By 2pm on May 6, 2010, it was clear that the stock market was having a bad day. The Greek Crisis was going through one of its spasms of fear and uncertainty. It was also the day of the UK general election, and by mid-
afternoon in New York it was becoming clear that the result would be some flavor of a hung parliament. The S&P 500 was down –2.9%, a decline that only a few years ago would have been considered headline news but is now mundanely bad.
Then over the next 46 minutes, the decline accelerated to the point where it became severe, then horrendous, and finally absurd. At about 2:46 the S&P was down about –8.6%. I say “about” because at that point the basic fabric of the marketplace was breaking down and exactly what the S&P was trading at, and when, is not clear even months later.
And then, as if the market fairy who had caused this twitched her wand in the other direction, the market staged its best ten minute rally in history. By 2:55 the S&P was down only -3.9% on the day. It would close down –3.2%.
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I think the folks at WalletPop must be running some kind of obvious headline contest. Yesterday they carried Airlines Rake in Billions from Extra Fees and Majority of Social Network Users Share Too Much. And today we get Study: Longer Life Can Bring Pension Money Woes.
I’m willing to forgive WalletPop some for that last one. They are a bunch of kids who probably have not thought much about retirement. They do not yet realize that one of the biggest challenges in retirement planning, maybe even the single biggest one, is the somewhat counter-intuitive fear of living too long.
If you are retiring on an old-school pension or annuity, which will pay you a certain amount every month as long as you are around to cash the checks, then living a long time is not much of a fiscal danger. Social Security works the same way.
But if you reach that golden moment of retirement with a pile of money that needs to last as long as you do, longevity risk is a tough problem. Interestingly, it has a fairly tidy solution, but nobody likes it.
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I cannot remember if I have disclosed this before, but I own some Goldman Sachs stock. It is not a particularly large position, less than 1% of my net 
worth. But it worries me. I came close to selling yesterday and might just let it go today.
It is not that I don’t think Goldman is a great company. And it is certainly not that I think the stock is overpriced. With a trailing PE of less than 7 and no obvious threat to near term profits, it is, or ought to be, compellingly cheap.
The problem is that there is a chance, maybe not a big one, but a significant one, that the stock will go to zero. Not because of a problem in Goldman’s business, nor because the firm did anything it should not have, but because the federal government will decide to destroy it. Basically, I am worried that Goldman will get lynched.
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Once, in a now faintly remembered time, we were obsessed with house prices. Even as recently as a year ago, such obscure arcana as the Case-Shiller Home Price Index was closely followed. Looking back it is hard to
understand why. It was almost as if we thought that houses were a significant slice of our national wealth, that a change in their value might actually effect consumer sentiment and spending, and that a sharp drop in house prices, of all things, had set off the Great Recession. As if.
Of course, now we know that the Great Recession was started by a mid-level employee in the London office of Goldman Sachs.
Yesterday S&P released the monthly Case-Shiller numbers for February. It did not get a lot of coverage. True, that may be partially attributed to sharing a business news cycle with surprisingly strong consumer sentiment numbers, a turn for the worse in the Greek Crisis, and the ritual sacrifice of Goldman execs to appease the mid-term election gods. But it is hard to escape the conclusion that we have simply lost interest in house prices.
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“Past performance is no guarantee of future results.”
This is one of those legal incantations of gravity and vague importance that 
have become so familiar that we do not fully appreciate the meaning. “You have the right to remain silent.” is another example.
The past performance phrase is often spotted at the bottom of mutual fund ads. The rest of those ads, of course, generally do little else than tout past performance.
You cannot fault the fund companies for their focus on old return numbers. When you get down to it, there is not that much else to say about a mutual fund that would make good ad copy. Airbrushed glamour shots of the fund manager will not sell many shares.
Alas, the Wall Street Journal’s Fund Track column recently carried the argument, lifted from a recent academic paper, that the past performance disclaimer is obviously not adequate.
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afternoon in New York it was becoming clear that the result would be some flavor of a hung parliament. The S&P 500 was down –2.9%, a decline that only a few years ago would have been considered headline news but is now mundanely bad.
Government, Investing | Frank Curmudgeon | 
July 6, 2010 11:59 am | 
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