No safe haven for investors
This bear market is one for the history books
| Technically, a bear market is when stocks fall 20% or more from their highs. But there's a saying that a bear's true signature is making a fool out of everyone. Based on that, we're all laughingstocks, because there has been virtually no way to avoid this bear market's claws -- except, of course, geonomics. |
By Matt Krantz, USA Today, Nov 21, 2008
The broad stock market is at it lowest level in 11 years, with the Standard & Poor's 500 index off 52% from its high in 2007 October and on pace for its worst year ever. Only 13 of its 500 stocks are not down for the year, and more than 100 trade for less than $10 a share.This bear has trashed nearly every investment strategy and asset class. It has blown holes through long-held tenets in investing. It has humbled some of the most powerful names in the stock market.
Even investors who saw the bear coming have been mauled. Those that rushed into commodities or foreign currencies to sit out problems with the U.S. economy have suffered massive losses. Even some investors who held safe-haven cash lost money when the large Reserve Fund money market lost about 3%.
The worldwide borrowing binge by everyone from consumers to home buyers to investors is at the core of the global asset shrinkage. Now that assets are losing value, their owners are forced to dump some even with prices low, because they have debts to pay.
The sell-off is infecting stocks that are supposed to be less volatile. Large companies with low valuations have been less volatile over the years. Not this year. The iShares Russell 1000 (IWD) exchange traded fund, which tracks large value stocks, is down 49.3%, matching the market's dismal performance. The KBW Bank (KBE) ETF is down 58%.
Even investors who've sought professional help have been stung. Money poured into mutual funds, hedge funds, and private-equity firms run by experts known for out-foxing markets in good times and bad. The bear has proved to be smarter than the fox.
- * Legg Mason's Value fund (LMVTX), famous for the longest streak beating the S&P 500 under the leadership of portfolio manager Miller, is down more than 65% this year, the third year in a row that it has lagged behind the market. It now has just a one-star rating, out of a possible five, from Morningstar.
* Eddie Lampert, the hedge fund manager for celebrities such as David Geffen and Michael Dell who was compared with Warren Buffett a few years ago, has seen his funds' biggest investment, Sears Holdings (SHLD), collapse 70.5% this year. His personal worth has fallen to $2 billion from $4.5 billion two years ago.
* Speaking of Buffett, the Oracle of Omaha, his Berkshire Hathaway (BRKA) holding company turned a profit of $1.1 billion, or $682 a share, in the third quarter. That's down 77% from a year earlier and the fourth-consecutive quarterly decline in earnings.
Private-equity firms, which use borrowed money to buy companies, fix them up, and sell them, are getting a similar comeuppance. Of the 86 companies that have defaulted on their debt globally this year, 53 are connected to private equity. Private-equity firm Blackstone (BX), which individual investors scrambled to get a piece of during the 2007 initial public offering, is trading for $5.10 a share, down from the first day's closing price of $35.06.
Investors who thought they saw the stock crash coming figured they had the answer: gold. An ounce of gold soared 53.6% in the year leading up to its peak on March 18 as investors poured in. But investors who piled into gold in March have been dealt a 25.5% loss.
A similar story with oil. At the closing peak of $145.29 a barrel on July 3, crude was up 51% for the year. With predictions of it hitting $200 or more, it seemed like a can't-lose proposition. Speculators lost big as the price returned to about $49 now.
We've heard it before: when domestic stocks zig, foreign stocks are supposed to zag. But that hasn't worked either. The iShares MSCI EAFE index fund (EFA), which tracks stocks in developed nations in Europe, Asia and the Far East is down 54.5% this year, worse than U.S. stocks' decline.
What about emerging markets stocks? Up-and-comers such as China, India, and Brazil were supposed to be growing fast independent of the U.S. Well, the iShares MSCI Emerging Markets (EEM) index has fared worse, tanking 64%. Every major nation's stock market is down this year.
Investors who hold still and invested in the S&P 500 10 years ago have seen the value of their stocks decline 35%. Even investors who used dollar-cost averaging and invested $500 a month starting Dec. 31, 1996, and reinvested dividends lost $13,225, or 17%, as of Oct. 31.
For investors who find stocks to volatile, there used to be slow and steady bonds. Rather than buffering losses on stocks, corporate bonds are falling apart. The iShares iBoxx Investment Grade Corporate Bond fund (LQD), which invests in bonds with high credit ratings, has a negative return of 14.4% this year.
Certainly, investors who bet everything would go down have profited. For instance, the Rydex Inverse 2x S&P 500 ETF (RSW), which rises when the market falls, is up 158% this year.
|
Also see: Mainstream Media Lost Perspective
The Economy, Ursa Major, and 2008
Billion dollars a year, earned or taken? |
| Email this article | Sign up for free Progress Report updates via email |
What are your views? Share your opinions with The Progress Report:
| Page One | Page Two | Archive |
| Discussion Room | Letters | What's Geoism? |
