patrick.net

It's starting to freak me out too. Where do I put my money now? I was invested heavily in emerging markets...becuase of all the Chinese fiasco I pulled out my money form there to corporate bonds. I'm also thinking of moving by other stock investments to money markets.

Where do you guys think my money will be safe in next coming years?. I'm very skeptical about stock markets/bonds. As I think its going to be taken down by housing and credit expansion.

This is one of the primary reasons AG reluctantly approved some of the bank mergers of the late 90's. His logic was that if we only have 5 banks in the whole damn country and one does go under that will mean FDIC will have to honor 20% of the nation's deposits. A considerable number by any measure!

There's nothing new about breaking up deposits to maximize coverage such as, husband's acct., wife's acct. and joint acct. Additionally money markets in brokerage accounts are covered by SIPC (Securities Investor Protection Corporation) which is independent of FDIC.

One of the things I've always loved about Patrick.net is the ability of the posters to make the distinction between different asset classes. No doubt REIC related cartels are in for a rough ride but I don't see any call for across the board liquidations.

O.K, let's freak out.

Tough call. I'd be worried about being cash if inflation gets out of hand, but the market could easily be droopy through this whole shebang. And who knows what the fed is going to do with rates. If they manage to get mortgages under control through regulatory means, they may drop the interest rate again, even if it sets off inflation, to try and avoid a recession.

Maybe it's time to throw money at another useless degree or work slave wages for a promising start up.

I would also invest in a nice SF sourdough starter.

A couple of things here real quick o.k?

Pretty much since March 2003 just about any index fund would work. And hey, what's not to like? Near zero expenses, no loads (in or out) and a high tide raises all boats! It seems this is the way we like it in America these days. No selection process, no analysis, no effort.

You just buy it, and "it" goes up regardless as to wether or not we're bringing any value to the table. Remind us of anyone? That's right, Mr and Mrs. koi pond installin' FB!

If the market is "droopy" over the next few qtrs. (or years for that matter) we'll have to go back to surviving on our wits. Meaning active (and involved) management. No more free rides. No more weekend flippers. Guys, we should be celebrating this not dreading it. Get the dumb money out of housing AND the stock market. Let's sack up here.

What DinOR said.

Look at it existentially and practically for a moment:

If things are so bad that FDIC fails to cover bank demand deposit shortfalls, and therefore people can't get their money, then all bets are off.

I give this thread 25 more comments before it attracts a goldbug.

A number of market bears are in treasury only money market funds.

Not investment advice

To clarify: I'm not going to lose sleep over a FDIC failure.

Because it won't fail.

Because it cannot fail unless it is purposefully allowed to fail.

Because if it did fail then rules and laws will change in ways I can't predict now.

Randy H,

I'm a grabbin' my 'coonskin cap and blunderbus and makin' for the hills! :)

Will it be a mess? Oh, most assuredly. In the end though the subprime shops were a little bit above the avg. "camp follower" providing (ahem) "essential services" to an advancing army yet just outside of range. The other half operated like pedophiles working the "ESL" crowd.

And I'M going to lay awake nights worrying about THESE scumbags? I don't think so.

Huh? It's my understanding that it can take the FDIC months or years to pay back your deposit. And they won't pay any interest. That's a big concern if we hit a high inflation period.

If you have lots of cash, save it in several different banks (I know it's getting harder and harder) and make sure you have at least a couple months' worth of money accessible. This applies infinitely more so if you depend on the money for the operation of your business.

If there were a few banking failures, wouldn't prompt FDIC settlement put some cash back into circulation?

I think we are worrying a bit too much.

DinOR,

You're assuming the market arbitragers haven't already priced in possible future price events. In any case, if I was really concerned about one area, I could certainly hedge against specific eventualities. That's probably more efficient than going out of my way to avoid that area.

Let's worry about something else. Will all the recent flurry of attention spoil Momofuku Ssam Bar?

GOLD IS THE WAY TO GO!

Not investment advice. ALL-CAPS are bad.

Invest in dough!

Not investment or cooking advice.

You’re assuming the market arbitragers haven’t already priced in possible future price events.

One thing: when hedge funds are making huge profits, they are not doing arbitrage, they are speculating and they are right FOR NOW.

Invest in dough!

My wife keep saying that I am a dough head. Perhaps I should invest in myself.

Not self-promotion advice.

Person,

Not index guys in general but.... more the "set it and forget it" investment pschology? As much as it pains me to say this (yes I've used index funds) but it in ways goes against everything I stand for! Why would I want to own 'every' company in the S+P 500? Can't I just own the better perfoming issues?

Again, where I'm concerned "it's what you DON'T OWN" that makes the difference! Index funds in ways have fostered the same mentality as the HB itself. Doesn't matter "what" you own just as long as you DO own. Well up until now, that's worked just fine. Bull markets hide a lot of mistakes.

If we want to debate the solvency of FDIC that's fine, Patrick.net is the proper format to discuss it. (I haven't seen it brought up anywhere else). But rather than focus on "how best to weather the storm" I'd rather seek better opportunities elsewhere.

If we want to have some REAL fun, let's just assume FDIC is ALREADY tango uniform!

Pillsbury Dough Boy

What is that? My wife mentions that all the time.

I actually think this is a great topic. It is one that has been on my mind for a while now. Especially since I sold my house for a profit and am now renting waiting for housing to tank. Is putting the money into separate bank CD's the only safe way? The rate I am getting is good at 5.50% but I doubt it will keep pace with true inflation. On the other hand, stocks and bonds look sketchy to me...I suppose gold would be interesting if not for the volitity and the fact I need my money to either stay at current value or grow due to my short investment horizon.

Where would you safekeep/invest several hundred thousand dollars for about two years?

There is nothing wrong with Index funds. They outperform 70% of managed funds and are perfect choices for 401ks, which almost never let you self invest.

And if you're too lazy/busy to actively manage your other investments, well, an index isn't a bad way to go.

Personally, all my 401 and IRAs do index funds, so I don't have to think about them, and my personal investments are individual companies.

There's always the TIPS but a number of really great ETF's have been rolled out lately that are option driven creating a yield between 8 1/2 to 9 1/2%. Insert SLO @ ( ___ ). With today's transaction costs being "stopped out" and repurchasing at a later date should preclude anyone here from being stuck w/mid single digit yields, chasing longer maturities or buying junk paper.

NIA

There’s always the TIPS

Isn't TIPS indexed to the CPI aka hedonized inflation constant?

SFBB,

For company plans, I guess that's fine. I've said in the past the employees should be focused on the company while on the clock, not their 401k (other than the lunch room).

Again, indexes DON'T have expenses. They just are. Actively managed funds DO! Look, all it takes is ONE year of strong outperfomance to blow the Vangard "all things being equal" scenario out of the water. Since when have we ever seen a situation where all things were equal?

Again, indexes DON’T have expenses.

How about index adjustments?

DinOR,

I agree there are better investment strategies than index funds. I'm just saying they have quite a bit of utility to Joe Average, and even some utility to people who like to pay more attention to their investments.

I personally view fund managers like realtors. Because of how the system is set up, their best interests aren't necessarily the client's best interests. If somebody can't spend the time to do the self management, it's best to go with index funds most of the time.

I personally view fund managers like realtors. Because of how the system is set up, their best interests aren’t necessarily the client’s best interests. If somebody can’t spend the time to do the self management, it’s best to go with index funds most of the time.

I agree. Sure, some people have the ability to either (a) pick investments that beat the market; or (b) pick investment advisors who can pick investments that beat the market. But in most cases, if you don't know enough about investing to do (a) properly, you are similarly ill-equipped to do (b) properly.

DinOR,

I'm with SFBubbleBuyer. Being one of the few regular posters here who is a non-investment/securities/finance type, I can completely relate to what he's saying.

Your non-pro retail investor is not likely to be very good at active investing --at least not for a while, and there is a very significant learning curve. Index funds themselves can be "actively managed" (you can select sector-specific indexes), and VG is even offering low-cost ETFs now. It's a very nice way for the non-experts to get easy, decent returns at a low cost.

And as SFBB points out, index funds still manage to outperform active funds 70% of the time (see Fooled by Randomness & Random Walk). I may not become the next George Soros with index funds, but those are odds a regular schmuck like me can live with.

SFBB,

I can go along w/that. For the most part a lot of these guys are just going to be there "to feed the monkey" shortly anyway. As technology advances the "active fund mgr." will become something of a dinosaur. It just blows me away that no-load/index guys always fall back on the same tired hypothetical and no one ever challenges it.

From what I hear about Japan's recession, toilet paper was the commodity in shortest supply.

Not sanitation advice.

I say invest in Wine, it's perfectly liquid and you can drink it if it loses value.

I do hope that more smart people will accept the random walk theory. The market is getting crowded.

The market may also get crowded by Random Walkers. So, watch out.

The market may also get crowded by Random Walkers.

True random walkers will gladly accept that their under-performance is an event of chance even though they deserve higher returns.

They are harmless. :)

You guys will love this story. There are just so many things worth making fun of here:

http://biz.yahoo.com/brn/070326/21330.html?.v=1&.pf=loans

So,

Rather than asking where our money should be parked, wouldn't it be wise to investigate the businesses that typically profit during economic downturns? In this case, wouldn't foreclosure companies profit? How about investing in alcohol and tobacco companies? Don't people drink a lot when they're depressed? I'm the dumbest-est-est investor around, but I'm trying to get better at it. I wonder if Anheuser-Busch increased profits during the dot-com bust and the recession in the early 90s?

As if I could ever give investment advice.

Heck, if I had a voodoo loan I would be confused. Do you know how many "moving parts" they have? :)

A very interesting point in Shiller’s Irrational Exuberrence (2nd edition) is that the post-dotcom stock market never really did correct in any sense “fully” (i.e. return to valuations based on anything resembling the fundamentals). P/E ratios are still well out of whack.

Perhaps the stock market has yet to fully correct. What if we are in the middle of a huge double top?