DIG

Short term view above. Top red line is resistance at 62.00 Bottom red line is support at 26 and some change. Bought at 34.25 this morning and closed at 36.83

Below is the longer term view. Red lines are at the same levels on both charts.


Dig goes up 200% of the Dow Jones US Gas & Oil Index. It is near support and has a long way to go before it hits resistance. Bought this morning at $34.25. Support is at about $27 and the first round of resistance isn't until $62. This means there is about 3.5 to 1 ratio of return to risk which makes it acceptable.

Your 401k, Recession's Perfect Sacrifice

Think that if you put your head in the sand and wish this recession away, that your 401k will be OK? It might be more like 0K (that’s ZERO K for those of you in Rio Linda).

The last recession came like a thief in the night. Those napping awoke and found they lost a majority of it. Many began calling it their 41k.

Don’t think that the Wall Street types are going to take pity on you just because you don’t care about what’s going on. These guys are great at telling you to buy and hold while they are moving their money around trying to catch the latest greatest deal. It’s ironic that you’re limited to moving the funds around in your 401k because the fund’s managers were caught moving theirs around EVERY day. Most of the people I talk to don’t even know HOW to move the funds around in their 401k!

I know it’s hard to know exactly what to do. It’s not a perfect world. We don’t even know if we’re actually IN a recession or not. In fact the government types that officially determine when recessions start and end can’t agree. In the last four recessions, it took them on average 8 months to let us know it started. Many recessions don’t even LAST 8 months! They are even worse letting us know when they’re done. On average, it took them almost 2 years to let us know the recession was over. If THEY don’t know, how are WE supposed to?

Think that the company running your 401k cares about you? When was the last time someone from there called you and said you should re-think the way your 401k is invested? When was the last time ANY financial type called you and said ANYTHING about your 401k? Maybe they’re too busy paying attention to their own. It’s probably the largest single investment you own. It’s also probably the single most ignored thing you own. I saw people who went into the last recession with $100,000 and came out with $30,000. I wonder how long it took them to earn the $70,000 they just gave away; a heck of a price to pay for not caring.

Don’t let them put your hard earned, perfect 401k onto the alter of Recession. Instead, sacrifice a little of your time and pay attention to your 401k, it will keep it from becoming THE Suckers Perfect Sacrifice.

Recession History

Since history seems to repeat itself, maybe we could learn something about the current possible recession by studying this country’s recession history. Since pictures are supposed to be worth a thousand words, we will look at the recession history in charts.

I work with investments, so I’m particularly concerned with recessions due to the fact they can have a very negative impact on investment account values. I’m going to look at the recession history with particular focus on how each recession affected the Dow Industrials Stock Index. I have Dow Index data back to 1930, so we will start there.

I have known for some time that the market has seems to operate in approximately 15 year cycles. The market goes up for 15 years, then seems to go sideways for the next 15 years. This growth and then consolidation pattern happens frequently through out history as we will soon see.

This first chart (figure 1), shows the Dow Industrials index from 1930 through 1945.

Figure 1

The light blue areas are times of recession. The first one, however, was the great depression. We all know the effect the depression had on stock values. The Dow lost over 88% of its value between 1929 and 1933. Notice the nice rebound it made following the depression. It increased 345% over the next 4 years. We will see there is a theme in the recession / expansion cycle. Recessions are relatively short and can be very violent to investors in the stock market. The expansion period following recessions are much longer and historically quite good.

One thing you need to be extremely aware of though. Numbers and percentages can be deceiving. I just mentioned that the index lost 88 percent, but then gained 345%. Sounds like you made up all your losses and then some. Not quite.

The dirty little secret to investment losses is this: if you lose 50% of your portfolio, you need to make 100% just to break even. This is an ugly little fact, but lets look at it in real life. If you had $100,000 and lost 50%, you would be left with only $50,000. How much do you have to earn on your $50,000 to get back to even? You need to earn another $50,000. This is 100% of what you currently have. You lost 50% and must gain 100% just to break even.

Let’s look at our chart and see how this works. In 1929 the Dow had a high of around 380 and in 1933 a low of about 48. This is an 88% decrease in value. Over the next 4 years it went from 48 to 187. This is a 345% increase. Sounds like you made up the 88% loss and then some. Unfortunately you have only gained back just over half of what you lost. This also is a recurring theme. When a recession takes huge bites out of portfolio values, it normally takes many years just to break even again. Not to get ahead of myself, but the Nasdaq has only regained about half of what it lost during the last recession. And This is 7 years later! The Dow and S&P 500 took about 6 years to finally break even. The kind of time periods required to recover definitely make the study of the recession history worth while.

Figure 2

Now that some of the back ground work is complete lets look at the next 15 years, from 1945 through 1960 (Figure 2). We will see that it was about in 1955 that the Dow finally got back to where it was before the great depression. This was a very long 25 year wait. Imagine the poor retirees that retired before the depression and never again regained their original portfolio value!

Remember the last 15 years were mostly down then sideways (1930 through 1945). This next 15 year time period had very mild recessions with the worst only causing a 15% drop in the Dow. Overall, the Dow gained 267% over this 15 years. A very good reward for a minimum amount of risk. This leads us to the next 15 years, 1960 to 1975 (Figure 3).

Figure 3

The 15 year cycle is definitely in effect. The last 15 years were very tame yet had a nice return. This 15 years was not for the feint of heart. Gain was very little over the period, but volatility was killer. The period started out with a wonderful 75% gain, but gave it all back by the end. As you can see, the recessionary periods were very violent. The reward available in this market was much smaller than the risk.

Thus far, we had a 15 year period that was horrible, one that was very nice, then another horrible one. Without looking ahead, we might guess that the next 15 year time period would be another nice one. Let’s see.

Figure 4

Yep, looks just beautiful. Began with a 6 year period of consolidation (going sideways), but when it was done consolidating, it moved up very nicely. It moved from around 800 in ’82 to 2800 by 1990. This represents a 250% increase for the period. The volatility for the period was pretty tame. At least if you look at the volatility caused by recession. The largest pullback in value was the ’81 to ’82 recession which was about 18%. The big pullback in August of ’87 was about 30%, but wasn’t caused by recession and didn’t take that long to be regained; all in all a very fruitful 15 years.

This would lead me to believe that the next 15 years would be tumultuous again as the market needs to digest its gains. Let’s take a peek at Figure 5.

Figure 5

The roll the market had going continued for the first half of this period. It gained 300% in just 8 years. This was more in the first half than the others gained in their entire 15 year period. This didn’t go un-noticed however, and the market promptly took back a healthy 35% through the recessionary period. It took until mid way through 2006 to finally get back to even from the highs seen in ’99. Once this was achieved, however, the Dow just kept going. It extended it’s gains through the expansion period, hitting new highs.

Which brings us to today. There is much talk about the beginning of another recession. We’re at the end of a period that should have shown consolidation, but instead had another large run up. This run up wasn’t without sizeable volatility. Notice we’ve just broken the support line drawn. I’ve drawn support lines throughout the charts. Had you sold upon breaking the support lines over the years, you would have saved yourself many heart aches and wouldn’t have had to wait as long to break even again.

In summary, I would say that the recession history points to our next recession causing havoc on the Dow. When will the next recession be or are we already in it? I’ve covered this dilemma in another article. I think we are already in it. I believe the Dow just broke support and has a lot of potential to continue down
If you’re concerned about your 401k in this market environment, visit 401k plan facts. Help is available.

Recession History

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.
The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.
For help on securing your 401k form recession without missing the next run up in the market, visit 401k plan facts.

US Economic Recession History

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the US Economic Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the US Economic Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the US Economic Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.

The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.

To protect your 401k portfolio through the recession, go to 401k plan facts.