The 401(k) is broken. Year-end 401(k) assets were $2.4 trillion, down $600 billion from year-end 2007 including the inflow from employer match and employee contributions. Average participant investment performance was down 27%. That's average. Many did much, much worse and some people are retiring this year facing the grim possibility of outliving their money. In fact, four of the top five holdings in 401(k) plans by asset value had one-year returns through March 9, 2009, of -46.2%, -53.3%, -41.5%, and -40.8%. The S&P 500 was down 47%. Nearly four dozen target-date funds did even worse … [Read more...]
Telling Stories
Last week, I wrote about a possible bubble developing in the Chinese stock market. If you missed it (we experienced some technical difficulties) you can read it here. Every great bubble is accompanied by a great story. In the dot-com stock bubble, investors were mesmerized by the awe-inspiring potential of the Internet. Consumers were expected to do all of their shopping online. Bricks-and-mortar retailers were considered outdated and obsolete. Dot-com start-ups and telecom equipment stocks were what investors bought for growth. And the growth was expected to compound at exceptional rates for … [Read more...]
Earnings Will Soar
August 7, 2009 More than 75 million Americans began retiring last summer. And as a result of the ferocious 2008-2009 economic collapse, for thousands of them, retirement began a lot sooner than expected. Overall, jobs in the economy are being lost by the millions. See any winners here? I do, and big winners they will be. Large blue-chip American exporters will soon be in the catbird seat. As worldwide demand slowly begins to build momentum, U.S. exporters will get back on track. Not only are raw material costs low and interest rates (borrowing costs) low, but this cycle the labor component of … [Read more...]
Stock Valuations are Not Low
July 30, 2009 How can I say this best? Stock market valuations are not low. If you are retired or saving in hopes of retiring, you must laser focus on having a consistent flow of cold cash to pay the tab for your weekly grass-fed-to-the-end beef, fresh-ground flax, coconut milk loaded with medium-chain fatty acids, and omega-3-loaded Country Hen organic eggs. In other words, you will want to rely on high-dividend yields for compound-interest power. The two most important words in investing are “compound interest.” Please don’t buy into the jive that trying to buy stocks cheap and then trying … [Read more...]
The Terror of Outliving Your Money
July 24, 2009 The terror of outliving your money has now taken hold for too many investors. It’s not hard to see why, given that discerning investors remember like yesterday the 1965-1981 16-year bear market, where the Dow ended up at 875, 10% lower than its 1965 peak of 969. A little closer to home, we all recall with concern the 1999-2008 nine-year bear market, which left the Dow down a frightening 24% from its 11,497 peak of 1999. For all retired and soon-to-be-retired investors, there is a fast and hard lesson to be learned here. Look to dividends and interest and the miracle of compound … [Read more...]
Young Research’s Top Commodity Play
The U.S. recession has curbed demand for natural gas while supply has continued to increase. The obvious result has been a fall in prices. Currently, natural gas inventories are plentiful, but they will not remain so permanently. Lower natural gas futures have already caused a significant supply response. The Baker Hughes natural gas rig count is down to 665 from a high of 1606 last August. A lower rig count means less new natural gas supply. Add to that the natural decline in production in existing wells and when demand returns, there is the potential for a spike in natural gas prices. Baker … [Read more...]
Savers are Terrified
July 17, 2009 Despite pockets of strength, the bear market in stocks staggers on, eyeing, with an increasing daily concern, the RPM’s (Radical Progressive Movement) sweeping program of socialism and quasi central government nationalization. The stock market hated the Bush-fronted neo-con disaster, and rightfully, is even more scared of the “Chicago Cabal.” At mid-year, the Dow Industrials are down 4.8%, the Transports are down 9.9%, and the Utilities are down 4.4%. It’s a negative clean sweep for the blue-chip industries despite misleading strength in the more speculative market sectors. … [Read more...]
Your Tax Dollars at Work
July 10, 2009 From 1995 through 2006, corn subsidies in the U.S. totaled $56.2 billion, and this spring farmers seeded the second largest amount of land with corn in more than 60 years. According to the WSJ, “The Obama administration is pushing a big expansion in ethanol, including a mandate to increase the share of the corn-based fuel required in gasoline from 10% to 15%. Apparently, no one in the administration has read a pair of new studies, one from its own EPA, that exposes ethanol as a bad deal for consumers with little environmental benefit.” Corn is a killer and darn few Americans … [Read more...]
A 0.01% Money Market Yield
July 3, 2009 I just checked the yield on my money market fund. How does 0.01% sound to you? Sounds to me like the mid term GPA average for the Delta House gang back at Dean Wormer’s fictional Faber College. You’re getting less than 0.5% from 3 and 6 month treasuries and bank CDs. And you know that it is my forecast that the U.S. dollar is going to crater versus the Swiss franc and the Canadian dollar. Moreover, the yield on the Dow is less than 3.5% isn’t it? Savers are in a darn tough spot. And conditions will worsen due to ongoing mismanagement at the White House, Treasury and Fed. And now … [Read more...]
Your Retirement Future Today and Tomorrow
Have you looked at interest rates lately? 3-month T-Bills are at 0.20%, 3-month CDs 0.38%, money markets 1.29%, 5 year CDs 2.62% and 10-year Treasury bonds are at 3.68%. Compare this to the near peak of the tech bubble ten years ago when the 10-year Treasury was at 6.02%. $1 million in a 10-year Treasury Note paid $60,000 annually. Today it pays $37,000 or 40% less. In retirement your ability to understand income and values are paramount to your investment success. Thinking in terms of 10 year periods allows your portfolio time to breath. And in terms of values, think about each asset class … [Read more...]