Kort Session 3–Current Events

BillIt is Monday, February 4, 2013 and if you managed to ride out the last 5 years your investments are back to even (hopefully better than that including the dividends).  If you took CNBC’s Jim Cramer’s unfortunate advice of October 6, 2008 and sold off that portion of your portfolio that you would need to survive for the next five years, and if you stayed out, you would have missed a 50% up move in the S & P (40% in the DOW)….it is all on YouTube.  Regardless of where you sit on the continuum, the questions keep coming.   Should I put some money, more money or any money to work after this tremendous run?  Should I hit the exit?

I am certain our friends in the media will, as usual, have all the answers (yes, no and maybe).  I am also pretty sure that for the most part the tone will be muted.  Of course every few pundits will be unrepentant bulls, but for the most part the anchors will make cautionary statements.  They will warn about the great uncertainty that continues to plague investors.  They will warn about the political uncertainties, “the “sequester”, the weakening economy (4Q GDP was down 1/10 of one percent) and the debt ceiling debate that has only been postponed until May.

A little sampling of what to expect maybe garnered from Sunday’s top stories from CNBC on line….

  • In A Hard Economy for All Ages, Older Isn’t Better-It’s Brutal!
  • What Could Trip Up the Stock Market Bulls?
  • Even Dow 14,000 May Not Lure Many Off Sideline.
  • On a brighter note Barron’s front page header says: STOCK ALERT!  GET READY FOR A RECORD ON THE DOW

Importantly, this was all pretty predictable, as was the constant buzz about the potential outcome of the 2012 election.  You know the drill about how to structure your portfolio to the best advantage in a Romney or Obama victory.  What was even more predictable was that the minute the election was over the laser focus of the Media turned to The “Fiscal Cliff”.   If you watch CNBC you might have noticed in the bottom right hand portion of the screen they ran a Fiscal Cliff countdown clock.  This clock essentially counted down to a non-event.  And if all this noise kept you on the edge of your seat with a tight grip on your sub 2% ten year U. S. Treasuries, well you can see the result.  Both the Dow and S&P are up about 10%+ since the lows right after the election.  Your 2% treasuries have declined.

Now I cannot guarantee anything regarding future market performance, but I can offer perspective that might help you get your arms around the risk.  Here are a few points for your consideration.

  • Major stock market calamities like the 1929 Crash and 2008 seem to be generational.  The generations that are “up close and personal” with the debacle learn from the mistakes made and work not to repeat them.  When the Depression Generation began to pass we forgot the value of the Glass-Steagall Act (The Banking Act of 1933).  The law was in part meant to keep banks out of the securities business (a root cause of our difficulties this time around).  In 1999 with baby boomer President Bill Clinton at the helm, The Gramm-Leach-Bliley Act did away with that prohibition.  Voila! Within eight years we had another mega disaster on our hands.  We probably ought not to expect another economic seizure the magnitude of the 2008 / 2009 event any time soon.  Also, business and individuals are prepared for it.  Both consumer, and to even a greater extent, corporate balance sheets are in much better shape.  Also the regulators are on high alert.  So stop playing that tape.  Give it to your kids.
  • Will there be other events that tank the market?  Absolutely and they will come out of the blue (a la Long Term Capital Management or September 11, 2001).  I can give chapter and verse on all the scary market drops of the past four decades.  The were transient and in many cases followed by major upticks.  Oh, yes, there will be recessions.  They are normal economic rebalancing acts.   Though many have been predicted over the years, most have not happened.  Recessions are not life threatening events for the markets.  Two-thousand and eight was!
  • Finally it would be good to compare the secular Bear Market that we entered in March of 2000 to the one that began in 1966.  They were both entirely different in root causes, but the work-out of the economic issues and fear involved in each took many years.   The ’66 Bear took the Dow from near 1000 to 631 in May of 1970 (The Penn Central Bankruptcy).  The Dow then rallied back to a little over 1000 by January 1973.  The index subsequently fell to about 560 in the fall of 1974.  That was the low. It then took the market eight years swinging back and forth between 700 and 1000 to finally in 1982 break above 1000.   In the next 18 years by (the much-hyped) Y2K the index had increased by 11.5 times.  I will guarantee you that in 1982 there was just as much distrust of stocks and the market as exists today (please refer to Kort Sessions #1 for a comment on the bad times in 1982).  Our current market topped out in March of  2000 with the broader S & P at around 1520.   After 9/11 it bottomed at 800 the ran back up to around 1550 in 2007 before breaking to a lower low of 683 in March of 2009.  Here we are 13 years after the first top with a market that is basically flat (ex dividends).  BTW in the decade of the ’90 we compounded the S & P at about 18%, so this flat period is just bringing us back to more normal real common stock return of say 7% (far better than 10 year treasuries).

Now, I can’t predict the day to day, year to year action of stock prices, but I would say, based on the weight of the evidence, that your chances for success are much better today than in Y2K, when every media outlet lined up outside their local Charles Schwab office to chat with individual investors.  All that these soon-to-be victims could talk about was owning “stocks for the LONG term”.  Where are they now?

Today should be interesting.  Enjoy!

The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities.  I may,  from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.


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