If you want to know where some of your financial bailout dollars are going, click on this link. Try to keep your blood pressure down as you read this article and remember – it is the season for giving. The U.S. taxpayer did their part this year for the financial executives as you can read in the Frank Bass & Rita Beamish article.
Unfortunately, our “scoliosis” Congress did not serve us well. Why did they not require execs to give up large percentages of their salary, all bonuses, and all perks before any bailout money was made available?
Lowell Herr
Snow in Portland, OR
Link to 2008 photos
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Yesterday, I mentioned I would show a situation, where a portfolio rich in cash will have a low probability of outperforming the S&P 500 over next few years. What problems might a cash heavy position pose going forward if we continue with the same asset allocation rather than investing the cash in a variety of equities and bonds. Click on this short “movie” to see what the projected future return is for a cash heavy portfolio. One thing I failed to mention in the movie is that the asset classes now populating the portfolio are highly correlated. That is the reason for the low diversification metric percentage.
Keep in mind that the software used to analyze the portfolio is not aware of the second wave of mortgage failures that will occur over the next two to five years. The software is not cognizant of rising unemployment and the debt left by the Bush administration. As investors, one needs to play the risk game of whether to wait for better news or to rely on the laws of probability and conclude the market will return to the mean. If there is a reversion to the mean, then it behooves the investor to work toward cash reduction and become fully invested in the market. How to play this game will be explained in more detail over on the Premium side of the blog.
Lowell Herr
Photograph: Christmas decorations by neighbor.
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