This Time is Different!
If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."
The outward sign of the change is an economy that stubbornly refuses to recover from the recession. The current slump already ranks as the longest period of sustained weakness since the Great Depression. That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out.
Among them: the job drought, the debt hangover, the banking crisis, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won’t respond to traditional remedies," said Bank of New York Mellon economist Norman Robertson. "There’s going to be a lot of trauma before it’s over."
— From Time magazine — September 28, 1992
This was also part of Nick Murray's October Newsletter This time is different ? No, it is not.How many consecutive quarters of negative growth have we had? Most since we started recording it? Isn’t that a little different?
Ron14- I am so tired of people like you saying things like this. Just because in 1992 someone was wrong about the economy doesn’t mean that this time isn’t different.
A=B so A=C .... no sir. Ron this time it is different and it may take 10 yrs for all of this to work itself out but it is different this time.Sounds great. I assume you have sold your house also and you plan to rent for the next 10 yrs. Yes ?
I don’t like to say different, I like to steal from Bill Gross (I don’t know if he made it up, but he and Mauldin say it) and say that it is definitely a “new normal”. I think that the market is acting irrationally, and that old models of forecasting may not be as useful as they have been in the past.
I get what both sides are saying, I just think that economic climate is far too complex for anyone to be able to really get their arms around.Ron - Admitting that this time is different is not the same as me selling my house.
I am not telling you to sell all your clients investments but I am saying that your logic is not correct.Well if it is going to take 10 years for this crap to pass obviously you are saying there will be very little economic growth. Very little economic growth will not increase home values or the stock market at any rate that would make sense with the risk you are taking.
The current situation and how everything happened is different and had never happened before, but the recovery and eventual rebound will not be any different from the recoveries of the past.
So, with that logic everybody you come in contact with at the bank should be throwing money at you like their life depended on it. Yet, these “morons” don’t “get it”. Could it be that YOU don’t get it?
First of all I was talking about inflation. Secondly if individual investors "got it" they wouldn't need advisors. Putting all of us out of jobs. What is it that you "get" that your clients dont?
BioFreeze, I admit I'm not an annuity expert. If things really are different ( U.S. does not do right things for recovery, geopolitical risk, slower growth, so on), don't these annuities just increase their M&E fees?
In other words, if you choose to invest in stocks in annuities, or you invest in bond funds that get hammered due to interest rate increases, and stocks continue to do poorly for another ten years, don't you just chew up the subaccounts? How does pooling your money with other investors who also experience adverse returns and high expenses create value? How the does the magic happen? Does all of this depend on annuitization and relate to mortality rates? I checked one product out pretty thoroughly where, at age 65, you could withdraw 6% for life, and your beneficiaries get to keep the principle if you die. Plus, there are various lock ins of principle over time if the market does well. But, bottom line, the insurance company can just increase the expenses if the contracts "blow up". I understand 6% annuitization for life at age 65, but the rest just seems to be smoke and mirrors. And, whatever the actual subaccount value is shows on the client statement. Why do advisors and clients like these contracts? http://www.milyunair.com/Sorry, I don't sell annuities. So you're saying, the insurance company is managing the subaccounts, and client and advisor choose a participation rate, say 70% of S&P, with a "floor".
And because these are reasonably managed, the average return and floor guarantees should not put us in a situation where expenses have to be jacked up ? Basically, the main reason you are using this is for tax deferral and to take some volatility out of the account value? What would be typical total expenses on a contract that's trying to mimic a moderate portfolio, say half stock and bonds, where the client obviously has potential for less return than 50 stock/ 50 bonds? I'm trying to compare this to, say, nonqualified wrap at 1.25% using ETFs, where you have to discuss the potential impact of taxes over time on the wrap. I'm not trying to make any point about one product being better, I'm just trying to understand for myself.[quote=RealWorld]Ron - Admitting that this time is different is not the same as me selling my house.
I am not telling you to sell all your clients investments but I am saying that your logic is not correct. [/quote] Ok, so if the recovery isn't going to happen in the next 10 years what are you doing for your clients ? What is your strategy ? How do you position yourself as adding a value added service ? Anyone on the board who stands by asset allocation, diversification, rebalancing etc gets kicked in the nuts, but those who do the kicking never explain there philosophies or strategies. Lets hear them....[quote=Milyunair]
Sorry, I don't sell annuities. So you're saying, the insurance company is managing the subaccounts, and client and advisor choose a participation rate, say 70% of S&P, with a "floor".
And because these are reasonably managed, the average return and floor guarantees should not put us in a situation where expenses have to be jacked up ? Basically, the main reason you are using this is for tax deferral and to take some volatility out of the account value? What would be typical total expenses on a contract that's trying to mimic a moderate portfolio, say half stock and bonds, where the client obviously has potential for less return than 50 stock/ 50 bonds? I'm trying to compare this to, say, nonqualified wrap at 1.25% using ETFs, where you have to discuss the potential impact of taxes over time on the wrap. I'm not trying to make any point about one product being better, I'm just trying to understand for myself. [/quote] Are you writing this from a call center in India? Man I could go for some curry chicken.[quote=Milyunair]
Sorry, I don't sell annuities. So you're saying, the insurance company is managing the subaccounts, and client and advisor choose a participation rate, say 70% of S&P, with a "floor".
And because these are reasonably managed, the average return and floor guarantees should not put us in a situation where expenses have to be jacked up ? Basically, the main reason you are using this is for tax deferral and to take some volatility out of the account value? What would be typical total expenses on a contract that's trying to mimic a moderate portfolio, say half stock and bonds, where the client obviously has potential for less return than 50 stock/ 50 bonds? I'm trying to compare this to, say, nonqualified wrap at 1.25% using ETFs, where you have to discuss the potential impact of taxes over time on the wrap. I'm not trying to make any point about one product being better, I'm just trying to understand for myself. [/quote] On an index annuity, you are going to get a little better than a CD rate of return, guaranteed. There are plenty of people out there that are willing to do that. They are great for CD buyers that want a guaranteed rate of return, but not be beholden to the ups and downs of Fed policy.[quote=Ron 14][quote=RealWorld]Ron - Admitting that this time is different is not the same as me selling my house.
I am not telling you to sell all your clients investments but I am saying that your logic is not correct. [/quote] Ok, so if the recovery isn't going to happen in the next 10 years what are you doing for your clients ? What is your strategy ? How do you position yourself as adding a value added service ? Anyone on the board who stands by asset allocation, diversification, rebalancing etc gets kicked in the nuts, but those who do the kicking never explain there philosophies or strategies. Lets hear them....[/quote] Since I can't control what any market is going to do, I have my clients control what they can control: Maximum Protection with Minimum Cost Save a minimum of 15% of gross income into wealth creation vehicles Have 50% of gross income in safe accounts (savings, CDs, WL insurance, etc) Maintain control over their money at all costs Keep money in motion for additional money supply and benefits.We take what the markets give us. But we've got several contingencies in place in case the markets go pear-shaped. Hence, the rate at which we are saving and keeping significant amounts of money in cash and cash-equivalents.
[quote=Ron 14] [quote=RealWorld]Ron - Admitting that this time is different is not the same as me selling my house.
Ok, so if the recovery isn’t going to happen in the next 10 years what are you doing for your clients ? What is your strategy ? How do you position yourself as adding a value added service ? Anyone on the board who stands by asset allocation, diversification, rebalancing etc gets kicked in the nuts, but those who do the kicking never explain there philosophies or strategies. Lets hear them…[/quote]
Ron, that’s not true and you know it. I’ve explained mine, Gaddock his.
I actually was going to say besides Morean and Gaddock and forgot at the end of the post. My bad.
I wasnt giving a philosophy for retirement income, I am talking about the broad equity market and the reason it shouldn't be feared moving forward
Bobby, There is a guy in our area who sells EIAs and EIAs only. He is extremely well-known in the area, I won't say how, but he is frequently deemed a "financial expert." I was checking out his website, and he has all kinds of testimonials posted, so I'm thinking, wow, that's against regs, isn't it. I noticed the Finra logo isn't there. Turns out, he is just an insurance agent. So just out of curiosity, and please don't take offense, but are you licensed? I know you are a seasoned vet on this site, and I am just wondering, if you are licensed, what you think about the insurance agents that are simply out hawking these products.There are 3 possibilities: up, down or sideways. Prepare for all three. Index annuities are good for that.
Makes sense. If the insurance company is going to pay better than CD rates, the money has to be in the market.
It seems like the insurance industry would have one well to focus on products like this ( in terms of public's perception of annuities). In some, not all cases, they got greedy with complexity and fees. Thanks for the explanation - one last question - does the client see a fluctuating subaccount value of the index participation on the statements, or can they show a stable value off the principle, in which case I guess the (earnings) would only be added annually?Thanks, I did google index annuities, I’m trying to get a sense at the product level. A couple of decades ago, I was taught the business by pitching annuities. I spent much of the next decade moving them to wrap, then C shares, then back to wrap and ETFs.
I'm mainly curious, if, with the boomers who have not saved well for retirement, could benefit from annuities, and if I am being fair in my due diligence by having a bad attitude about them. This business is in constant flux. I wish the media did not make a living dissing certain products. In any case, I think as the economy settles, we are approaching some of the best times for this industry since, say, 1995. In some ways though, if these Bozos keep screwing up the economy, the best thing might be to chuck your other licenses and pitch annuities. So much for over thinking things. Cheers.[quote=Ron 14]
Maximum Protection with Minimum Cost - like what ? Save a minimum of 15% of gross income into wealth creation vehicles - equities ???? Have 50% of gross income in safe accounts (savings, CDs, WL insurance, etc) - ok, for a retiree yeah, most advisors do this.... Maintain control over their money at all costs - which means ? Keep money in motion for additional money supply and benefits - which means ?I wasnt giving a philosophy for retirement income, I am talking about the broad equity market and the reason it shouldn't be feared moving forward
[/quote]When one has their protection elements taken care of, is sufficiently liquid, and is saving enough of their pretax income, then the client has permission to invest in whatever market they wish. If they want equities, fine. If they want to buy real estate, knock yourself out. If they want to put money into a private business, go for it. I take the fear of equities out of my clients' minds because I have made them 100% bulletproof. If the market takes a dump over the next 10 years, they've got contingencies. If the markets take off, it's a bonus.
But my job is not to predict the market's direction - that's a loser's game. The fact is, it isn't about the rate of return of their savings, it's about the rate at which they save. If someone is putting away enough systematically, they can be 100% in savings accounts and be a success. It's when they don't save enough that growth must be utilized. And, as we've seen over the last few years, it's gotten a ton of people in trouble.So how do you stay ahead of inflation ? You actually believe that a savings account is an adequate long term savings vehicle ? The first thing every advisor does, I would think, is to make sure their is an adequate emergency fund. Are you head of the Suze Orman fan club?
I think a savings account is terribly inefficient as a long-term savings vehicle. I think equities are over-emphasized as a counterbalance to the impact of inflation. Minimizing taxes and maximizing the amount of savings that you put away is much more important than maximizing the rate of return of your savings. If I sock away 25% of my pre-tax income into a savings account and accumulate $1mm and you save 5% of your income, take risk in the market to get to $1mm accumulated, who’s better off? Now, don’t get me wrong, most of my clients invest in stocks and mutual funds. But we always emphasize that it is more important to save more of their income overall.
Allright, it's not nothing then.
Ron- You read too far into my post.
I personally am tired of people saying this time is no different. It is different and it may take 10 years to see things back to what we call normal. I still believe in asset allocation and diversification. I just was telling you that your original statement is incorrect. This time is different. As for my strategy - Profit taking best describes itOk. Please let us all know when to get back in. I can't hear that bell at my office, maybe it rings at yours.
Who knows what the markets will do? Geopolitical risk certainly plays a bigger role now, too.
The EIAs look interesting, kind of like ELNs in an annuity wrapper. I remain a fan of simplicity, mainly stock and bond ETFs positioned for (inflation) growth and dividends and interest. Just be ready for anything, some mild tactical allocation, mainly around 50/50. Dividends and interest provide the real return. Can you believe the number of advisors (according to the industry journals) that are going mostly tactical? A whole new generation of technical analysts. Reminds me of the mid 90's, in reverse. As the TD and Scottrade commercials increase, maybe the market timers should take note. http://www.milyunair.com/Yep and the more I hear that more advisors are going to “tactical” asset allocation the better I feel.
[quote=BioFreeze] [quote=Ron 14]
Ok. Please let us all know when to get back in. I can't hear that bell at my office, maybe it rings at yours.
[/quote]You don't have an office. You have a lobby.
[/quote] Actually, I do have an office. Im not in it much though. I spend most of my time by the ATM in the drive thru soliciting business. Its a great way to prospect.
[quote=Ron 14][quote=BioFreeze] [quote=Ron 14]
Ok. Please let us all know when to get back in. I can't hear that bell at my office, maybe it rings at yours.
[/quote]You don't have an office. You have a lobby.
[/quote] Actually, I do have an office. Im not in it much though. I spend most of my time by the ATM in the drive thru soliciting business. Its a great way to prospect. [/quote]
[quote=Ron 14] [quote=BioFreeze] [quote=Ron 14]
Ok. Please let us all know when to get back in. I can’t hear that bell at my office, maybe it rings at yours.
[/quote]You don’t have an office. You have a lobby. [/quote]Actually, I do have an office. Im not in it much though. I spend most of my time by the ATM in the drive thru soliciting business. Its a great way to prospect. [/quote]
It’s got to be frustrating trying to make fun of Ron - he OWNS his bankness. Hell, his tagline makes fun of himself.
You have to admire someone who doesn’t take themselves that seriously.
[quote=Ron 14]
If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. Even the economists do not have a name for the present condition, though one has described it as “suspended animation” and “never-never land.”
The outward sign of the change is an economy that stubbornly refuses to recover from the recession. The current slump already ranks as the longest period of sustained weakness since the Great Depression. That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out.
Among them: the job drought, the debt hangover, the banking crisis, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won’t respond to traditional remedies," said Bank of New York Mellon economist Norman Robertson. "There’s going to be a lot of trauma before it’s over."
— From Time magazine — September 28, 1992[/quote]
Are you trying to say this is the Bush family's fault?
Not at all. How the hell did you gather that ?
I am saying this article sounds familiar to what we are going through now and we recovered after 1992.[quote=Ron 14]Not at all. How the hell did you gather that ?
I am saying this article sounds familiar to what we are going through now and we recovered after 1992.[/quote] After 9/11 was different as well because we never had a terrorist attack on our soil of that magnitude and actually shut down the markets; we recovered from that just fine. Yes, this time is different only in the sense that the catalyst that triggered this downturn is different. But to say that we're not going to recover like how we always do or we need to move away from asset allocation, diversification, long term investing, MPT, etc is crazy. If people are DCA'ing into their accounts like they should be, instead of fleeing to safety, they will reap the rewards when the markets will recover. The only way I see ithat we don't recover is if we start dropping nukes on each other and go into WW3 and if that happens, we'll be trading rocks and stones anyway because money won't be worth anything.Americans are being hammered again by more bad news as the jobless rate inches ever closer to 10% - and some forecasters say it'll go as high as 15%.
The economist known 'affectionately' as "Dr. Doom" remains true to his name telling CNBC he sees "the unemployment rate rising through most of 2010."
Ugh.
But today, one author says - Enough is Enough! Terry Savage author and personal finance columnist says it's time to look forward - it's time to think positive by investing in America.
Enough of Doom and Gloom! by Terry Savage, author The New Savage Number: How Much Money Do You Really Need to Retire?
There’s a kind of masochism in “celebrating” the one-year anniversary of Wall Street’s collapse . Yet that’s what the media is busy doing this week – recounting the scary stories of Fannie and Freddie, and Lehman, along with Congress’ rejection of the original $700 billion bank bailout, and the day the market lost a trillion dollars - September 29, 2008.
Funny what a little perspective does for you. Even $1 trillion seems cheap in hindsight! Why, that’s only half our federal budget deficit for this year. It’s only a drop in the bucket compared to the losses that came after that day, not only for stocks investors, but for real estate owners.
And we survived!
There’s a lesson in itself.
Not that we’d want to look over the brink again. The horror, the horror! With apologies to Joseph Conrad’s Heart of Darkness, now I know how Marlow felt as he peered into the abyss.
But we made it through. In fact, although hindsight is 20/20 it might be worth a look back – if only to impress upon ourselves the lessons we learned, or should have learned, from the incredible year we’ve been through.
The Dow is now down slightly over 10 percent from 52 weeks ago – but up nearly 50 percent from its 12-year closing low of 6547.06 on March 9, 2009. And it’s up just over 10 percent year to date.
If you were one of the people who “gave up” and sold stocks in the gloom of last winter, you may be feeling a little foolish these days.
But the real question is: What will you do during the next decline?
There will be another decline, of course.
But if you’re planning to retire in America, you’ll be much better off investing in America.
Remember, going back to 1926, there’s never been a 20-year period where you would have lost money in a diversified portfolio of large company stocks, with dividends reinvested. Even adjusted for inflation.
Sure the economy appears gloomy, with bankruptcies and foreclosures and unemployment all rising. But we’ve gotten through tough times before. It’s just that most people under 50 have no memory of the 1981-82 recession, when inflation was 13 percent, unemployment hit 12 percent, and the prime rate hit 21-1/2 percent!
Back then the DJIA was trading around 800 – and no one was predicting a technology boom that would take the Dow to nearly 15,000 in the next twenty years. If you sold out back then, in the midst of that steep recession, just think of the gains you would have missed.
So start planning, saving, and investing for retirement. No one ever got rich betting against America!
[quote=Ron 14]Not at all. How the hell did you gather that ?
I am saying this article sounds familiar to what we are going through now and we recovered after 1992.[/quote]I'm just being a wise-ass.
Although, if Jeb ever decides to run; he might want to change his last name.
This time is different…for one reason only. Because it is happening to us NOW! Everytime a recession hits people say “this time it’s different”…“it’s gonna take 25 years to recover” and everytime the recovery happens quickly and in 5-7 years it happens again. To quote the great economist Alan Skrainka ()…“History doesn’t always repeat itself exactly, but it usually Rhymes.”
I was with you until you quoted Skrainka.
I personally believe it’s different EVERY time, but we adapt as people and investors, as we should.
The nuts and bolts are different, but we end up building the same car. In other words, every time is different, but the end result is the same. That doesn’t necessarily mean we should just buy and hold through everything, but you have to somehow believe that the economy will always find its way back. That is what Capitalism is about. And no American politician in their right mind would ever try to bring down Capitalism, now would they?
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