Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
scintillator
Posts: 55
Joined: Mon Apr 08, 2019 9:30 pm

Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by scintillator » Sun Mar 29, 2020 5:43 am

PLEASE NOTE: Yes, this is market timing. I'm not looking for any reproach for trying to time the market. I think it's almost always a bad idea. But this virus representing a huge threat was obvious to many in early February, when we were at ATHs and the market was pricing in literally zero risk of what ended up happening. I think the market is still delusional about the extent of the risk (I don't believe that stocks have better prospects now than they did 16 months ago, when the SPX was 100 points lower than it is today), so I remain largely liquidated from my equity positions. I'm not looking for debate on this assumption, so please don't respond with "nobody knows nothin'," "stay the course," etc. Think of this as a thought experiment if you must.

I think when Easter weekend rolls around, and the US has over 20,000 dead, and we're still getting many thousands of new cases per day, there's no way America will be easing lock-downs and getting back to work. Trump will have to extend the lock-down, and the market will crater. There will be another big round of stimulus, at least another trillion. Or maybe he does lift the lock-down, and people go back to work, and cases and deaths skyrocket even higher as a result and we see six-figure death totals in May. Then upper-level management is too sick or dead to work in many companies, people still don't want to travel or go to restaurants or even go to work, and hospitals are overflowing with bodies. I think that will crater the stock market too. Maybe the Fed intervenes by buying stocks at that point, even if just under the guise of "providing liquidity."

The virus causing a recession well beyond prevailing estimates seems almost unavoidable to me, either via lock-down and/or mass illness and deaths. What I'm less sure about is the response of the Fed and congress to print and loan us out of it. I think they will do a lot, maybe six trillion in stimulus by the end of the year, and unprecedented Fed intervention. I hate to fight Trump and the Fed, but I think we see SPX 1800, and it takes us at least till this time next year to get the economy back on track—people having jobs to go to and money to spend again, supply chains sorted out, debt looking manageable.

I can't imagine interest rates get raised during any of this, but I'm not well-versed enough in bond dynamics to predict what happens to treasuries. I'm also unsure of the default risk to the corporate holdings of funds like BND (VBTLX) or BIV (VBILX). Has the Fed essentially insured those bonds at this point?

So anyway, can someone opine on where best to position cash if I believe the above to be true? I'm unsure if I should expect deflation (since no one has money to spend) or inflation (since the government is pouring trillions into the money system). My target allocation is probably like 90:10 in a sane world, but with this virus I'm about 20:10, with the other 70 in cash. I plan to start buying equities again once I think the market is becoming rational (I'd estimate about SPX 2000), but until then, where do I park my cash? Are bonds worth the risk? TIPS? Just keep it in cash for possibly months and risk an inflation scenario?

Thanks for any insight.

truenorth418
Posts: 486
Joined: Wed Dec 19, 2012 7:38 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by truenorth418 » Sun Mar 29, 2020 6:05 am

Nobody knows nothin’. Stay the course.

frugaltigris
Posts: 88
Joined: Fri Sep 01, 2017 8:44 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by frugaltigris » Sun Mar 29, 2020 6:08 am

If you believe this is going to be the scenario then you have to work on minimization of loss. Go for the option which gives you least regret. It is difficult to see an option which increases your wealth in this period. There will be some loss also in holding just cash because of potential inflation, but perhaps not so much compared to bonds and equities under your working hypothesis. You can buy treasury money market funds. They may sink themselves under a grave scenario arising from your assumptions but if so then what is left afloat?

columbia
Posts: 2683
Joined: Tue Aug 27, 2013 5:30 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by columbia » Sun Mar 29, 2020 6:09 am

truenorth418 wrote:
Sun Mar 29, 2020 6:05 am
Nobody knows nothin’. Stay the course.
You’re advocating that the poster remain out of the market.
Was that your intention?
If you leave your head in the sand for too long, you might get run over by a Jeep.

User avatar
tvubpwcisla
Posts: 514
Joined: Sat Nov 09, 2019 10:09 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by tvubpwcisla » Sun Mar 29, 2020 6:17 am

I would go back and look at your financial plan. What does your plan say to do whenever you believe you can predict the future?

Who cares what happens in the next hour, day, week, month, or year? They could announce a cure tomorrow and the SPX could shoot right back up to over 3,000 very quickly. I would advise that you stick to your financial plan.

:beer
Last edited by tvubpwcisla on Sun Mar 29, 2020 7:13 am, edited 1 time in total.
Stay invested my friends.

User avatar
ReformedSpender
Posts: 526
Joined: Fri Mar 16, 2018 1:24 pm
Location: Stone's Throw from Vanguard

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by ReformedSpender » Sun Mar 29, 2020 6:18 am

DCA a set amount over a certain period to get to your target allocation and be done with it vs trying to bottom pick
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

aqan
Posts: 512
Joined: Fri Nov 06, 2015 7:07 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by aqan » Sun Mar 29, 2020 6:59 am

You could look into put options on SPY as a protection but even the cheapest ones are pretty expensive these days due to the extreme volatility. There are other alternatives like HDG ETF that allows you to hedge your portfolio.
Full disclosure: I haven’t done either of the above for myself but have been thinking about investing in both.

User avatar
JoMoney
Posts: 9338
Joined: Tue Jul 23, 2013 5:31 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by JoMoney » Sun Mar 29, 2020 7:02 am

If you think the stock market is going down, it would be a bad bet to own it. The better bet would be to short sell it or sell puts against it.
Personally, I don't know how long this will go on, but I think it will end sooner than some think, and that the long term prospects for business will be higher than they are today.
I have a very low opinion of cash and what will happen with that, I still hold a big chunk in cash because I need it, but I don't consider it a good investment.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

sjwoo
Posts: 121
Joined: Mon Jan 20, 2014 11:41 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by sjwoo » Sun Mar 29, 2020 7:23 am

You didn't mention how much time you have (i.e., 30 years until retirement), so since this is totally a guess to begin with, I'm going to assume you are a youngin and have exactly that, a 30-year horizon. Since your default AA is 90:10, you are obviously OK with risk.

If I were in your shoes, and if I had your risk tolerance (which I most absolutely do not!):
  • When SPX goes to 1700, dump 50% of your cash into it. (this is a 50% discount from the high)
  • When SPX goes to 850, dump 50% of your remaining cash into it (75% discount)
  • When SPX goes to 425, dump the remains (87.5% discount)
If the SPX falls further, yes, you'll incur further losses, but wait 10 years and you'll be a very rich person. Certainly a whole lot richer than me!

I don't know what to tell you if the SPX never falls below 1700. This is why Bogleheads stay in the market. :)

Call_Me_Op
Posts: 7874
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Call_Me_Op » Sun Mar 29, 2020 7:27 am

I will tell you what i am doing. I am staying the course because that's what my plan has always been (a plan carefully thought-out during better times), and I know of no way to improve my odds.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

lostdog
Posts: 2749
Joined: Thu Feb 04, 2016 2:15 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by lostdog » Sun Mar 29, 2020 7:33 am

columbia wrote:
Sun Mar 29, 2020 6:09 am
truenorth418 wrote:
Sun Mar 29, 2020 6:05 am
Nobody knows nothin’. Stay the course.
You’re advocating that the poster remain out of the market.
Was that your intention?
Nobody knows nothin.
Global Market Cap Equity/1 Year Cash/Bonds || 25x Expenses

User avatar
JoMoney
Posts: 9338
Joined: Tue Jul 23, 2013 5:31 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by JoMoney » Sun Mar 29, 2020 7:49 am

lostdog wrote:
Sun Mar 29, 2020 7:33 am
columbia wrote:
Sun Mar 29, 2020 6:09 am
truenorth418 wrote:
Sun Mar 29, 2020 6:05 am
Nobody knows nothin’. Stay the course.
You’re advocating that the poster remain out of the market.
Was that your intention?
Nobody knows nothin.
I love Mr. Bogle, and his anecdote where the "Nobody knows nothin" came from is a great little story...
.. but that phrase bugs the heck out of me...
"Nobody knows nothing" ... without context, could mean the set of people that "know nothing" contains nobody, therefore "everybody knows something".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
Ramjet
Posts: 342
Joined: Thu Feb 06, 2020 11:45 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Ramjet » Sun Mar 29, 2020 7:54 am

scintillator wrote:
Sun Mar 29, 2020 5:43 am
PLEASE NOTE: Yes, this is market timing. I'm not looking for any reproach for trying to time the market.
I love all of the "nobody knows nothing" comments you are getting when in the very first line you ask to not be talked out of market timing. Why can't people just answer your actual question?

I would not do this personally but put options or inverse ETF's are one way. If you do do this maybe limit it to a portion of your money, e.g., 10% or less

columbia
Posts: 2683
Joined: Tue Aug 27, 2013 5:30 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by columbia » Sun Mar 29, 2020 7:57 am

Ramjet wrote:
Sun Mar 29, 2020 7:54 am
scintillator wrote:
Sun Mar 29, 2020 5:43 am
PLEASE NOTE: Yes, this is market timing. I'm not looking for any reproach for trying to time the market.
I love all of the "nobody knows nothing" comments you are getting when in the very first line you ask to not be talked out of market timing. Why can't people just answer your actual question?

I would not do this personally but put options or inverse ETF's are one way. If you do do this maybe limit it to a portion of your money, e.g., 10% or less
It’s a fairly useless platitude for actual financial planning.
If you leave your head in the sand for too long, you might get run over by a Jeep.

User avatar
JoMoney
Posts: 9338
Joined: Tue Jul 23, 2013 5:31 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by JoMoney » Sun Mar 29, 2020 8:04 am

Ramjet wrote:
Sun Mar 29, 2020 7:54 am
...
I love all of the "nobody knows nothing" comments you are getting when in the very first line you ask to not be talked out of market timing. Why can't people just answer your actual question? ...
This is Bogleheads.
It's like going to a recovering alcoholics meeting to gather advice on how to get drunk. You might get some relevant info on how to do it, but you're not getting away without a few stories about how this will destroy your life.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

aristotelian
Posts: 7623
Joined: Wed Jan 11, 2017 8:05 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by aristotelian » Sun Mar 29, 2020 8:15 am

1) Stay in cash. No risk, no return. In a way this is speculative because you are incurring the opportunity cost of funds out of market in the event the market comes back earlier than you think.

2) Buy options or inverse S&P500 ETF. This would be riskiest and most speculative but if you have an accurate crystal ball, you will make money.

3) Hold with a diversified portfolio and wait. You will be taking some risk but will also be assured of capturing the market gains when the rebound happens. The advantage of this approach is it is not speculative. It is based on Modern Portfolio Theory and eliminates any decision making or market timing as long as you have a long timeframe.

MishkaWorries
Posts: 136
Joined: Wed Aug 14, 2019 4:39 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by MishkaWorries » Sun Mar 29, 2020 8:19 am

I don't understand the question.

If you know the S&P 500 is going down to 1800 or so and you believe the market hasn't sufficiently priced in the upcoming deaths and duration of the virus but that information will be known around Easter. Then hold your cash in a MM account in your brokerage account and when the market moves to your expectations buy, Buy, BUY.

If the deaths and duration do not turn out like you thought or the market has priced in those numbers, then you will have to adjust your expectations with the new numbers.

Why are you worried about (de/in)flation when your investment horizon is in weeks?
Last edited by MishkaWorries on Sun Mar 29, 2020 8:22 am, edited 1 time in total.
We plan. G-d laughs.

Prudence
Posts: 547
Joined: Fri Mar 09, 2012 4:55 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Prudence » Sun Mar 29, 2020 8:21 am

sjwoo wrote:
Sun Mar 29, 2020 7:23 am
You didn't mention how much time you have (i.e., 30 years until retirement), so since this is totally a guess to begin with, I'm going to assume you are a youngin and have exactly that, a 30-year horizon. Since your default AA is 90:10, you are obviously OK with risk.

If I were in your shoes, and if I had your risk tolerance (which I most absolutely do not!):
  • When SPX goes to 1700, dump 50% of your cash into it. (this is a 50% discount from the high)
  • When SPX goes to 850, dump 50% of your remaining cash into it (75% discount)
  • When SPX goes to 425, dump the remains (87.5% discount)
If the SPX falls further, yes, you'll incur further losses, but wait 10 years and you'll be a very rich person. Certainly a whole lot richer than me!

I don't know what to tell you if the SPX never falls below 1700. This is why Bogleheads stay in the market. :)
There is no free lunch. I am a 73 YO retiree sitting on a pile of money that is in almost zero risk CDs and money markets. The total return on my portfolio is fine given my prediction of very low inflation. So, I am a very patient market timer. Regarding sjwoo's advice, I would start putting money in earlier at 35%. When I reach my target allocation, I would then plan on maintaining that allocation for the foreseeable future. (BTW, I expect that the market will recover quite sharply within the next several months and the opportunity (recession induced) for significant short term gains will vanish, so you need to set up an investment plan now or be ready to move quickly).

Hoongajji
Posts: 24
Joined: Sun Feb 23, 2020 7:15 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Hoongajji » Sun Mar 29, 2020 8:22 am

sjwoo and ReformedSpender echo my sentiments for your situation.

Add “x” amount once per month for 12-18 months. I would and am following the same advice but using 12 months as my forecast.

5-10% short interest with fun money as a hedge. Doing the same into April, then out.

scintillators mention and concern if the death toll hits 20,000 in the US. An average Flu season kills 12,000 - 60,000 citizens on average. Keep this in perspective always. Think for yourself.

With all the precautions I am betting the flu numbers are way down.

Enjoy your cash heavy predicament!

Hoongajji

mortfree
Posts: 2324
Joined: Mon Sep 12, 2016 7:06 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by mortfree » Sun Mar 29, 2020 8:25 am

I would identify the fund or funds I want to jnvest in.

I would set limit orders for x shares at y price.

Imaginary numbers:
Current share price $100

10 shares at 90
20 shares at 80
30 shares at 70

And so on or some other variation.

Good luck in your endeavor.

vipertom1970
Posts: 770
Joined: Fri Jun 21, 2019 7:06 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by vipertom1970 » Sun Mar 29, 2020 8:28 am

OP, why don’t you short sell the market if you are strongly believe in your theory.
Last edited by vipertom1970 on Sun Mar 29, 2020 8:32 am, edited 1 time in total.

MishkaWorries
Posts: 136
Joined: Wed Aug 14, 2019 4:39 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by MishkaWorries » Sun Mar 29, 2020 8:29 am

Hoongajji wrote:
Sun Mar 29, 2020 8:22 am


scintillators mention and concern if the death toll hits 20,000 in the US. An average Flu season kills 12,000 - 60,000 citizens on average. Keep this in perspective always. Think for yourself.

With all the precautions I am betting the flu numbers are way down.

Hoongajji
It will be interesting next year when they try to calculate the death rate from Coronavirus. With all the precautions taken this years, the flu season may be really mild and the new virus seems to be most dangerous to the elderly with pre-existing conditions. We may even end up with a negative number of "excess deaths."
We plan. G-d laughs.

columbia
Posts: 2683
Joined: Tue Aug 27, 2013 5:30 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by columbia » Sun Mar 29, 2020 8:30 am

vipertom1970 wrote:
Sun Mar 29, 2020 8:28 am
OP, you could never be 90/10 with your theory but why don’t you short sell the market if you are strongly believe in it.
The question pertains to whether the OP should retain current level of extreme caution; it is not related to gambling.
If you leave your head in the sand for too long, you might get run over by a Jeep.

RadAudit
Posts: 3856
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by RadAudit » Sun Mar 29, 2020 8:35 am

scintillator wrote:
Sun Mar 29, 2020 5:43 am
until then, where do I park my cash?
A FDIC insured bank account, a federal money market fund, etc.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

Dottie57
Posts: 8667
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Dottie57 » Sun Mar 29, 2020 8:35 am

Deleted
Last edited by Dottie57 on Sun Mar 29, 2020 8:42 am, edited 1 time in total.

vipertom1970
Posts: 770
Joined: Fri Jun 21, 2019 7:06 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by vipertom1970 » Sun Mar 29, 2020 8:40 am

columbia wrote:
Sun Mar 29, 2020 8:30 am
vipertom1970 wrote:
Sun Mar 29, 2020 8:28 am
OP, you could never be 90/10 with your theory but why don’t you short sell the market if you are strongly believe in it.
The question pertains to whether the OP should retain current level of extreme caution; it is not related to gambling.
I can tell you right now he will be the first to bail out in a correction with AA of 90/10.

Dottie57
Posts: 8667
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Dottie57 » Sun Mar 29, 2020 8:41 am

frugaltigris wrote:
Sun Mar 29, 2020 6:08 am
If you believe this is going to be the scenario then you have to work on minimization of loss. Go for the option which gives you least regret. It is difficult to see an option which increases your wealth in this period. There will be some loss also in holding just cash because of potential inflation, but perhaps not so much compared to bonds and equities under your working hypothesis. You can buy treasury money market funds. They may sink themselves under a grave scenario arising from your assumptions but if so then what is left afloat?
+1

Age 63 and I currently have 30% stock which is fine. The rest is in various bond funds, CDs, government MM funds. I have my bond floor , so will not be buying equities at this point.

User avatar
prudent
Moderator
Posts: 7505
Joined: Fri May 20, 2011 2:50 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by prudent » Sun Mar 29, 2020 8:44 am

Given your outlook, I would keep the cash in FDIC-insured short-term CDs. Stay under the FDIC insurance limit. No risk of principal loss. If inflation heats up, re-evaluate then. You don't have to decide now what you might do if inflation rises. This is a defensive position.

If you're trying to profit from market declines (as opposed to just loss avoidance), you can use options or inverse ETFs. Much more risk. But remember we might look at today's news and expect the market to reflect it accordingly (that's what the talking heads on TV tell us - market did X today because of what happened today), but the market is forward-looking and may start rising before the bad news ends.

columbia
Posts: 2683
Joined: Tue Aug 27, 2013 5:30 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by columbia » Sun Mar 29, 2020 8:44 am

vipertom1970 wrote:
Sun Mar 29, 2020 8:40 am
columbia wrote:
Sun Mar 29, 2020 8:30 am
vipertom1970 wrote:
Sun Mar 29, 2020 8:28 am
OP, you could never be 90/10 with your theory but why don’t you short sell the market if you are strongly believe in it.
The question pertains to whether the OP should retain current level of extreme caution; it is not related to gambling.
I can tell you right now he will be the first to bail out in a correction with AA of 90/10.

The correction is already here.
If you leave your head in the sand for too long, you might get run over by a Jeep.

rascott
Posts: 2112
Joined: Wed Apr 15, 2015 10:53 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by rascott » Sun Mar 29, 2020 8:45 am

I think you are probably correct...... at least odds that you are seem much higher than this just magically disappears, life goes back to like before in a month..... and SP goes up 600 points.

NYC is on course to end up with more cases than Wuhan.....a city that's been locked down and sealed for 2+ months. We will refuse to seal any hot spots down
.... there are hundreds of flights per day leaving NYC going all across the country.
.

The stimulus bill gave the market a nice goose last week.... now there's nothing but weeks of negative news coming.

ValuationsMatter
Posts: 341
Joined: Mon Mar 09, 2020 2:12 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by ValuationsMatter » Sun Mar 29, 2020 8:50 am

Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.

However, you are right to expect us to fail to reopen by Easter. That was an optimistic outlook, and I do not believe we'll be able to achieve that amidst the peak of daily death counts and remaining active cases in the Country.

However, there's another factor to consider. The closure of our economy has not just a financial, but a health cost, as well. The government can float the fiat currency as long as it likes, but it cannot float production -- an inflationary side-effect but tangent to the point of my comments. At some point, for the good of all, we have to go back to the business of putting food on America's tables, with or without COVID. Now, if we choose to remain closed, it could get as bad as you say. But, if we decide that we've utterly failed to contain or defeat this virus and that we've done more harm than good by shutting things down, we could/will quickly reverse course, and the economy & presumably the markets will rebound. This is the current expectation, as evidenced by the rebound to this point.

My 'crystal ball' says that you are right to some degree. We will not reopen by Easter and as active cases and deaths double a couple more times, we'll see more unexpectedly bad news. The markets are likely to retest or even break through the recent lows. However, they will not go to the extent that others have suggested. Our factories haven't been bombed. Our laborers aren't off fighting a war against the axis. Our economy just needs the word to get back to business, and everything will resume. The market was extremely overvalued before, and it may be close to fair value now. It's certainly closer to fair value than it has been in a very long time. In the next 10 years, it may be very hard to get your money in again below the valuation opportunities that this crisis has and still will present. Don't miss out.

Inflation is a real threat as stated above, but I was wrong to expect it after 2008. The threat to corporate bonds was an absolute threat, but I believe it has been addressed by the Fed tapping into that market. Still, I am parking my cash in a US treasury MM (VUSXX), and I intend to DCA back into the market towards the beginning of April, which I feel is the most likely point to see the old lows retested. By May, unless there are more major unexpected events/financial market collapses, the market is likely to be in recovery.
Last edited by ValuationsMatter on Sun Mar 29, 2020 8:55 am, edited 1 time in total.

MotoTrojan
Posts: 9952
Joined: Wed Feb 01, 2017 8:39 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by MotoTrojan » Sun Mar 29, 2020 8:54 am

ValuationsMatter wrote:
Sun Mar 29, 2020 8:50 am
Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.

However, you are right to expect us to fail to reopen by Easter. That was an optimistic outlook, and I do not believe we'll be able to achieve that amidst the peak of daily death counts and remaining active cases in the Country.

However, there's another factor to consider. The closure of our economy has not just a financial, but a health cost, as well. The government can float the fiat currency as long as it likes, but it cannot float production -- an inflationary side-effect but tangent to the point of my comments. At some point, for the good of all, we have to go back to the business of putting food on America's tables, with or without COVID. Now, if we choose to remain closed, it could get as bad as you say. But, if we decide that we've utterly failed to contain or defeat this virus and that we've done more harm than good by shutting things down, we could/will quickly reverse course, and the economy & presumably the markets will rebound. This is the current expectation, as evidenced by the rebound to this point.

My 'crystal ball' says that you are right to some degree. We will not reopen by Easter and as active cases and deaths double a couple more times, we'll see more unexpectedly bad news. The markets are likely to retest or even break through the recent lows. However, they will not go to the extent that others have suggested. Our factories haven't been bombed. Our laborers aren't off fighting a war against the axis. Our economy just needs the word to get back to business, and everything will resume.

Inflation is a real threat as stated above, but I was wrong to expect it after 2008. The threat to corporate bonds was an absolute threat, but I believe it has been addressed by the Fed tapping into that market. Still, I am parking my cash in a US treasury MM (VUSXX), and I intend to DCA back into the market towards the beginning of April, which I feel is the most likely point to see the old lows retested. By May, unless there are more major unexpected events/financial market collapses, the market is likely to be in recovery.
10M infections seems an order of magnitude low. The question is whether those hit this quarter, or over the next year+. I’m also on track to get most of my 2020 contributions in from April-May/June as well though.

BV3273
Posts: 557
Joined: Mon Oct 19, 2015 7:20 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by BV3273 » Sun Mar 29, 2020 8:57 am

If I knew the S&P was going to 1800 I’d short it with 3X ETFs.

ValuationsMatter
Posts: 341
Joined: Mon Mar 09, 2020 2:12 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by ValuationsMatter » Sun Mar 29, 2020 8:59 am

That's fair. There will almost certainly be 10M infections. But, if we only see 2M, this year, the other 8 will have a negligible effect on the economy, GDP, market prices, etc...

The financial question has very little to do with the absolute number of cases or deaths. It has a much more to do with the proportion of them in the next month or two. It has almost everything to do with our decisions about whether we will work through them or not.

User avatar
knpstr
Posts: 2814
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by knpstr » Sun Mar 29, 2020 9:08 am

scintillator wrote:
Sun Mar 29, 2020 5:43 am
So anyway, can someone opine on where best to position cash if I believe the above to be true? I'm unsure if I should expect deflation (since no one has money to spend) or inflation (since the government is pouring trillions into the money system). My target allocation is probably like 90:10 in a sane world, but with this virus I'm about 20:10, with the other 70 in cash. I plan to start buying equities again once I think the market is becoming rational (I'd estimate about SPX 2000), but until then, where do I park my cash? Are bonds worth the risk? TIPS? Just keep it in cash for possibly months and risk an inflation scenario?

Thanks for any insight.
Keeping it in a bank account is fine. You aren't "risking" much inflation keeping it parked for many months unless hyperinflation hits, which is unlikely since our wages are not indexed to inflation.

Good luck on your guess!
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

User avatar
Toons
Posts: 13642
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Toons » Sun Mar 29, 2020 9:09 am

All In Tomorrow.
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Elysium
Posts: 2951
Joined: Mon Apr 02, 2007 6:22 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Elysium » Sun Mar 29, 2020 9:10 am

OP,

Reading through your post makes it clear that you don't know many things. You are unsure or do not have a deep understanding of the concepts in your own words on things like inflation, deflation, bond rates, effect of stimulus, growth rate of a pandemic, mortality rates, so on...

Market timing is not amateur territory, heck it's not even expert territory, you need to know all of the concepts mentioned above and more in order to even attempt it, and hope to get a coin flip success chance. How is an amateur armed with knowledge from possibly many internet forums do it. I am assuming at this point several of you are not Bogleheads or have not understood the economic concepts behind it well enough, but this is one of the forums many of you visit, that may be problem because the other forums are filled with amateurs where anything goes.

Anyhow, you do not sound like you should be investing in stock market, since you are easily panicking. Stock market is always risky and irrational, it just gives you a sense of calm during this so called "normal" times you referring to. There is no such normal times, think of it as a placid lake where dangerous creatures are always lurking beneath the surface, just a matter of when they break out.

If you cannot handle that, then please stay out of it, that's probably best for your mental and financial health. Go to whatever cash allocation you wish to go and stay there. You may not become very successful as a long term stock investor, but at least you'll save whatever cash you have instead of buying & selling at the wrong time.

alluringreality
Posts: 230
Joined: Tue Nov 12, 2019 10:59 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by alluringreality » Sun Mar 29, 2020 9:36 am

scintillator wrote:
Sun Mar 29, 2020 5:43 am
until then, where do I park my cash? Are bonds worth the risk? TIPS? Just keep it in cash for possibly months and risk an inflation scenario?
While I am guessing that the stock market may fall from the current level, I also acknowledge that I could end up being wrong, so my personal plan considers both possibilities. My target for additional purchases is 2000 based on the current Goldman Sachs estimate, although I figure a 10% error is reasonable, or they could revise their estimates downward again. If you want to do this without shorting the market, then it would make sense to use something that's completely liquid, so that you can easily buy if the market hits your target. Short-term investments that are cash equivalents, like high yield savings or money market funds, are generally expected to increase rates quicker in inflation than most other investments, although no penalty CDs might offer better rates. Vanguard sells a short TIPS fund, but the principal might vary to a greater extent. Basically to me this reads like a flyer that may or may not pay off, so a plan of just dollar cost averaging into the market might also work for someone with a 90% stock tolerance.
Last edited by alluringreality on Sun Mar 29, 2020 10:01 am, edited 2 times in total.
Targets: 15% I Bonds, 15% EE Bonds, 45% US Stock (Mid & Small Tilt), 25% Ex-US Stock (Small Tilt)

yohac
Posts: 358
Joined: Sat Sep 01, 2018 1:42 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by yohac » Sun Mar 29, 2020 9:41 am

BV3273 wrote:
Sun Mar 29, 2020 8:57 am
If I knew the S&P was going to 1800 I’d short it with 3X ETFs.
Right, and if I didn't know, we've circled back to "nobody knows nothin".


potatopancake
Posts: 26
Joined: Fri Jul 13, 2018 4:38 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by potatopancake » Sun Mar 29, 2020 9:52 am

ValuationsMatter wrote:
Sun Mar 29, 2020 8:50 am
Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.
FWIW, case fatality rate in the USA this morning is 1.8%.

ValuationsMatter
Posts: 341
Joined: Mon Mar 09, 2020 2:12 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by ValuationsMatter » Sun Mar 29, 2020 9:57 am

potatopancake wrote:
Sun Mar 29, 2020 9:52 am
ValuationsMatter wrote:
Sun Mar 29, 2020 8:50 am
Your hypothetical is one of extreme pessimism. At a mortality rate of 1%, which is a fair estimate for the disease, your estimate of 100k dead would require 10M infections. At present, there are only 680k infections worldwide. There are ~120k confirmed cases in the US. Unabated, the virus doubles every 4 days. It would have to double 6-7 times to get to that total count. That's almost another full month of unabated exponential growth. That will not happen.
FWIW, case fatality rate in the USA this morning is 1.8%.
CONFIRMED case fatality rate to-date. There are so many flaws in that statistic I don't know where to start. That's Total deaths/Total confirmed cases.

The correct way to calculate is total deaths/total completed cases (including all confirmed and unconfirmed real cases). That's nearly impossible to get at right now, because we don't know what proportion of cases go undetected.

KlangFool
Posts: 16645
Joined: Sat Oct 11, 2008 12:35 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by KlangFool » Sun Mar 29, 2020 10:01 am

OP,

You have to survive in order to succeed. So, if you are unemployed and the market stays down, how long can you survive?

1) I have 1 1/2 years of the emergency fund in cash. I am building it for up to 2 years.

2) My AA is 60/40 with 8 years in Fixed Income. My rebalancing limit is 5 years of Fixed Income.

I am planning for 7 years.

KlangFool

User avatar
knpstr
Posts: 2814
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by knpstr » Sun Mar 29, 2020 10:03 am

ValuationsMatter wrote:
Sun Mar 29, 2020 9:57 am
CONFIRMED case fatality rate to-date. There are so many flaws in that statistic I don't know where to start. That's Total deaths/Total confirmed cases.

The correct way to calculate is total deaths/total completed cases (including all confirmed and unconfirmed real cases). That's nearly impossible to get at right now, because we don't know what proportion of cases go undetected.
Yes, I think it is just safe to say the true CFR is lower than the reported number. How much lower? Who knows. In MI we're advised to stay home if we have symptoms of the virus, isolate ourselves from the rest of our family if possible. We are not ordered to go out and get tested. This protocol I assume is elsewhere in the country and this guarantees an overstatement of the CFR. By how much? Again, we may never know.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Shallowpockets
Posts: 1660
Joined: Fri Nov 20, 2015 10:26 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by Shallowpockets » Sun Mar 29, 2020 10:05 am

JoMoney wrote:
Sun Mar 29, 2020 8:04 am
Ramjet wrote:
Sun Mar 29, 2020 7:54 am
...
I love all of the "nobody knows nothing" comments you are getting when in the very first line you ask to not be talked out of market timing. Why can't people just answer your actual question? ...
This is Bogleheads.
It's like going to a recovering alcoholics meeting to gather advice on how to get drunk. You might get some relevant info on how to do it, but you're not getting away without a few stories about how this will destroy your life.
This is so true and funny. Had me laughing.

chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by chevca » Sun Mar 29, 2020 10:08 am

Since the OP doesn't have many posts, a quick check of their history shows they don't work, mid-30s, and live off their savings/investments. OP, don't try to be a market timer if your portfolio is what you live off of. Pick an AA you can stick with through the ups and downs. That probably shouldn't be "like 90/10" in any world. Pick something more conservative and leave it there.

To answer the question here... leave it in cash. Inflation worries over a period of months.... really??? You're being a little extreme in all this, IMO.

sycamore
Posts: 702
Joined: Tue May 08, 2018 12:06 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by sycamore » Sun Mar 29, 2020 10:18 am

JoMoney wrote:
Sun Mar 29, 2020 7:02 am
If you think the stock market is going down, it would be a bad bet to own it. The better bet would be to short sell it or sell puts against it.
...
Side question:
I'm not an options expert, but I thought you would buy a put if you think the underlying stock (or ETF) is going to drop. A form of insurance basically. So if you sell a put, doesn't that put you on the hook for buying the asset at a pre-determined price even if the market has priced it lower?

CoAndy
Posts: 606
Joined: Thu Jun 06, 2013 4:45 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by CoAndy » Sun Mar 29, 2020 10:25 am

Maybe divide your cash? Half into a 6 month CD and the other half in a 12 month CD. I am assuming this is a large amount so maybe you can qualify for jumbo rates.

User avatar
JoMoney
Posts: 9338
Joined: Tue Jul 23, 2013 5:31 am

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by JoMoney » Sun Mar 29, 2020 10:31 am

sycamore wrote:
Sun Mar 29, 2020 10:18 am
JoMoney wrote:
Sun Mar 29, 2020 7:02 am
If you think the stock market is going down, it would be a bad bet to own it. The better bet would be to short sell it or sell puts against it.
...
Side question:
I'm not an options expert, but I thought you would buy a put if you think the underlying stock (or ETF) is going to drop. A form of insurance basically. So if you sell a put, doesn't that put you on the hook for buying the asset at a pre-determined price even if the market has priced it lower?
Yes, I suppose I framed that wrong / typeo... but you could also maybe make a unusual case for selling puts at a 1800 strike price... you'd earn some premium, and if it ended at a price above that it would expire worthless.. maybe you'd like to be a buyer at 1800 so you wouldn't mind earning the premium and then having them "put" to you to buy at the 1800 price.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

March2009
Posts: 58
Joined: Sat Mar 21, 2020 7:04 pm

Re: Sitting on a bunch of cash; what to do with it if I believe we're headed for SPX 1800 and protracted recession?

Post by March2009 » Sun Mar 29, 2020 10:37 am

OP,

I think you raise a lot of good points and questions. To answer your main question (acknowledging that I Asset Allocate and only "time the market" during my rebalance); I would just stay in cash (Insured bank accounts and MM) until you feel the market becomes "rational".

We are in uncharted territory with a global pandemic in a modern interconnected global economy. Add to that the Fed has made unprecedented infusions of money; if they used a bazooka in the great recession, it seems they are now using nuclear weapons. There is really no predicting what desperate measure they could use next. Add to that the stock market valuation based on CAPE was very high in Feb 2020; the only time higher in the past 150 years was the dotcom bubble. Add to that anti-trade and anti-immigration populism which has increased since the great recession will probably get even more traction after this pandemic. In my 40 years in the market, I have never seen investor sentiment so high after a major market correction as I do now. As I said, I AA and I'm staying the course but it seems ridiculous how optimistic stock investors are at this time. I keep hearing on CNBC this is a great time to buy since there is so much pessimism but I don't see pessimism when so many are saying buy stocks (and corporate bonds). In addition, the CAPE is currently 24; that doesn't seem pessimistic to me; that is the average since 1990 and actually high if you look further back. Bottom line is I think most of the nation is still in the denial stage of accepting what is currently happening. I personally know many educated (non-medical) people who just think this is all a big to do over the common cold.

As far as inflation/deflation concerns go, cash should be okay for a short period of time. But those are valid concerns. I'm leaning more to inflation as a concern but we are in uncharted territory so I'm guessing. Good luck to you!
In bear markets, stocks return to their rightful owners. - J.P. Morgan

Post Reply