trend up. However, once it becomes evident all the monetary excesses have been purgedand the deficits have been corraled...the F-Fund would be a good place to have amajority position with the rest in the G-Fund. But that will be a long ways off from where we are currently sitting.

The dollar is toast for the next few years so the G-Fund will be losing a considerableamount of purchasing power. For every penny gained in interest over the next couple of years,there will be a 15, 20, or 25penny loss in what those dollars will be able to purchase. The safe no risk G-Fund is an illusion during inflationary times.

Katrina ishaving a bigeconomic impact, but if you consider what the U.S. government expended in the 12 months just prior to Katrina...it wouldrepresent an economic impact of 36 Katrinas. We have muchbigger problems in our economy than the random hurricane. When they focus onthe impact of Katrina they are straining on a knat and swallowing a camel.

A lot of people have a hard time understanding inflation and its effects. As government workers there is a bright side to inflation, at least from a consumerist point of view, because our dollar is worth more today than it will be tomorrow. We get our money, in the form of ETF transfers, hot off the printing presses. Before the ink is hardly dry, we are spending those still warm and wet dollars on products and services TODAY while those next in line to receive the fruit of our labor will enjoy a dollar that has shrunk a bit. As they in turn spend the dollar they earned from us the recipients downstream from them will receive even a smaller dollar as it relates to purchasing power, so on and so on.

Picture yourself standing on the curb waiting for the Ding Dong ice cream truck to arrive at your place in Phoenix in the middle of August. You've got ten really good friends waiting in line with you and the reason they are really good friends is because you've all agreed to share a popcicle together. You (the government employee) are at the head of the line and without a moments hesitation rip off the wrapper and go for a couple of quick licks before passing it to your friend the neighborhood banker. The neighborhood banker gets his two licks in before passing it to one of his favored clients who has a new car dealership. The car dealer gets his two licks in and quickly passes the popcicle to his friend who owns a local rental car company. The popcicle, in the meantime, has lost20to 30 percent of its mass as a victim of the high Phoenix temperatures. Everyone, so far, with the exception of the government worker, is still licking popcicle drippings off their fingers and knuckles while enjoying the show downstream. Well, it finally makes it to the poor schmuck at theend of the line and the heat has finally taken its toll...the last little bit of popcicle drops to the groundjust as the transfer is taking place and heis left holding awetstick (he's thinking shaft). That pretty much describes how inflation works. As a consumerist, you want to be at thehead of the line and not the poor schmuckbringing up the rear.

Inflation encouragesconsuming because consumers want to get itbefore it melts, so to speak, because they know tomorrow their purchasing power will be less than it is today...and they are fearful they too could wind up being shafted.In an inflationary environment, savers (in dollars or any currency that is being mismanaged) are punished.

That brings us to the dilemma of saving and planning for the future. Some of that popcicle has to be stored for a rainy day.A freezer works good for popcicles, but what works for the dollar?That is the dilemma many will be faced with in the nextdecade or soand quite frankly many are going tofeel likethe poor schmuck left holding the popcicle stick.

Wimpy wrote:

I'm looking for the trend in interest ratesto be up for the next couple of years with a slight pause and/or arelatively short lived retracement in 2008 before topping out in the 2011-12 time frame. 25-30 per cent interest rates would not be out of the question. I would not want to bet against thistrend by being in the F-Fund during the trend up. However, once it becomes evident all the monetary excesses have been purgedand the deficits have been corraled...the F-Fund would be a good place to have amajority position with the rest in the G-Fund. But that will be a long ways off from where we are currently sitting.

Wimpy, I'm not buying your high interest rates....if we had Jimmy Carter in using flim flam economics I would buy in to it.....but with the current systems in place it would be flat out depressionary to any economy in the world..... I would look to some higher interest rates fluctuating some like we have today, but only to throttle the world economies for a steady growth....-control system theory....

Take a look at control systems and you too will see what is really happening.....

:dude:

I don't see double digit interest rates anytime soon. The major inflationary pressure on our economy is coming from energy costs, which by definition are extremely volatile. Wage growth isn't all that tremendous, and core inflation is relatively tame. What this tells me is the Fed funds rate won't clear 6-7%.

Where to put your money? Diversify your holdings and catch a part of every wave. This will also reduce volatility. If you only have TSP, put part of your money in all five funds (I'm just gonna ignore the L here). If you have something in addition to TSP (Roth or regular brokerage account), try to invest in things that you can't get via TSP with your other accounts: emerging markets, commodities, REIT's, etc. I'm not doing that just yet, though - I want to wait for those markets to fall out of favor and drop before I invest in them.

http://moneycentral.msn.com/content/...ey/P133222.asp

This is a link to an article on inflation - including the winners/losers and how the market behaved the last time around (to summarize, the market did pretty well, with big double-digit gains in six of the ten years).

A few interesting points:

Don't bother aggressively paying down fixed rate debt. Even when inflation isn't going nuts, you're still paying the bulk of this debt with devalued currency. A 2006 dollar could be worth 4% less than this year's. A 2016 dollar could be worth a lot less than that. Keep this in mind if you have a 30 year mortgage (like I'm about to have ).

Don't bail on stocks or bonds just because of inflation. As I said earlier, the market beat inflation even during the worst inflationary period in 50 years. As a hedge, invest in commodities, which tend to keep up well with inflationary pressures (imagine that).

For the frugal consumers out there - be prepared to substitute. I've already done this many times, particularly with beef prices skyrocketing in recent times (switched to poultry - and now that bird flu is hitting globally, I'll have to switch to pork).

It's definitely worth a read.

Mike the consumer! You need to eat beef it's whats for dinner! Besides the cost of the others are just as high when u figure out that half of it is bone or fat! Besides u can't eat that dollar anyway and it is going down in value! LOL!! Cowboy up city slicker and pay for 2 decades of biting the hand that feeds you! We need that low dollar to heal the working man and rural economies!

As long as it doesn't give me food poisoning, I gotta say ten packs of chicken drumsticks for $10 is a steal. That works out to about $0.15 per drumstick!

Fat's good... greases the ol' digestive tract. :^

Stagflation is a term in macroeconomics used to describe a period of characteristic high inflation combined with economic stagnation, unemployment, or economic recession.

Stagflation is thought to occur when there is an adverse shock (a sudden increase, say in the price of oil) in a country's aggregate supply curve. The effects of rising inflation and unemployment are especially hard to counteract for the central bank. The bank has one of two choices to make, each with negative outcomes. First, the bank can choose to pursue a loose money policy to stimulate the economy and create jobs by increasing the money supply (by lowering interest rates) and exacerbate the inflation problem further. Or second, pursue a tight money policy (by increasing interest rates) to try and rein in inflation at the cost of perhaps increasing unemployment further.

http://en.wikipedia.org/wiki/Stagflation


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Stagflationwas seededduring the Nixon and Ford era and came into full bloom during Carter's term. I think we are heading there again. In my opinion this economy is rolling over. It will continue to tease and tempt the perma bulls as it continues to grind sideways. In an inflationary evironment, grinding sideways means your position is losing money. The DOW points remain relatively static while inflation erodes away atthe foundation of one’s portfolio.

Once the recession and/or depression becomes more apparent, even the perma bulls, en masse, will throw in the towel and capitulate but probably after the DOW hits 7500 or so and the S&P hits 850. The DOW will most likely find a final resting place around 3500 and the S&P around 400 and they both will remain there for quite some time. Stocks, in general, will be the most hated and despised investment vehicle of all time.

Since we are hearing more and more about stagflation these days, let’s go back and take a look at some interesting data during the time frame Nixon, Ford,and Carter were in office. The DOW was capped at 1000 from 1966-1983 http://www.stockcharts.com/charts/hi...djia1900.html. That was 17 years of sideways chop. Can you imagine listening to a perma bull saying this rocket is about to launch for 17 years only to listen to the fuse sizzle, crack, sputter, fizzle and refuse to stay lit, over and over and over again? Like broken clocks we ALL can be right twice a day, if we pick a spot to fixate on and remained glued to it forever. Eventually, the perma bulls were right in the same fashion a broken clock is right twice a day, but many of them missed wonderful opportunities during that time frame to make money in oil, gold, and silver. There is a price to be paid for being a perma bull in any market. Everything that goes up…gotta come down. That was also true in oil, gold, and silver. Gold peaked in early 1980 at around $850.00 an ounce and silver peaked at around $50.00 per ounce. By the way, I think interest rates peaked around 18% or more in 1981. Both gold and silvercame down pretty rapidly in price with a tease here and there (bear rally) that drew more suckers in at prices that still haven’t been recovered for over 25 years for those Johnny Come Latelys that bought gold at 500.00 and above. I think gold bottomed in 2001 at 255.00 or thereabouts and has almost doubled in price in the last 4 years during the stealth phase of the gold bull market. The stealth phase (Phase I) of any bull market is when the smart money is slowly and methodically accumulating so they are fully positioned to aggressively accumulate (Phase II), via trading, as fund managers pile in on the good news and out on the bad, over and over and over again. The smart money and the nimble fund managers finally sell their over bought positions to the not so nimble fund managers, along with Flo at Mel’s Diner, hair stylists, shoe shine boys, and dentists, during the final blowoff in phase III of the bull market.

The soft landing we used to hear about was all about creating opportunities for the smart money and nimble fund managers to unass their positions without getting gored. This has been accomplished quite nicely, thus far. The only speculators left in general equities, at these valuations and per Alan Greespan, are those that have a propensity for losing money. Flo at Mel’s Diner, hair stylists, shoe shine boys, and dentists have yet to be taken to THE woodshed, but their time is close at hand and it won’t be pretty. They’ve all been spanked and spanked pretty hard, but since they still haven’t figured out where we are in the business cycle and are still singing the perma bull, “In it For the Long Haul�, song, they are destined for the flogging of a lifetime. If they don’t plan on retiring until 2035, many of them may break even.

So, why will the DOW collapse to 3500 and the S&P to 400 if we are comparing ourselves to the Carter era of stagflation? Why won’t the DOW and S&P simply grind sideways in the 10,000-10,500 range for the next few years before making a run for 30,000?


Essentially, what was different about the 1970s from where we are at today?

In the 1970s this country had a manufacturing base and companies representing that base were not in bankruptcy. We also had a central bank that exercised a bit of restraint. In the 1970s the CPI wasn’t based on a phoney factoring whereby housing, food, and fuel were excluded because they offended a loose monetary policy. In the 1970s Social Security recipients and retirees, in general, were getting COLAs based on real CPI figures. Today, companies using wage scales based on these phoney CPI figures are short changing their workers. On the other side of the coin, real inflation is eroding the purchasing power of those artificially fabricated low wages. So, wage earners and retirees are taking a double hit from inflation and fraudulent CPI figures. REAL (factoring inflation and phoney CPI numbers) wages have been and will continue to go down.

In the 1970s the central bank didn’t lower interest rates to 50 year lows like they have just recently. Prior to Nixon closing the gold window in 1971, there was a natural governor on the printing presses that kept the central banks honest for fear of foreigners rushing the banks and cashing in their dollars for gold and rush the window they did. The very reason Nixon closed the gold window was because foreign central banks WERE trading their dollars for gold. Foreign central banks saw the handwriting on the wall and gold began a steady climb from $35.00 an ounce to $850.00 an ounce in less than a decade. After 1971, the dollar was only as “good as gold� if you believed it was and that belief was fading pretty rapidly. After 1971, the only governor the money supply was hitched to was manufacturing. Manufacturing has long since evaporated.

The only thing currently supporting the U.S. economy is DEBT. It is the only thing of significance the U.S. produces and exports. That is exactly what the difference is between then (1970s) and now. Not very diversified are we?

What kind of foundation is this pyramid of DEBT sitting on? What did a 1.25% federal funds rate spawn? It spawned business activity way out kelter with the reality of markets. It has caused a misallocation of resources on many fronts.

In 1999 we had massive off-budget infusions of liquidity for Y2K. In 2001 we had massive off-budget infusions of liquidity for 911. And since then, there are continued off-budget liquidity infusions for the war in Iraq and Afghanistan along with infusion of liquidity for those expensive ladies (Katrina and Rita) who stormed across center stage in the Gulf states.

Currently, we have the fraud of the fed raising rates on one hand while priming the pump with the other. That seemingly creates warm and fuzzies for the naïve hard money wannabes and wails of anguish from the easy money ‘gotta have it now’ crowd. Hey, guess what? It is still easy money when rates are being raised on one hand while massive infusions of liquidity are taking place on the other. The rate game is simply smoke and mirrors and the foreign central banks are sniffing a skunk in the cabbage patch. The foreign holders of our debt are no longer going to hold their nose and sign blank checks. They are easing very gently out of their dollar positions on every rise in the dollar.

What’s up with the so called recent dollar strength? Has anything fundamentally changed with the triple deficits to warrant this little turnaround. Not hardly. The dollar’s recent strength is based on the Euro’s weakness tied to the burning of Paris and other cities in France. Sooner or later the Euro will be recognized for the basket of junk it is and the dollar and the Euro will go down together. Care to guess what currencies will go up, relative to the U.S. dollar and Euro, when this happens? Resource rich countries. Why? Because China is resource poor but coming into their Industrial Age with a vengeance. Because of technology transfer from the West, the China industrial age will be compressed beyond our wildest imaginations driving commodity prices through the roof. Watch resource rich Canada and their currency over the next few years. Seeing is believing. China is buying up resource companies in Canada right now.

Speaking of Paris. Does anyone think that can’t happen here?

A disenfranchised immigrant population, from North Africa (former French colonies), not liking being ‘have nots’among the French ‘haves’ are burning the town down. I hear the turmoil is spreading outside of France. There has been a lot of immigration into the Eurozone from these third world countries and we, in the U.S., have our share of immigrants as well.

How long will disinfranchised immigrants in the U.S. remain happy and contented as they watch food, fuel, and housing costs go up and their REAL wages go down? The most passive and loveable animal will bare its fangs when backed into a corner. And Bush is worried about Avian Flu? How about immigrant flu instead? They will probably come out with a vaccine for that also…they could call it Immiflu.

All in all, everything looks just peachy. DOW 30,000…no problemo...sunshine and roses everywhere we look….a chicken in every pot…you got it. Free housing, free health care, free cars…and free money dropped from helicopters courtesy of Bubble Ben Bernanke. Why save when we can spend ourselves into prosperity? I’ll drink to that. Zippity, dooh daah… WHOOPS! One minor hiccup in the ole esophagus…the people (foreign central banks) signing our debt checks are starting to get a little irritated with us…imagine that