Maybe It’s Right to Be Nervous Now

October 10th, 2008 by Editor B

Back in June 2006 we had some extra money lying around from our insurance settlement. I’m hesitant to name dollar amounts publicly. Let’s just say it qualified as “a lot” in my book. More than a month’s salary, less than a year’s. I hope that is sufficiently vague.

So I decided to invest in the stock market.

Ah, you can tell where this is going already, can’t you?

When I wrote about this a couple years ago I got a number of comments from readers, most advising caution. But I decided to keep this money in the market for a few reasons. For one thing, I was getting financial advice from my father, whom I trust. For another, I am already socking away a certain amount each month into safer managed funds. Also, I didn’t put all this cash in the market, only part of it. And finally, I understood the risk. This particular chunk of change was a windfall, money we could theoretically afford to lose. As I said back in June:

Worst case scenario: I lose all this money. Eh, so what. We’ll still be ahead of where we were pre-Katrina.

The system we used worked something like this: We identified stocks that were commanding a good price for options. Then we bought those stocks and sold the options. This is called selling “covered call options.” At the end of each monthly cycle, we generally sold off any stocks that didn’t hit their strike price and start over again.

After about a year or so, I’d done pretty well. My portfolio was up 50%.

Then things started to go downhill. Soon all my profit had evaporated and I began to lose money. I watched with sick fascination as my portfolio dwindled to half my original stake, then a quarter, then a tenth. Somewhere in there I got a margin call and had to sell off some stocks. Did I mention we bought stock on margin?

Then yesterday I got another margin call and was forced to sell off what little stock I had left.

So that money is gone. All of it. In fact, I owe the brokerage house a little.

I’m a bit stunned. I really thought we could ride this out. I thought, if I just hold on long enough, if I just brazen it out, surely we’ll bounce back a bit. Turns out I didn’t have that choice. The daily headlines fret about when the market will “find its bottom,” but it seems I’ve found mine.

It was an interesting ride, but now it’s over. Easy come, easy go, I guess. I was a bit uncomfortable as a capitalist anyway.

It still sucks. But I’m very glad I didn’t have all my eggs in that basket.

As for Dad, he is much more invested in the market than I, so he’s really feeling it. He sends this cheerful comment:

Mom and I don’t have much money left but we can get by until the grim reaper comes along.

He was born at the beginning of the Great Depression, and he says this is the worst financial crisis he’s ever seen.

And I understand the nation of Iceland may well go bankrupt. Things are rough all over.

37 Responses to “Maybe It’s Right to Be Nervous Now”

  1. bob Says:

    Market index funds, safe to an extent, link to the overall market, and you’re young so who cares what they do now its 20 years from now and the market will be back up

  2. David Says:

    Consider this a parting gift from George W. Bush.

  3. Lee Says:

    Ouch! I’m sorry to hear about this B.

    Even though I have no money in the market anymore, I’m feeling it as well. In the form of inflation, and the value of my home going down the toilet.

  4. lemming Says:

    I echo Lee’s ouch.

    I keep wondering what happens when the bank has nothing but foreclosed houses and cars and boats and no one to buy then back, then what?

    The sub-prime mortgage problems clearly have played a significant role, but I also look to the rise in the price of gas. Did OPEC succeed in taking down most of the world? No more large trucks, SUVs, mini-vans, American car companies cut workers, people stop going out or making major purchases so that they an [ay for gas, and we all held on as long as we could and this was the final domino… no idea.

  5. Tony Says:

    I’m with you on this Bart. My company matched 401k’s takin a big hit too. How do I lessen the hurt?

  6. David Says:

    Tony, wanna lessen the hurt? Then toke up!

  7. Julie Says:

    Bart,

    Didn’t you mention something recently about your parents joining the Peace Corps?

  8. hongtairei Says:

    no stocks, no debt and exempt from paying u.s. taxes…so am free from the nose dive in that respect.

    but as far as your home is concerned…if it keeps you warm and safe from the storm, it hasn’t lost it’s value at all.

    Yes?

  9. David Says:

    With any luck at all that brokerage house will go under, and you won’t have to pay.

    BTW, this loss will get you a big write-off when you file your taxes.

  10. Garvey Says:

    “Consider this a parting gift from George W. Bush.”

    Or an STD from Barney Frank.

  11. David Says:

    Garvey’s comment prompted the following thought:

    With the enormity of this financial crisis, it’s been absolutely fascinating to observe the persistence and depth of delusion by conservatives. After all we’ve been through, given the fact that nothing–nothing–of significance is better than it was, and given the sweeping, unchecked power of the Republican party to create this mess, it is absolutely fascinating to witness the inability of everyday Republicans to grasp that their leaders have betrayed them (and every American) and done so in an overt fashion. If civilization survives this catastrophe, there will be long studies written about their collective psychological state.

    It’s just a good thing for them that Fox News hasn’t urged them to guzzle cyanide-laced Kool-Aid. Because if Fox News ever did, there’d be a massive clean-up effort in Jefferson Parish.

  12. Eric Paul Says:

    We are truly living in very interesting but also very frightening times. I have yet to get my head fully around it all, and I think the reason why is the fact that the enormity of what is happening, and what may happen, is too grim for this humble scribe to contemplate. My father was a child during the depression and some of his old “ghost stories” are bouncing around in my skull like a bean in a boxcar.

    What brought us to this horrid meal? Well, the answer is obvious, truth be told, eight years of the “Son of Shrub” set the current course to the reefs.

    For the most part, all my life I’ve been apolitical, but for a black man in this country, ESPECIALLY now, that “luxury” is ill advised, to say the least. I’ve been procrastinating for years (I refer to procrastination as “lazy fear”), and now I find regardless of the fears I have, now’s the time to access and put in full bloom my talents (I pray I’m not too late)!

    I don’t want to live in fear, but I do want to be aware. I don’t want to worry, I don’t want or need the stress, but I do want to stoke that engine (choo-choo-choo). Sorry for rambling, but I’ve had a weekend of reflection. Nothing like looking reality full in the face whether you like what you see or not!

  13. Garvey Says:

    “nothing–nothing–of significance is better than it was”

    My taxes are better. That’s pretty significant to me.

  14. Editor B Says:

    Garv: I assume by “better” you mean “lower.” Of course, one might ask what you’re getting for what you pay — is the product better or worse, per penny paid? But that’s rather difficult to assay.

    Speaking of taxes, I note in today’s Parade magazine that Obama’s plan would give you and me (we’re in the same bracket) a $1,118 tax cut, whereas McCain gives us only $325. So who are you voting for?

  15. PJ Says:

    If you leave your money anywhere for long enough someone will find a way to take it from you. That’s why the advice is to diversify. I bought some stocks with my insurance money and nearly doubled it, but I stopped playing when I hit my goal and we sunk the money in our home repairs on the foreclosure we picked up.

    The same stocks I had are really sucking but I don’t care, I sold em off months ago. The house value is down and my tiaa-cref is also sucking, but the good news is my company is growing faster than ever.

  16. David Says:

    Garvey, good ole Garvey,

    That old trope actually got a laugh out of me. Garvey, you haven’t even begun paying taxes. This year’s deficit is going to be over a trillion dollars. (When Bush took office, we had a surplus, and the national debt was $4 trillion dollars. (If you don’t know the difference between the deficit and the debt, Limbaugh salutes you.)) If you think your measley thousand-odd dollars in tax breaks is a fair trade off for the destruction of an American city . . . If you think your tax break is a fair trade for September 11th . . . If you think your tax money is worth the destruction of the American economy itself–Wait! Wait a second! What’s that?

    Look out, Garvey, Sean Hannity is stirring up the Kool-Aid right now, and that giant pitcher is running right for your living room wall–“Oh yeah!”

  17. David Says:

    Or put differently, Garvey, just because something’s significant to you, doesn’t make it significant to everyone else. But thanks for demonstrating the GOP credo, “I got mine. Fuck everyone else.”

  18. Garvey Says:

    B: I was thinking of voting for Bob Barr. I glanced at that Parade thing, too, and really hope that it’s accurate (i.e., they are cuts *beyond* the 2003 cuts, not a replacement for). I don’t expect anything from my taxes, nor do I expect much from Washington in any way, so when nothing is accomplished, I am never surprised. Do-gooders scare the xit out of me, OTOH. (of every stripe, incl. “compassionate conservatives”)

    David: you are a wonderful example of Bush Derangement Syndrome, where every last problem is attributable to Bush. If you think the subprime meltdown and collapse is *solely* a product of Jan 2001-now, then you haven’t been paying attn to anything. Start with the ramping up of the CRA and bank deregulation in the 90s and work you way from there, incl. what Rubin, Gramm, Clinton, and other assorted SOBs did in 1999. Blood is on the hands of both sides of the aisle, but I’d hardly call this thing Bush’s (and I am NO fan of Bush).

    More comically, though, David, is your assumption that anyone who views the world with open eyes and isn’t a lockstep liberal must therefore love W and the GOP. Getcher head outta yer a** before you get e coli. Your false dichotomy serves no one. Just because I don’t want to hold hands and sing kumbaya when President Lightworker assumes the helm in January, but that doesn’t make me a big meanie, a Limbaugh or Hannity listener. Waah.

    “I got mine. Fuck everyone else.” You’ve just perfectly described the liberal view towards charitable giving. This is well documented in various research studies, that liberals give significantly less to charity. Greed and selfishness come in many forms. Start with the mirror.

  19. Garvey Says:

    Also, I shouldn’t let this part pass: “if you think your measley thousand-odd dollars in tax breaks is a fair trade off for the destruction of an American city . . . If you think your tax break is a fair trade for September 11th.”

    It looks like Oz around here with all the straw men, David. Have you removed your testicles yet, put on the Nikes, and called the mother ship? Pretty amazing stuff.

  20. David Says:

    Garvey,

    It is interesting to note that, for someone who’s “not” a Republican, you so readily regurgitate their talking points:
    The Barney Frank STD dig.
    That “clever” “Bush Derangement Syndrome” phrase. (Where’d you hear that?)
    The minimization of the devastating effect of the Bush Administration–to the economy, military, and environment, among many other things–because your taxes got lowered.
    And the insistence of holding a lot of people responsible, just not Bush (you know, two-term majority-party President), that guy you claim you’re not a fan of.

    How could anyone draw conclusions about you?

    (By the way, people like Garvey’s affection for lowered taxes, especially during periods of record expenditures like this one, is exactly like maxing out all your credit cards and believing you’re rich.)

    I never said you were a Republican, just that your ideas reminded me of Republicans’.

    I never said you listened to Hannity or Limbaugh. I said the giant pitcher of Hannity-special Kool-Aid is lumbering down the street, headed straight through your living room wall. And it’s coming! “Oh yeah!”

  21. David Says:

    Oh yeah–another right-wing meme Garvey parroted:

    The whole Obama as messiah (or lightworker) with whom you’ll sing kumbaya.

    That’s right, Garvey. You’re thinking for yourself. That’s right.

    You do like grape Kool-Aid, don’t you?

    “Oh Yeah!”

  22. Garvey Says:

    I won’t bother responding to all the ad hominem, David, but you still fail to show how the mortgage meltdown is Bush’s fault. Good luck with that. Let me know when you figure out how to change the date on the reauthorization of the CRA, the Gramm-Leachey-Bliley Act, etc., to have occurred in the last eight years.

  23. David Says:

    Yes, Garvey, quoting you back to you is ad hominem.

    I never set out to demonstrate the fault of the financial crisis. I intended to comment on the mindset of Bush’s persistent defenders (that’s you).

    And sorry if my tone wasn’t serious enough for you. I took my cue from the person who made the comment about Barney Frank and STD’s. Who did that? Oh! It was you. (And that’s not ad hominem–AT ALL.)

    (By the way, Garvey, between your interest in Frank’s sex life and your curiosity about my testicles, I detect a real homoerotic subtext in your writing. That’s fine. I just hope you’re not one of those right-wing closet cases. As for me, though, I’m not on that team.)

  24. Garvey Says:

    You’re lying.

    “Consider this a parting gift from George W. Bush.”

    QED

  25. David Says:

    I love this Garvey. Every time one of his bullshit ideas gets knocked down, he lines up another.

    OK. Yes, Garvey. “Consider this a parting gift from George W. Bush.” is the same things as saying “And now I will definitively show how the mortgage meltdown is Bush’s fault.”

    Look, it’s not that one couldn’t make the argument that the overwhelming responsiblity for the financial crisis lies with the Republican agenda, including its latest manifestation with the Bush administration. One could. It’s just that it’s tedious and obvious.

    Instead, I was more interested in the mindset of those who will go to great lengths to defend Bush. But that’s not you, right? Because I hear that you’re no fan of Bush. And you–you wouldn’t invoke all kinds of tortured logic to defend him, right? You’re a clear-thinking, self-aware person, who’s not a Republican and no fan of Bush. No sir.

  26. Garvey Says:

    Poor David. All I did was point out the obvious. And it is obvious that Bush has very little to do with this meltdown. It’s like blaming Ford for Vietnam. Or blaming Clinton for the tech bubble. And since you have no interest in history or the truth, you don’t really have anything to say.

  27. Kent Says:

    How about a little civility here!

    In all fairness to Garvey, I have watched his posts for sometime, and I believe he’s not a strong Bush fan, or a Republican. Perhaps he sees himself as a libertarian, or even an anarchist. My impressions, which are just that, impressions, is that he has no faith in the ability of government to help people, and distrusts politicians in principle. So I think he’s telling the truth when he states he is not a fan of our president. I also suspect he strongly prefers Republicans to Democrats, and McCain to Obama.

    The Republican party has long stood for smaller government, although in practice they have never been very good at reaching that goal, usually enlarging government at the expense of any government programs that might directly help people in need. Republicans would state the the best way to help everybody is through free trade and a market based economy. I don’t agree.

    Given Garvey’s hyphotheses, how can he possibly believe the Republicans bear the brunt of the responsibility for the present financial crisis?

    Nonetheless, hearing distinct points of view can be very helpful for others, whose political underpinnings are not set in stone. A political conversation never changes anyone’s mind immediately, but it often sets a seed that changes opinion over time.

    Can’t the two of you engage in this debate without screaming “You started it,” and without the insulting tone.

    For my part, I think history will acknowledge some of Garvey’s points, but that an overwhelming consensus will arise placing the blame squarely at Bush and the Republican party. We’ll have to wait to see who’s right.

    For the present, it suffices to note that the overwhelming majority of the public, and a great many notable economists (perhaps mostly academicians, if that’s an issue for you) seem to agree with David, in spirit, if not necessarily in detail.

  28. Editor B Says:

    Thanks, Kent, for injecting a balanced view into this dialog. I was too busy weeping over my lost money. And now the market is rallying? If only this had come a couple days earlier!

    Anyway, I’ve never met Garvey, but I pegged him as libertarian a while back. His consideration of Bob Barr lends credence to that. I believe he is sincere in his repudiation of Bush and the Republicans. Are there some contradictions there? I’m sure we all have some of those.

    David, we’ve talked before about the dual-axis political model. I believe that you and I (and Kent) are all on the left side of that chart. However, I also find myself drawn toward the anti-authoritarian direction, which is where Garvey clearly locates himself. (If you keep reading Chomsky you may find yourself drawn that way too.) Anyway, I feel I have some perspectives in common with both of you, though we surely disagree about much.

    Certainly I think we can all agree that whatever sins may lie at the door of the GOP, we could not have gotten where we are without the active complicity of the Democrats. I believe there are some deep systemic problems in our economy and our politics that neither party is willing or able to address.

    If we haven’t already passed the point of no return, I’d like to react to Garvey’s statement that “I don’t expect anything from my taxes.” Is that really true? Nothing at all? Not even, say, roads, just to pick an example? If so, you are one low-expectation havin’ person. While I’m sure we’d agree that other forms of organization are more efficacious and desirable than the State, still and all I do expect some things in return for my tax dollar.

  29. Garvey Says:

    Kent, thanks for the clearheadedness. Much appreciated.

    Ditto, B. I will say this about my statement you took up here: it is an exaggeration, but not by much. What does the Dept of Energy do? Probably something, but I don’t expect it to be for *my* benefit. Same for ED, AG, and all kinds of other federal feeding troughs. I think where anarchy ends and pragmatic libertarianism begins is with the basic services you allude to: roads, fire, police–all that safety stuff that is pretty decent (and yet, also a huge pot of waste and graft, esp. for roads and other federal construction projects).

    I would definitely place myself along the anti-authoritarian side of things. I think each of the two parties have a definite authoritarian streak in them–I just happen to hate the left’s version more. I admit that it may be a cartoonish view of the left, but they are the party of wanting to piss in my cornflakes. Democrats claim they want to change America, but IMO, America’s fine–I’d rather they change govt instead.

    I’d say limited govt is the goal. When I was younger, I used to think that govt *should be* doing this, that, and the other. And then I worked for the govt. I read history. I paid attention to the news. Mugged by data, as it were. So my politics changed from talking about what the govt should be doing and focused more on what the govt is actually *capable* of achieving. Therein lies the chasm. And chasm may be an understatement.

    Take a look around. My roads are shitty. My police can barely keep up with murders, let alone such “petty” things as grand theft auto. The DMV is a joke. Public schools, as a whole, are poor. The post office blows. FEMA? Immigration? Don’t even get started. These things all suck and have always sucked. It’s not like everything was awesome until Jan. 2001 and then, and only then, it started to suck.

    What elements of the government have been run so successfully *for the people*, and is their track record so overwhelming positive, that we should use that for the basis for increasing the scope and role of government? THAT’S my point. (e.g., which government agency do you want your doctor’s office to be more like?)

    Does this mean we should do nothing? Maybe. I dunno. But people doing “something” for the “good of the country” are the scariest people in the world to me.

  30. Editor B Says:

    Regarding the dual-axis political map I mentioned… Here’s a site with a quiz your can take that plots your position on such a chart:

    http://www.politicalcompass.org/

    Such things are never perfect but I think this one’s decent. Maybe I’ll work up a post about it some day.

  31. Kent Says:

    The Political Compass

    Economic Left/Right: -4.38
    Social Libertarian/Authoritarian: -7.03

    Garvey? David? B?

    p.s. Would have expected a little further left. Oh well.

  32. Editor B Says:

    Oh all right. Here’s my “score”:

    http://www.flickr.com/photos/editor/2942709366/

  33. Garvey Says:

    I took it a couple hrs ago at work, but I think I was something like +6 economics and -3 social libertarian. Pretty close to where Milton Friedman is shown on one of the charts.

    I wish the quiz were worded differently, b/c I found myself disagreeing (or agreeing) with things b/c of the wording. e.g., “it’s a sad state of affairs when…” etc. I am dispassionate or ambivalent about a lot of things, so I may have answered differently if it hadn’t asked me emotionally loaded questions.

    I think a lot of folks might agree, though, that the two-party system is a bummer for those of us who hold a lot of disparate views. If anyone cares, here are some issues I care about: I am pro-life, anti death penalty, pro decriminalization of marij., pro immigration, pro voluntary military, pro school vouchers, anti socialized health care, anti corporate welfare, anti govt funded research, anti social security, anti taxes, pro charity, pro reasoned and market-driven environmentalism, pro increased oil drilling, anti protectionism, pro free trade, anti eugenics, anti government radio/TV… What party is that?

  34. lemming Says:

    In “Rush Limbaugh is a Big, Fat Idiot” Al Franken got a dozen or so conservatives (George Will among them) and libertarians to list government programs which did work, which did benefit the nation, and came form tax dollars. I was and am heartened that they came up with several.

  35. Kent Says:

    Okay. I’m game.

    Not only do I think many government programs work effectively, and have changed the lives of many for the better, but I think that in particular huge investments in education and research have long-term positive effects that are often not credited when they occur.

    I’ll avoid mentioning my own huge debt to such programs, as they make me vulnerable. I can’t bear to hear others discredit any small contributions I’ve made as not worthy of the government programs that have helped me.

    The extraordinary technology advances of the 1990s that created wealth, and a budgetary surplus, as well as the advances we now appreciate through the web and the laptop I am using now, take their origins in the huge government investment in research and education that followed Sputnik. (I certainly see no reason to credit this to Reaganomics. nor most other explanations I hear, although no event deserves all the credit for something this complex.) Few in this country would deny these things have enriched their lives.

    I recall the late 1970s when there was a vocalized and growing feeling that the huge promises of science that were offered in the 1960s had not materialized. This cynicism derived from too much having been promised too soon, and from a general despondence following Vietnam, oil cartels, high gas prices, and a general feeling of impotence regarding world politics. But 15 years later the remarkable electronic age we were once promised seemed a reality. At last, it felt like we were living in the age of the Jetsons. Look at Popular Mechanics in the 1960s, and the futuristic pictures it portrayed had transpired. We foolishly believed it would happen sooner, but it happened nonetheless.

    The research and education spending of the 1960s had placed the US in the best possible position to take a role of world leadership in technology, but only after sufficient time had passed to see the dreams begin to materialize. The economy boomed!

    Sadly, we are no longer the most educated country in the world. Other countries still send their best and brightest to us for education, but their own investments in education and research have caused their economies to grow, and their independence to thrive.

    Can anyone name a major economic power that is not supported by a first class University system? Japan, Russia, Germany, France, and increasingly so China fits this bill now. And Korea, quickly rising in status, has placed it’s future on a growing educational and research investment.

    It’s time we did the same, once again.

    Once again, we have this chance, and energy is our segue. Our country should invest hugely, once again, in education and research, with the goal of developing practical and environmentally safe energy resources. Not only will the environment benefit, and our dependence on foreign oil no longer threaten, but the costs we suffer now will pay off in 20-30 years in ways we cannot yet predict!

    I’m prepared for a blast, Garvey, and will remain silent and listen. Have at me.

  36. Garvey Says:

    My short take on what’s wrong with govt spending on R&D: it is corporate welfare. When we pay Eli Lilly to research a cure for illness X, does Lilly turn around and release the cure into the public domain when they figure it out? NO! They make billions. If the billions are there to be made, they can do it w/o the govt handout to get it started. They take the handout b/c it’s offered.

    Regarding higher ed, my experience in grad school at Indiana was such places are choked with foreign students. My supposition is that (1) ours are still best in many disciplines and (2) that’s how they’ll build their own systems back home: with US-minted PhDs.

    I would also say that higher ed doesn’t occur in a vacuum. What I mean is, these are very complex systems. It’s easy to say, “Let’s tinker with A, B, and C,” but that fails to account for D-Z that depend on the first three. Example: the idea of making medical school “free.” It’s a great idea–it’s just not that simple. We tend to look at things in a vacuum. “Hey, college is free in Germany!” Yes, but they have had twice our unemployment rate for years and only recently came out of the double-digit territory. And their taxes are higher. And gas costs twelve bucks a gallon (or whatever). Etc. Etc. Complex systems.

    Furthermore, what does “increased spending on education and research” mean? What do we cut? How much more taxes does that cost? No vacuum. Every new proposal costs something.

    The most interesting idea I’ve seen regarding govt largesse is Charles Murray’s plan:
    http://www.aei.org/publications/filter.all,pubID.24092/pub_detail.asp
    His book explains it better, too, if you’re interested.

  37. b.rox » Blog Archive » Domain Games Says:

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