Wednesday, May 17, 2006

The Collapse of Hypthocated Assets

There is a problem that is beginning to be realized: "Are my assets safe for retirement." Sadly the answer is no. Your mutual fund or IRA, buys stocks, bonds options and whatever.

These Mutual funds etc have been rising in price since 1982. That's pretty much when this bull market started, I don't even count a bear market unless its at least 4 years in length. The last real one was about 12 years long. The one after the great depression was about 20 years long in the tooth.

The real irritating thing about a lot of these stock assets is that they don't even pay a dividend. As long as it goes up--who cares? Most of the people who own them have never seen a bear market.

When I mention bear market from 1966 to 1982 we are talking Dow 500 to Dow 1000 back and forth never higher. How many Mutual Fund advisors are old enough to remember back then? The herd mentality is working very well for them up to now. With stocks that do pay a dividend, their price tends to increase as the dividend increases and vice versa. This is what you want to invest in, if you want retirement income.

A market goes up when more people want to buy, than those that want to sell. Well, all of these first time home buyers have no spare cash for the Stock Market. The Baby Boomer's, sometime in the future are going to want to sell. The question arises, "Sell to Whom?"

A lot of these stocks could be marked to market if no one wants them. Remember Lucent at $160--it split 2 for one and is now at $2.50 a share. Talk about evaporation of equity. Remember you have to do absolutely nothing for this to happen, your neighbor can sell his stock for whatever and that determines the present new value of your holding. Neat isn't it?

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