Tuesday, July 23, 2002
Peeling the Scales from the Eyes
The tragedy of the recent bout of market losses that only now, when by far the biggest damage has been perpetrated, are people starting to realize that those "paper losses", the ones that if they don't sell they don't "really" have, are in fact, REAL LOSSES, and only become more so as the market doesn't rebound. I just heard a lady say she has half-a-million bucks, fully "invested", but that if she sells, she'll have to take the loss. This lady doesn't see that she no longer has half-a-million bucks, her "paper loss" is real.
For many, these losses are at this point "only" financial losses. Unfortunately, there are silent losses at work, those that at the point of realization of what it will take to recover those loss will indeed hobble confidence and wear down the spirit. One needs to take a completely different view of the situation, of one's own complicity, and "what to do next", and to do it differently.
No amount of scapegoating, partisan-blame assigning, and "rational thought" will change that.
Not to say that those with truly long time horizons might consider putting money into the market at some point soon. One should at least continue to save money, even if at paltry money market rates. Ironic, isn't it, that the low interest rate environment, which is meant to stimulate one kind of investment such as for industrial capital expenditures, has flattened individuals on fixed or near fixed incomes. Rarely have stocks AND bonds retreated in tandem, but that very situation has robbed even the more cautious of their safety net. It is one thing for economists to encourage people to invest, but to outright encourage folks to catch falling knives each day in anticipation of an imminent turnaround is worse than folly, it is criminal.
And of criminals and folly, alas, we now know there is a more than ample store.
To put the following table in perspective, the Bubble Years returned an average 20% per year. The years 1990 to 1999 returned 12% on average. A balanced expectation going forward is more like
5% to 8%. PER YEAR. Reality hurts.
