John et al.
I am not a frequent poster either here or elsewhere but john will (may) recognize that he and I have corresponded by email a few times and I have put his name out there a few times as well (particularly on the fabius maximus website). I don't think we agree often, particularly about roubini, but it seems you might have come around to my viewpoint lately (although my own might be changing on him slightly as well - think he is angling for a cabinet level position in next administration).
While I am not a fan of mumbo-jumbo, the cyclical changes of generational dynamics lend themselves easily to elliot wave analysis. While the chief proponent of that (robert prechter) has been consistently wrong for years, I would suggest that readers google Tony Caldaro's blog. I have been following his thought process for quite a while and while he is not always right, I think right now he is probably better tuned to this market than anyone, particularly the US market.
http://caldaroew.spaces.live.com/ While its possible that we simply see an absolute, utter collapse, haven't we really seen that already since last September? There is still so much cash out there and to have a true generational panic there needs to be massive, serious, utter wealth destruction of the bulk of the population (at least the lower 95%). We're not there yet - we saw the first wave of bargain hunting last january in the real estate market with those who were deluded into thinking the real estate mess was only a retracement buying in. Now, the affluent are 'bargain hunting' and waiting for the 'fire sale' prices so that they can purchase on the cheap. The only problem with that is that those high ticket items will be purchased with dear money and now that money is committed. While some might do just fine on a longer term, inevitably hubris and an inability to recognize the changing of the game will occur and there will be casualties among those who still think that leverage and loans to bail them out in the event of unemployment, etc... still exist - they will be sadly and sorely informed otherwise.
Folks would be well to study the other market declines in addition to '29. Remember, there was a slow grind lower for many of these events - the spectacular drop of '29 was more of the mid point of the beginning rather than the end. While we would all like this event to be over, its more likely that things go on for longer than we care to have happen. Tony thinks we are going to see a short term bottom, followed by a short term retracement (perhaps on the euphoria associated with an obama presidency?), followed by further grinding lower to a newer low from which we will begin the cycle of saving, investment, technologic advancement, growth, and ultimately in another 80 years, rampant credit overexpansion leading to a new collapse. And yes, wars fit into that schema too. Reccomend russell napier's excellent book "Anatomy of the Bear" for a more complex look at things (
http://www.amazon.com/Anatomy-Bear-Less ... 174&sr=8-1)
As far as what to do financially, I really am about as confused as everyone else. Excessive volatility such as we are seeing makes it nearly impossible to develop long term viewpoints. To a certain extent, fiat & policy will determine the winners - 401k's might be sacrified, but savings accounts preserved. IRA's might be ok, but college savings accounts revoked. Deflationary collapse may predominate, with subsequent debt monetization causing currency devaluation/inflation at a later stage. Ultimately, I have no idea which will pan out. I have positioned myself as neutral as possible, and will buy back into equities when P/E ratios approach more reasonable long term purchasing levels (actual P/E <10). Treasuries, cash, commodities, mining stocks, US value equities, international equities and debt, currency baskets are all things to try. I recognize that I will probably lose money on a number, but I am more interested in preserving
something than making a killing. That's what option trades are for.
Perhaps one of the best opportunities that exist, particularly for the affluent, is to obtain cheaply the things that they will need for the next 5-10 years. Hards might be difficult to replace if trade opportunities decrease. I don't intend to pay off my mortgage until I can do so COMPLETELY - I can see plenty of people being foreclosed upon for the last $10,000 on a $200,000 mortgage because they lost their job and couldn't pay the mortgage. That cash reserve (provided it isn't confiscated or the bank collapses) will provide many many months of mortgage payments should I lose my job.
My suspicion is that we see massive volatility continue for the next 18 months and then, as if in exhaustion, everything just stops - significant unemployment, no jobs, higher taxes, reduced trade, etc... Thereafter, perhaps we will start the cycle again (perhaps not, who knows as we might be entering a new phase of 'HIstory'). The important thing is to get through. Suspect that the opportunity is to transfer cash assets back into the market after the shakeout and from there into income producing real estate once there is nobody left to buy. But my guess is as good as anyone's on this, and my opinion will probably change and be influenced by policy and fiat that occurs in the intervening months. Ultimately, as long as we have our families and our health, the rest is less important.
Since this is a public forum, I must state that this post is for entertainment purposes only. I am not a financial advisor, and do not hold myself out to be one. You are hereby directed to contact your own financial, tax, and legal advisors for any questions that you may have about your personal situation. DYODD.
Full disclosure: long multiple equity mutual funds, foreign and domestic bond funds, closed end funds, treasury bonds, put options on the S&P index.