Tuesday Twofer

The chart is a YTD look at the Financial Sector SPDR (

) and several European banks. The declines are truly eye popping.

Anyone who is a market participant knows something of what has been going on with US and European financials. The level of knowledge/interest varies but everyone knows there is serious trouble.

This of course leaves many wondering what do about financial stocks in their portfolio, this question is asked dozens of times a day on stock market television and in print. There has been an unprecedented parade of writedowns, crises and questions of simple viability--and if not unprecedented then certainly the vast majority of us have not navigated these waters before.

So what is the answer? What should be done? This question is asked continually (repeated for emphasis) and there aren't too many answers. To steal a line from the very funny show Pardon The Interruption; a special Random Roger Investigation has revealed that the fundamentals for US and European banks stink. They stunk a year ago. The stunk two years ago. They stunk in 2008. They started deteriorating several years before then. Not only that, they are going to stink for several years to come, if not many years.

How do we know they will stink for a long time? Well one clue is the guessing about what all these sovereign defaults that might mean to these banks.

is a pretty good tell that we are a long way from healthy.

As I have said all along there will be great trades to be had but they will not be good investments for quite a while. A great way to smooth out the ride for a diversified portfolio is figuring out what to avoid and (repeated from many past posts) figuring what to avoid is easier than figuring what to own but it also helps with figuring what to own. I cannot rule out good luck with having figured this out with financials but it has made my job much easier during the ongoing economic/financial event we are still enduring. Ditto, avoiding Japan.

On an unrelated note, a few weeks ago I mentioned that our refrigerator was slowly dying and that we would need a new one soon. Well the patient's condition deteriorated rapidly this weekend so Joellyn hit up the stores on Sunday, bought a new one and it came early Monday morning.

When we were in the tire kicking stage (before things got desperate) one of the sales people told my wife that refrigerators only last six or seven years now. While I take that with a huge grain of salt, it could be true. If it is true then it creates a serious, and relatively frequent, one-off expense. The nature of our doorway and ramp into our cabin is such that we cannot buy a refrigerator that exceeds 20 cubic feet (19.7 is the actual number) so we are not spending a lot (I don't think) on a relative basis. Including the undercoating, I mean extended warranty, it was $1540.

Consider a retired couple in the enviable position of a $5000 monthly lifestyle with $2000 coming from social security and $3000 coming from a $857,000 portfolio (that number assumes a 4.2% withdrawal rate not 4.0%). Obviously one-offs come along every now and then (just about every month as we've talked about before) but $1500 (or more) for a new refrigerator this month, $2000 next month on a transmission for the car, $1200 the month after for some sort of plumbing catastrophe, a $600 veterinary bill one month later and this seemingly enviable retirement situation looks a little shaky.

This stands to turn a lot of plans upside down but I don't think gets enough attention which is why I've written about it so often. There are many ways to address the issue. For some it might mean getting the planned withdrawal rate down to 3%, for others it might mean padding the monthly budget by some dollar figure, yet another answer for some will be continuing to work part time (hopefully something you love and would otherwise do for free), a combo of those three or something altogether different.