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

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Jebediah
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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 Jebediah » Thu Apr 02, 2020 4:20 pm

empiricist wrote:
Thu Apr 02, 2020 1:26 pm
I am just some random guy on the internet, and am only saying the following to give context to what I will say next, not to try and brag - none of you know me, so what would be the point of that?

I have been following the virus since early January. I warned my friends and family to expect a pandemic and to start preparing in late January when everyone else either didn't even know about the virus yet, or was still claiming "it's no worse than the flu". I bought PPE January 24th before it was all sold out because I was expecting it would sell out quickly as the virus spread. I sold out of some of my equities in mid February before the market started to drop when it was obvious to me there was going to be a pandemic and yet the market was humming along like normal. (Only some, because of the nagging Boglehead in the back of my head screaming "don't try to time the market!") I'm no genius or fortune teller - I think I was just willing to accept the evidence pointed towards things getting really bad when everyone else was trying to reassure themselves by downplaying the threat. If you aren't familiar with normalcy bias, read the Wikipedia article and ask yourself if you exhibited normalcy bias at all during this crisis.

This is my first time in years of investing to have actively changed my portfolio in response to what is happening in the world. (Well hey, the reason I'm here is that I'm a Boglehead, so I shouldn't be trying to time the market!) My point though, is that this was so obvious to me that I had to act, and I am glad that I did.

Why didn't people take the threat seriously sooner? I believe it was largely due to normalcy bias, and people afraid of what the evidence pointed towards, so they convince themselves that everything will be okay. I believe that process is happening again, but now not with COVID specifically (though it is happening there too), but with the economic fallout that will happen as a result of the shutdown. I'm expecting an event on the magnitude of the Great Depression - or worse.

Scintillator, what I plan to do to capitalize on this opportunity is to buy long dated deep OTM puts with a relatively small portion of my portfolio. My hope is that the puts will be long enough to get me past the "market staying irrational longer than I can stay solvent" period. The rest I'm keeping on course, in case I turn out to be wrong. (Or in case I'm not wrong, but the actions of the Fed actually lead to hyperinflation, in which case I would rather hold stocks than bonds/cash.) I'm currently 58% stock, 23% bonds, and the rest cash - some of which is going towards buying the puts. Before this I was 90/10. The only reason I haven't already bought the puts is that I'm waiting for Vanguard to approve option trading on my account! (I never had it before, because I don't normally believe in anything other than indexing!)

I recognize many people will read my comment and find it ridiculous - that's fine. Let's check in in 18 months! :beer

Edit: Regarding the PPE, I didn't hoard it, I just bought what I thought would get me through a pandemic. And at the time I had assumed that hospitals would actually be able to source it for their employees, and it was just the general public who might not have access. I've since donated everything but a few masks which I will sanitize and reuse since we're better off with it in the hands of healthcare providers.
Correct about normalcy regarding the pandemic but your views on the market going forward remind me of how bearish everyone was in 2010-2011.

empiricist
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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 empiricist » Thu Apr 02, 2020 4:28 pm

Jebediah wrote:
Thu Apr 02, 2020 4:20 pm
Correct about normalcy regarding the pandemic but your views on the market going forward remind me of how bearish everyone was in 2010-2011.
Do you have specific arguments about how the current market valuations are justifiable, or about how we will pull out of this without an enourmous number of bankruptcies? If so, I would love to hear them, because I'm happy to change my mind if you make a strong argument. (If you're right, you'll save me from making a poor financial decision!) I have not yet heard strong arguments. All I have heard is people trying to shame me out of thinking that we're in for a real disaster because of their normalcy bias. This recession/depression is just getting started.

Our entire economic system is built around efficiency at the cost of resiliency.

Food for thought: Image

Jebediah
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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 Jebediah » Thu Apr 02, 2020 4:35 pm

I'm calling you on what might or might not be some recency bias. Perhaps it's the other side of the normalcy bias coin: after a calamitous shock, we tend to become biased to expect further calamity. The bears and the goldbugs of 2009-2013 had wonderfully cogent, air-tight arguments but the market climbed their wall of worry anyway.

I don't have an argument about what the market or economy will do for the next year. I'm saying your bearish conviction reminds me of bearish conviction of yore.

CT-Scott
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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 CT-Scott » Thu Apr 02, 2020 4:41 pm

aiyuanuc wrote:
Thu Apr 02, 2020 4:11 pm
Since not many have answered your actual question, I will.

If you believe SP500 is headed toward 1800, I mean, if you really believe that with all the arguments you have made, you should short the market. Probably SPXU with 3x effects. This can make you a fortune if you turn out to be right.
I just started to read this article:

Shorting the S&P 500 with ETFs: What You Should Know
https://www.nasdaq.com/articles/shortin ... 2020-03-11

Notable quote:
Most of these are designed to achieve their stated performance goal on a daily basis and their performance can differ significantly from their stated daily performance objectives if held for a longer period.
Are you suggesting that one could/should hold SPXU beyond a day and still have good results should the market remain volatile for the next few weeks and then start to fall further? Because while I may believe that it will fall farther, I have no confidence as to exactly *when* the S&P 500 will have its next big drop, or even if there will be one *big* drop vs a whole lot of small drops.

empiricist
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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 empiricist » Thu Apr 02, 2020 4:52 pm

Jebediah wrote:
Thu Apr 02, 2020 4:35 pm
I'm calling you on what might or might not be some recency bias. Perhaps it's the other side of the normalcy bias coin: after a calamitous shock, we tend to become biased to expect further calamity. The bears and the goldbugs of 2009-2013 had wonderfully cogent, air-tight arguments but the market climbed their wall of worry anyway.

I don't have an argument about what the market or economy will do for the next year. I'm saying your bearish conviction reminds me of bearish conviction of yore.
You make a good point - that we need to look out for worst-case scenario bias as well as normalcy bias. It was perhaps bad of me to bring up normalcy bias (though as far as I can tell, it is the best explanation for why even very smart people I know downplayed what seemed like an obvious risk) because it may set the stage for us to accuse each other of logical fallacies rather than discussing the evidence. :D Though if we are discussing possible biases that we're holding, consider this: recency bias also conditions us to think that things won't be that bad - even the worst economic shocks in the lives of anyone on this forum weren't as bad as the Great Depression. Things have been historically good for the last 80 years or so. Are we certain that really bad things can never happen again?

hoops777
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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 hoops777 » Thu Apr 02, 2020 5:07 pm

empiricist wrote:
Thu Apr 02, 2020 4:52 pm
Jebediah wrote:
Thu Apr 02, 2020 4:35 pm
I'm calling you on what might or might not be some recency bias. Perhaps it's the other side of the normalcy bias coin: after a calamitous shock, we tend to become biased to expect further calamity. The bears and the goldbugs of 2009-2013 had wonderfully cogent, air-tight arguments but the market climbed their wall of worry anyway.

I don't have an argument about what the market or economy will do for the next year. I'm saying your bearish conviction reminds me of bearish conviction of yore.
You make a good point - that we need to look out for worst-case scenario bias as well as normalcy bias. It was perhaps bad of me to bring up normalcy bias (though as far as I can tell, it is the best explanation for why even very smart people I know downplayed what seemed like an obvious risk) because it may set the stage for us to accuse each other of logical fallacies rather than discussing the evidence. :D Though if we are discussing possible biases that we're holding, consider this: recency bias also conditions us to think that things won't be that bad - even the worst economic shocks in the lives of anyone on this forum weren't as bad as the Great Depression. Things have been historically good for the last 80 years or so. Are we certain that really bad things can never happen again?
I am in agreement with a good portion of what you have been saying,not as pessimistic to your level, but at what point does investing just become gambling when taking such an extreme view?
K.I.S.S........so easy to say so difficult to do.

ValuationsMatter
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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 » Thu Apr 02, 2020 5:13 pm

During the Great Depression, we were still tied to the Gold Standard and the Federal Reserve did not have the structure to insure the banks against a run on their money. Markets seized, loans stopped, and people could not even access the means of exchange they needed to pay bills and buy food. This cannot happen today, unless we lose confidence in the means of exchange itself. I have heard no cogent arguments nor have I considered 1 reasonable line of thought that has taken me to that point in today's world. So, if we have a depression level event, it will surely not be derived from the same or similar cause. The fed has already committed to backing up banks, mortgages, individuals, small businesses, and even corporations. They have a limitless pocketbook. Money will keep flowing.

empiricist
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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 empiricist » Thu Apr 02, 2020 5:14 pm

hoops777 wrote:
Thu Apr 02, 2020 5:07 pm
I am in agreement with a good portion of what you have been saying,not as pessimistic to your level, but at what point does investing just become gambling when taking such an extreme view?
When investing more than you can afford to lose. :)

Though it is worth noting that the risks here are not symmetric. If there is a miraculous recovery, then I lose the relatively small portion of my portfolio that invested in this gambit, plus potentially a small amount of gain from getting back into the market too slow.

If I'm right, I still will probably lose money, because I'm still ~60% equities, and the options probably won't cancel that out.

So I guess I'm hedged rather than setting myself up optimally for either "miraculous recovery" or "economic catastrophe". That's a place I'm comfortable being.

CT-Scott
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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 CT-Scott » Thu Apr 02, 2020 9:02 pm

empiricist wrote:
Thu Apr 02, 2020 5:14 pm
hoops777 wrote:
Thu Apr 02, 2020 5:07 pm
I am in agreement with a good portion of what you have been saying,not as pessimistic to your level, but at what point does investing just become gambling when taking such an extreme view?
When investing more than you can afford to lose. :)
I completely disagree. Wikipedia's article on "gambling" begins by defining it as:
Gambling (also known as betting) is the wagering of money or something of value (referred to as "the stakes") on an event with an uncertain outcome, with the primary intent of winning money or material goods.
The truth is that the "bogleheads way" of "set it and forget it" investment in any amount of stocks (and, to a lesser extent, bonds) is still "gambling." Investing your money this way is gambling on a daily basis. Every day you are gambling and betting that your money will increase in value today, while it is in the market. If you thought that today had a larger likelihood of losing value, the only common sense thing to do would be to take it out of the market that day. Of course, lacking really good insider information, not many can make a good prediction as to what the market will do on any specific day. But, more realistically, we all have a better "feeling" as to how we think the markets will do over the next week. And an even better feeling about how we think it will do over the next month...and "the next year." And if anyone here *thinks* that the markets will do especially bad over the coming year, they'd be fools to leave much, if any, of their investments in stocks.

On the opposite side of the mental rationalization, Bogleheads extrapolate that timeframe much, much further and look at how the market has done over the last 50+ years. It's always gone upward, given enough time! But this approach causes them to have the blindspot of completely ignoring any natural intuition and common sense that the good Lord gave all humans. Your house is on fire? "Just stay the course."

I believe that a more optimized approach would be one which allows for someone to "set it and forget it" when life seems relatively normal, such that you don't need to worry about the normal ups & downs of the market every day, and can sleep well at night. *BUT* when some event gets your attention such that you feel especially *optimistic* or especially *pessimistic* about how a certain side (or both sides) of your portfolio might be impacted in the short/med/long-term, then you calmly act appropriately, but decisively.

Jebediah
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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 Jebediah » Fri Apr 03, 2020 1:35 am

empiricist wrote:
Thu Apr 02, 2020 5:14 pm
hoops777 wrote:
Thu Apr 02, 2020 5:07 pm
I am in agreement with a good portion of what you have been saying,not as pessimistic to your level, but at what point does investing just become gambling when taking such an extreme view?
When investing more than you can afford to lose. :)

Though it is worth noting that the risks here are not symmetric. If there is a miraculous recovery, then I lose the relatively small portion of my portfolio that invested in this gambit, plus potentially a small amount of gain from getting back into the market too slow.

If I'm right, I still will probably lose money, because I'm still ~60% equities, and the options probably won't cancel that out.

So I guess I'm hedged rather than setting myself up optimally for either "miraculous recovery" or "economic catastrophe". That's a place I'm comfortable being.
$14 for March 31 2021 SPY puts at $200 strike. Way too expensive to be much of a hedge. If I'm not mistaken, market needs to drop 50% from peak to merely double your hedge money. If it doesn't get there (plus a little), you strike out. Just sell off your stocks already, especially with this pentacostal End Times view.

Note to self: start writing puts. Crazy lucrative.

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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 AlphaLess » Fri Apr 03, 2020 1:43 am

Treasuries.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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scintillator
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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 scintillator » Fri Apr 03, 2020 5:41 am

Empiricist, and maybe others who are looking to buy puts while holding the underlying index, you need to calculate the scenarios of what you think is likely to happen and consider the tax consequences. I've already addressed people in this thread who suggested I buy puts, and I explained why it doesn't make much sense. But you actually have to do the math, considering what your unrealized gains are and how much tax you would have to pay on the gains if your puts end up printing a bunch of money. I don't think there's a substitute for writing out at least four or five scenarios (SPX gets to 2200, 2000, 1800, or we've hit the bottom already and we go to 2800, 3000, etc.) and actually computing what the value of your portfolio will be in each of those scenarios and how much tax you'll owe. For me, buying puts didn't make sense in the scenarios I felt were most likely and given my unrealized gains. If you own 100k of SPY and buy a 10k put to "hedge"; then SPY drops 50% and your put gains 500%, you still have the 110k you started with, but now 50k of it is going to get taxed at maybe 35% depending on your tax bracket, so really you only would have 92.5k, so you torched 17.5k—which is like 15% of your position. Maybe you can offset some of that by tax-loss harvesting; maybe if you sold your 100k of SPY instead of buying the put you'd owe 20k in cap gains anyway. It's a complicated problem with a bunch of variables specific to your own situation. And it's compounded by the fact that I think you're likely to make a mistake because of how unfamiliar you are with options, and you won't be able to ballpark what a LEAP put you buy will be worth in a few months (time decay, IV), which is obviously very important in the calculations.

So I guess my advice is go for it, YOLO, bro. Nobody knows nothin'.

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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 onourway » Fri Apr 03, 2020 5:51 am

CT-Scott wrote:
Thu Apr 02, 2020 9:02 pm
On the opposite side of the mental rationalization, Bogleheads extrapolate that timeframe much, much further and look at how the market has done over the last 50+ years. It's always gone upward, given enough time! But this approach causes them to have the blindspot of completely ignoring any natural intuition and common sense that the good Lord gave all humans. Your house is on fire? "Just stay the course."

I believe that a more optimized approach would be one which allows for someone to "set it and forget it" when life seems relatively normal, such that you don't need to worry about the normal ups & downs of the market every day, and can sleep well at night. *BUT* when some event gets your attention such that you feel especially *optimistic* or especially *pessimistic* about how a certain side (or both sides) of your portfolio might be impacted in the short/med/long-term, then you calmly act appropriately, but decisively.
Not a blind spot. It’s fully acknowledged that things could turn out differently in the future. However thus far, nobody has come up with a superior solution of building and maintaining wealth over the long term. Every single option - whether holding cash, gold, property, anything, entails substantial risk. Your analogy falls apart on closer examination because honestly whether my own house is on fire or not is a poor indicator of my investments as a whole. I own interests in nearly every major company in the world, thus, my house can burn down, but I’ll benefit from all the companies who step in to rebuild it.

The problem with your “more optimized approach” is that people are extraordinarily bad at assessing risk, especially when their own house is on fire - they tend to extrapolate their current situation to the entire universe - and when they act on that information, it tends to lead them to making bad choices. Sometimes it will turn out they are correct, however, over a lifetime of investing it’s incredibly uncommon for an individual to be consistently right in ways that are beneficial to their wealth, and thus, the Boglehead method says, “I’m not even going to entertain the question because it doesn’t matter whether I’m right or wrong.” Being right might make me incrementally more wealthy, being wrong could seriously ruin me, and if it turns out the whole philosophy is wrong, that means the entire world’s economy has collapsed and there are no safe havens.

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Cubicle
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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 Cubicle » Fri Apr 03, 2020 6:51 am

Short the market.

Buy inverse ETFs.
"Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

Rus In Urbe
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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 Rus In Urbe » Fri Apr 03, 2020 7:23 am

empiricist
Do you have specific arguments about how the current market valuations are justifiable, or about how we will pull out of this without an enourmous number of bankruptcies? If so, I would love to hear them, because I'm happy to change my mind if you make a strong argument. (If you're right, you'll save me from making a poor financial decision!) I have not yet heard strong arguments. All I have heard is people trying to shame me out of thinking that we're in for a real disaster because of their normalcy bias. This recession/depression is just getting started.

Our entire economic system is built around efficiency at the cost of resiliency.

Food for thought: Image
Thank you, empiricist, for writing in on this thread. I share your outlook, mostly. The relentless optimism (ie.,"the V shape recovery is right around the corner!" "have we hit bottom yet?") has concerned and confused me as well, since it is occurring in the face of economic activity brought to an unprecedented standstill and job losses skyrocketing with an also unprecedented speed.

Like you, I'm also sitting on a large amount of cash (a lucky accident due to a transfer in early February that took a large equity position to all cash). Now I have the problem of when/how to get back in with that stash and back to my AA. In the past, I have never been a market-timer and during the Great Recession, we were steady on the tiller, which paid off richly. So it has occurred to me that some of my pessimism might be wishful thinking of a sort (a kind of bias that is dependent on my high-cash circumstances---in other words, I'm looking for a further downturn because it would benefit me); other investors who are holding a large equity position may be swayed in the same way, waiting for that immediate recovery that will benefit them. It's just a thought and I'm sure I'll get jumped on all over the place for admitting this. So be it.

I've also spent some time looking at the 100-year charts of the Dow, for instance. And one can't help but notice how long these downturns are (the ones caused by external realities and not the occasional market blips that seem to be more of a technical nature). In these downturns, we are not talking about a month or two and, zing!, snap back to normal. We are talking about market valuations that don't bottom out for months or a year, and don't recover for a year or two or more (ugh, and let's not even raise the Spector of 1965 to 1995). And yes, recoveries occur in fits and starts, and one doesn't want to miss out those few days when the market surges to regain losses.

A comment like this one from Jebediah . . .
Jebediah wrote:
Correct about normalcy regarding the pandemic but your views on the market going forward remind me of how bearish everyone was in 2010-2011.
....brings back many memories of those dark days of the Great Recession. Jebediah is right in that there WAS a lot of bearish-ness in 2010-11 and it was misplaced because the recovery was well underway by then. 2010-11 was 3-4 years AFTER the downturn! Investors had been burned, many had sold low, many were scared to get back into the market.

On the flip side of that, I recall the lingering bullish-ness in 2007-08 as the market fell and fell and fell.

Is this effect recency bias? There seems to be a kind of lag in individual investor sentiment in fully realizing either how bad things really are....or how good they have become again. Whatever it is, it's evident to me and it's a trap I don't want to fall into, and there is no getting around the fact that this pandemic has come up quickly and is damaging the economy.

Bottom line: THANKS empiricist for writing in and making me feel a little less alone in my pessimism. I sincerely hope we are both wrong.


Cheers. Rus. :beer (with a Quarantini)


PS. Past performance is not indicative of future returns.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

chrisjul
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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 chrisjul » Fri Apr 03, 2020 10:18 am

I would suggest being very careful with the standard Boglehead "Stay the Course" commandment.

We are in uncharted historical territory.

"Nobody Knows Nuttin"

Prahasaurus
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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 Prahasaurus » Fri Apr 03, 2020 10:31 am

For the next 18 months:

80% cash (USD only)
20% bitcoin

If you are super conservative, then

80% cash
15% gold
5% bitcoin

I would expect huge volatility in Bitcoin, but I think we’ll be 5-10x where we are now in 18 months.
Asset Allocation: 50% cash (USD), 30% VT, 20% Bitcoin

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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 Lee_WSP » Fri Apr 03, 2020 11:03 am

AlphaLess wrote:
Fri Apr 03, 2020 1:43 am
Treasuries.
With yields at decade lows, the expected return from holding treasuries is pretty small.

Prahasaurus
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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 Prahasaurus » Fri Apr 03, 2020 11:05 am

Lee_WSP wrote:
Fri Apr 03, 2020 11:03 am
AlphaLess wrote:
Fri Apr 03, 2020 1:43 am
Treasuries.
With yields at decade lows, the expected return from holding treasuries is pretty small.
The yields will go lower.
Asset Allocation: 50% cash (USD), 30% VT, 20% Bitcoin

BW1985
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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 BW1985 » Fri Apr 03, 2020 11:12 am

Prahasaurus wrote:
Fri Apr 03, 2020 10:31 am
For the next 18 months:

80% cash (USD only)
20% bitcoin

If you are super conservative, then

80% cash
15% gold
5% bitcoin

I would expect huge volatility in Bitcoin, but I think we’ll be 5-10x where we are now in 18 months.
You expect 5-10x growth of BTC but only allocating 20% to it? :confused
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

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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 Prahasaurus » Fri Apr 03, 2020 2:31 pm

BW1985 wrote:
Fri Apr 03, 2020 11:12 am
Prahasaurus wrote:
Fri Apr 03, 2020 10:31 am
For the next 18 months:

80% cash (USD only)
20% bitcoin

If you are super conservative, then

80% cash
15% gold
5% bitcoin

I would expect huge volatility in Bitcoin, but I think we’ll be 5-10x where we are now in 18 months.
You expect 5-10x growth of BTC but only allocating 20% to it? :confused
Because there is also the possibility it will fall, perhaps significantly so, over that period, as well. But I think the risk-reward is quite good, and 5-20% of a portfolio measured at today's price is a good balance (not rebalancing should it rise significantly), depending on your risk tolerance.
Asset Allocation: 50% cash (USD), 30% VT, 20% Bitcoin

AlphaLess
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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 AlphaLess » Fri Apr 03, 2020 3:40 pm

Lee_WSP wrote:
Fri Apr 03, 2020 11:03 am
AlphaLess wrote:
Fri Apr 03, 2020 1:43 am
Treasuries.
With yields at decade lows, the expected return from holding treasuries is pretty small.
Pretty small positive compared to negative is good.

Also, yields could be going down more.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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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 dbadalam » Fri Apr 03, 2020 4:15 pm

chrisjul wrote:
Fri Apr 03, 2020 10:18 am
I would suggest being very careful with the standard Boglehead "Stay the Course" commandment.

We are in uncharted historical territory.

"Nobody Knows Nuttin"
Stay the course was never meant for the apocalypse . Now is the time to deviate from that course .

Lee_WSP
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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 Lee_WSP » Fri Apr 03, 2020 4:28 pm

AlphaLess wrote:
Fri Apr 03, 2020 3:40 pm
Lee_WSP wrote:
Fri Apr 03, 2020 11:03 am
AlphaLess wrote:
Fri Apr 03, 2020 1:43 am
Treasuries.
With yields at decade lows, the expected return from holding treasuries is pretty small.
Pretty small positive compared to negative is good.

Also, yields could be going down more.
Unless you're a deca millionaire (in which case this isn't even a real problem anyway), a HYS or CD ladder is much more attractive than super low yields on intermediate term treasury bond funds.

They could go lower, but the probability is small. Plus, they'll eventually hit bottom just like equities and rocket back up.

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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 » Fri Apr 03, 2020 6:03 pm

Lee_WSP wrote:
Fri Apr 03, 2020 4:28 pm
Unless you're a deca millionaire...
I mean, dodeca at a minimum ;-p

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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 AlphaLess » Fri Apr 03, 2020 8:35 pm

Lee_WSP wrote:
Fri Apr 03, 2020 4:28 pm
AlphaLess wrote:
Fri Apr 03, 2020 3:40 pm
Lee_WSP wrote:
Fri Apr 03, 2020 11:03 am
AlphaLess wrote:
Fri Apr 03, 2020 1:43 am
Treasuries.
With yields at decade lows, the expected return from holding treasuries is pretty small.
Pretty small positive compared to negative is good.

Also, yields could be going down more.
Unless you're a deca millionaire (in which case this isn't even a real problem anyway), a HYS or CD ladder is much more attractive than super low yields on intermediate term treasury bond funds.

They could go lower, but the probability is small. Plus, they'll eventually hit bottom just like equities and rocket back up.
I like the use of the word, 'deca'.

What if someone is a centi millionaire?
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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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 » Sat Apr 04, 2020 12:53 pm

JackoC wrote:
Thu Apr 02, 2020 9:02 am
potatopancake wrote:
Wed Apr 01, 2020 11:33 pm
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.
Correct, and thank you for pointing that out.

I do want to emphasize that all of our modelling is based off of the numbers available. The seasonal flu has a stated CFR of 0.1%, with COVID-19 stated CFR around 2%. Certainly, there are unreported cases and asymptomatic cases of both the seasonal flu strains and coronavirus. In no way do these two viruses comparable in terms of morbidity and mortality.
That's actually not 100% clear. An Op-ed piece by two Stanford medical school professors (not two random guys on the internet) in the WSJ several days ago posited that the ultimate coronavirus death rate could actually still be in the same range as annual flu. The number of undetected cases *could* be that big.

Not speaking to you directly, I think a lot of people take the approach 'let's take the relatively most widely believed or quoted info we have and assume it's fact for working purposes; I mean what else can we do?' But sometimes you just don't know even within a very wide range. Decision making then becomes very difficult, but you can't force relative certainty where in fact there's almost none. There is an albeit apparently minority view *among highly qualified observers* that many millions of people have (and/or have been exposed and developed antibodies to) this rather than the official case count of several 100k, making the death % to exposure perhaps not that far above a bad seasonal flu. Or, the more conventional wisdom could be true, actual cases are only somewhat (up to a few times, say) more numerous than the officially confirmed ones, and your statement will prove correct.

Also in the same way we have to assess actual impact of deaths to various causes (as uncomfortable at it is, and as rare as it is for public officials to openly discuss that, but such impacts are weighed all the time to make policy), if the accounts from Italy saying 2/3's of deaths *with* COVID were people with a preexisting condition making their life expectancy less than a year, that is ultimately highly significant too.

If it seems I'm actively arguing the counter to your point as 'the fact', I'm really not. I just believe it's more highly uncertain than you may believe.
Agree with you. I hope we get antibody testing readily available soon.

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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 » Sat Apr 04, 2020 1:00 pm

ReformedSpender wrote:
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
This is what I would do.

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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 Carol88888 » Sat Apr 04, 2020 1:06 pm

If you really have conviction about 1800 you could wait and put 50% in at 1800. And 10% in on every 10% drop below that.

Of course, you risk sitting in cash and missing a great buying opportunity. Remember, cash pays you nothing right now. How long can you stand to sit in cash?

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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 nigel_ht » Sat Apr 04, 2020 1:11 pm

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.
First to bail out = good
Last to bail out = not good
Never bail out = mostly best unless you have a nikkei style crash.

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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 nigel_ht » Sat Apr 04, 2020 1:12 pm

Dottie57 wrote:
Sat Apr 04, 2020 1:00 pm
ReformedSpender wrote:
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
This is what I would do.
This is what I am doing. That and I bought some spux during the last bear rally. Not much, just for funsies.

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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 Jebediah » Mon Apr 06, 2020 1:41 pm

Just curious if OP and Empiricist are still bearish?

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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 RomeoMustDie » Mon Apr 06, 2020 3:55 pm

watchnerd wrote:
Sun Mar 29, 2020 11:44 pm
RomeoMustDie wrote:
Sun Mar 29, 2020 11:38 pm
watchnerd wrote:
Sun Mar 29, 2020 11:33 pm
RomeoMustDie wrote:
Sun Mar 29, 2020 11:23 pm
We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?
Be rich to start with.

5% isn't going to move the needle.
Maybe not with the cruise industry soon to be penny stocks :mrgreen:
So your plan is to hit the big time by buying up beaten down cruise stocks?

This sounds like a romantic comedy plot.

Captain Carnival
RCL up 23% today... We could have become fabulously wealthy if not for "no stock picking". :oops:

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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 nigel_ht » Mon Apr 06, 2020 4:21 pm

RomeoMustDie wrote:
Mon Apr 06, 2020 3:55 pm
watchnerd wrote:
Sun Mar 29, 2020 11:44 pm
RomeoMustDie wrote:
Sun Mar 29, 2020 11:38 pm
watchnerd wrote:
Sun Mar 29, 2020 11:33 pm
RomeoMustDie wrote:
Sun Mar 29, 2020 11:23 pm
We have a record drop in oil and travel-based stocks right now.

Bogle himself said 5% of the portfolio market timing is acceptable.

What is the best way to become rich from this?
Be rich to start with.

5% isn't going to move the needle.
Maybe not with the cruise industry soon to be penny stocks :mrgreen:
So your plan is to hit the big time by buying up beaten down cruise stocks?

This sounds like a romantic comedy plot.

Captain Carnival
RCL up 23% today... We could have become fabulously wealthy if not for "no stock picking". :oops:
CCL is up 20% too. RCL is up 49% for me. Wish I had bought more but you always do. SPUX is down and so is the rest of the index portfolio (down 16%) but up or down in this market I can be happy about something. :)

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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 aiyuanuc » Mon Apr 06, 2020 8:05 pm

You are correct. The 3x can cost you a lot of money in a fluctuating market. But if the trend is strong, you will probably come out ahead. You can plug in UPRO in Portfolio Visualizer to get a feel.
CT-Scott wrote:
Thu Apr 02, 2020 4:41 pm
aiyuanuc wrote:
Thu Apr 02, 2020 4:11 pm
Since not many have answered your actual question, I will.

If you believe SP500 is headed toward 1800, I mean, if you really believe that with all the arguments you have made, you should short the market. Probably SPXU with 3x effects. This can make you a fortune if you turn out to be right.
I just started to read this article:

Shorting the S&P 500 with ETFs: What You Should Know
https://www.nasdaq.com/articles/shortin ... 2020-03-11

Notable quote:
Most of these are designed to achieve their stated performance goal on a daily basis and their performance can differ significantly from their stated daily performance objectives if held for a longer period.
Are you suggesting that one could/should hold SPXU beyond a day and still have good results should the market remain volatile for the next few weeks and then start to fall further? Because while I may believe that it will fall farther, I have no confidence as to exactly *when* the S&P 500 will have its next big drop, or even if there will be one *big* drop vs a whole lot of small drops.

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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 KyleAAA » Mon Apr 06, 2020 9:18 pm

If you're confident in your prediction, continue holding cash. If you're absolutely certain, short the market.

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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 AspireToRetire » Mon Apr 06, 2020 10:05 pm

I swear it’s posts like these (the peak pessimism ones) that make me think the bottom is behind us. But of course I don’t know anything either.

In any case, to answer your question OP - since you’re certain about the future you should be putting everything into inverse, leveraged ETFs and short the market all the way to the ground.

Please keep us posted on your outcome as we are all always still learning.

:sharebeer

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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 bugleheadd » Mon Apr 06, 2020 10:11 pm

3/23 was the bottom. you missed out on 20% gains since then

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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 empiricist » Tue Apr 07, 2020 8:12 am

Jebediah wrote:
Mon Apr 06, 2020 1:41 pm
Just curious if OP and Empiricist are still bearish?
If I was so weak on conviction that a week of market gains was making me question myself, I would have absolutely no business doing anything other than staying the course. Have we cured coronavirus? Are people returning to work? Have we demonstrated that we can contain the virus with anything but strict lockdowns? Will all the restaurant owners and people who took on multiple mortgages to run AirBNBs survive even if things went back to normal tomorrow? As long as the answers to those questions are "no" I still expect severe economic consequences. Especially since this is a global issue - even if most countries get coronavirus under control somehow, there will still be economic consequences from the countries that fail to do so.

As I said before, the consequences of all of this are just starting. I wound up buying some put options - with expiration dates in the fall - not mid-April, so I'm not worried about this continued rally. Check back in 6 months?
Rus In Urbe wrote:
Fri Apr 03, 2020 7:23 am
Bottom line: THANKS empiricist for writing in and making me feel a little less alone in my pessimism. I sincerely hope we are both wrong.

Cheers. Rus. :beer (with a Quarantini)
Cheers, Rus! :beer

I am also frequently called a pessimist, but I take some umbrage with that - I'm not hoping for the best or the worst, I'm just trying to make the best predictions given the evidence! When the evidence is actually alarming, calling one a pessimist is a way people try and shame them out of bringing up unpleasant facts and spoiling the mood.
scintillator wrote:
Fri Apr 03, 2020 5:41 am
Empiricist, and maybe others who are looking to buy puts while holding the underlying index, you need to calculate the scenarios of what you think is likely to happen and consider the tax consequences.
These are great points, scintillator. I'll be in a lower tax bracket than you estimated (unless my puts go wild) but as you said, when you consider the full picture buying puts isn't as protective as just getting out of equities if I think the market is really going to tank. I'm more comfortable making a small option play (being willing to lose it all) to hedge against market decline than go completely to cash though. If either I'm wrong and there is some sort of miraculous economic recovery, or the Fed causes significant inflation, I don't want to be holding a huge cash position. (Yes, inflation may take a while to manifest, but this is the classic "when do you get back in to the market" issue - once inflation is clearly happening, I'll already be behind if I go back to equities at that point!)

So I went with the hedged position - I'll have a loss over the "optimal" choice regardless of what happens, but I won't get totally wrecked either. For what it's worth, I bought puts on international and emerging market indexes, since I think developing countries will be even more harmed by this than we will.

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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 goblue100 » Tue Apr 07, 2020 9:24 am

empiricist wrote:
Tue Apr 07, 2020 8:12 am
Jebediah wrote:
Mon Apr 06, 2020 1:41 pm
Just curious if OP and Empiricist are still bearish?
If I was so weak on conviction that a week of market gains was making me question myself, I would have absolutely no business doing anything other than staying the course. Have we cured coronavirus? Are people returning to work? Have we demonstrated that we can contain the virus with anything but strict lockdowns? Will all the restaurant owners and people who took on multiple mortgages to run AirBNBs survive even if things went back to normal tomorrow? As long as the answers to those questions are "no" I still expect severe economic consequences. Especially since this is a global issue - even if most countries get coronavirus under control somehow, there will still be economic consequences from the countries that fail to do so.

As I said before, the consequences of all of this are just starting. I wound up buying some put options - with expiration dates in the fall - not mid-April, so I'm not worried about this continued rally. Check back in 6 months?
Rus In Urbe wrote:
Fri Apr 03, 2020 7:23 am
Bottom line: THANKS empiricist for writing in and making me feel a little less alone in my pessimism. I sincerely hope we are both wrong.

Cheers. Rus. :beer (with a Quarantini)
Cheers, Rus! :beer

I am also frequently called a pessimist, but I take some umbrage with that - I'm not hoping for the best or the worst, I'm just trying to make the best predictions given the evidence! When the evidence is actually alarming, calling one a pessimist is a way people try and shame them out of bringing up unpleasant facts and spoiling the mood.
Interesting. I never thought of myself as an optimist, but compared to you I'm a Pollyanna! :happy
I think things will be more normal in May then they are in April, and they will be more normal in June then they are in May. I don't think there will be a "cure", but hopefully there will be an anti-body test. I expect a vaccine by early next year. I think we will find out how much we can do without the virus going into a runaway mode. Might be some starts and stops along the way. Doesn't mean there won't be new infections, but just like getting into a car and accepting the risk that brings, we will go to a restaurant and accept that risk.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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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 chicagoan23 » Tue Apr 07, 2020 9:56 am

Everyone needs to do what is best for them, it's your money so take whatever actions you feel are right, and don't regret them. But much of the commentary here reminds me of The Princess Bride and the scene with Westley and Vizzini:
  • The virus is much worse than the market is pricing in, so surely we must SELL!
  • But the mortality numbers on the virus are coming in lower than projected, so surely we must BUY!
  • But the economic impact of shutting the economy for months, and the slow recovery sure to come, means we must SELL!
  • But once the virus clears, we will see a boom like never before, so we must BUY!
  • Well that hopeful rally has now been overdone, and this is a classic Bear Market Rally, so you must SELL!
  • Ah, but the Fed has flooded the system with unlimited cash that has to go somewhere, so you have to BUY!
  • Of course, but that has already been priced in, and the Fed is now out of bullets, so you better SELL!
  • etc. etc. etc.
SPOILER ALERT: Just like in the movie, the only way to be right is to not play. There are too many unknowns. Whatever happens in the short term, eventually the market will be higher than it is today. We've seen a 35% decline followed by a 22% rally, in six weeks. The market does what the market does. Stay the course.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf

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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 chicagoan23 » Tue Apr 14, 2020 2:03 pm

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 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.
I would love an update if the OP is willing. What is the decision making process at this point? Is there capitulation yet? If not now, when?
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf

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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 Nicolas » Tue Apr 14, 2020 2:51 pm

chicagoan23 wrote:
Tue Apr 07, 2020 9:56 am
Everyone needs to do what is best for them, it's your money so take whatever actions you feel are right, and don't regret them. But much of the commentary here reminds me of The Princess Bride and the scene with Westley and Vizzini:
  • The virus is much worse than the market is pricing in, so surely we must SELL!
  • But the mortality numbers on the virus are coming in lower than projected, so surely we must BUY!
  • But the economic impact of shutting the economy for months, and the slow recovery sure to come, means we must SELL!
  • But once the virus clears, we will see a boom like never before, so we must BUY!
  • Well that hopeful rally has now been overdone, and this is a classic Bear Market Rally, so you must SELL!
  • Ah, but the Fed has flooded the system with unlimited cash that has to go somewhere, so you have to BUY!
  • Of course, but that has already been priced in, and the Fed is now out of bullets, so you better SELL!
  • etc. etc. etc.
SPOILER ALERT: Just like in the movie, the only way to be right is to not play. There are too many unknowns. Whatever happens in the short term, eventually the market will be higher than it is today. We've seen a 35% decline followed by a 22% rally, in six weeks. The market does what the market does. Stay the course.
+1, great post. :D
When you haven't got the coin you're always in the way — Geo. M. Cohan

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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 valleyrock » Tue Apr 14, 2020 10:29 pm

Well, there's that old saying, if you're not sure what to do, don't.

I'd say capital preservation is paramount. So, put the money in the best savings accounts you can, buy some CDs and be willing to accept a penalty for early withdrawal if something comes along that looks better, and short term, rolling treasuries. Then wait and see. Worst that could happen financially is you'd lose out on some gains if things go up. If things go down, that might be ok on the home front, but bad on the societal level, which can of course affect the home front.

I'm thinking that prices of a number of things are bound to decrease. I mean most people aren't going to buy stuff if they think their jobs are in jeopardy, or if they already have lost their jobs.

Of course, this depends on how much is a bunch, how it fits in with your overall situation, your age, your current net worth, and the like.

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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 Independent George » Wed Apr 15, 2020 7:43 am

chicagoan23 wrote:
Tue Apr 07, 2020 9:56 am
Everyone needs to do what is best for them, it's your money so take whatever actions you feel are right, and don't regret them. But much of the commentary here reminds me of The Princess Bride and the scene with Westley and Vizzini:
  • The virus is much worse than the market is pricing in, so surely we must SELL!
  • But the mortality numbers on the virus are coming in lower than projected, so surely we must BUY!
  • But the economic impact of shutting the economy for months, and the slow recovery sure to come, means we must SELL!
  • But once the virus clears, we will see a boom like never before, so we must BUY!
  • Well that hopeful rally has now been overdone, and this is a classic Bear Market Rally, so you must SELL!
  • Ah, but the Fed has flooded the system with unlimited cash that has to go somewhere, so you have to BUY!
  • Of course, but that has already been priced in, and the Fed is now out of bullets, so you better SELL!
  • etc. etc. etc.
SPOILER ALERT: Just like in the movie, the only way to be right is to not play. There are too many unknowns. Whatever happens in the short term, eventually the market will be higher than it is today. We've seen a 35% decline followed by a 22% rally, in six weeks. The market does what the market does. Stay the course.
I love it.

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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 Rus In Urbe » Wed Apr 15, 2020 8:22 am

empiricist wrote:
Cheers, Rus! :beer
I am also frequently called a pessimist, but I take some umbrage with that - I'm not hoping for the best or the worst, I'm just trying to make the best predictions given the evidence! When the evidence is actually alarming, calling one a pessimist is a way people try and shame them out of bringing up unpleasant facts and spoiling the mood.
Good point! :beer Thanks, empiricist! Pessimism was the wrong word.
And yes, I'm with you on this outlook. We've had almost exactly the same reactions to the virus news, starting back in December with the very first reports from China.

In terms of the economic and market responses? We are at the beginning of the beginning. IMHO.

This week above my desk I posted the old chestnut from Buffett “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” This has always been my investing mantra and it has helped tamp down my own irrational exuberance (whether in fear or greed) by reminding me of the long game I'm playing.

I'm also on a pile of cash (it happened accidentally to me however) and we share the same outlook.
Which is not popular on this board.

Let's keep in touch on the outcome!

Cheers to you, empiricist. :sharebeer


Be Safe. Be Kind. Be Generous. Never more than now.
Rus. :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

Topic Author
scintillator
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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 scintillator » Wed May 27, 2020 7:06 am

scintillator wrote:
Sun Mar 29, 2020 8:49 pm
So I don't really see any hot takes here on predictions of inflation versus deflation in a scenario of protracted recession with several injections of stimulus. I guess I'll just keep the money in my settlement fund until I start redeploying into stocks in the next 2–18 months.

As for people saying I should buy inverse ETFs or puts, or short the market some other way, I'm not doing that because I'm of course not sure I'm right. And I would get wiped out if there were a cure or some other bullish development. Taking my stock exposure down from 90% to 20% is a form of shorting the market. I considered buying puts instead of selling the underlying, but it didn't make a whole lot of sense because of tax considerations (and now volatility is super high, so puts are very expensive). So the way I'm betting on this decline is by dramatically reducing my AA. And it seems stupid to buy an inverse ETF and have to pay short-term cap gains and high fees and suffer beta slippage when I'm long the underlying index. If I wanted that more exposure I would just sell more of the underlying index.

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.
I don't think the mortality rate is 1%. Korea has handled this better than any country with high infection rates and they're well over 1%. I think the death rate in the US should be over 2% even if hospitals don't get totally overwhelmed. Without adequate medical treatment, death rates should be well higher than 2%. I was only saying that we'll get to 100k dead in May if the lock-down is taken off at Easter like Trump announced last week. Even still, I think there's a good chance we get to 100k dead by the end of May even with an extended lock-down. I'll be sure to bump this in May if that happens. I think pretty much everyone in this thread fails to appreciate how virulent and deadly this virus is. Maybe we'll find an effective treatment; maybe the virus will mutate to something more benign; maybe I'm just wrong. But stating that 100k dead by the end of May "will not happen" could prove regrettable for you, and others in the market that share your certainty.
Just goes to show you that even when you get the core thesis right, you can still lose to people who get the core thesis wrong.

I'm still on the sidelines for the most post. Obviously I wish I'd been in on the ride up to 3000, but I'm not giving up hope that what I think is the economic reality from this virus will manifest in the stock market in the short to medium term. If SPX never gets near where it was when I started this thread, and I get totally punished for this move, and all the Pollyanna retail permabulls win and I lose, [political comment removed by admin LadyGeek].

Robot Monster
Posts: 424
Joined: Sun May 05, 2019 11:23 am
Location: New York

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 Robot Monster » Wed May 27, 2020 7:20 am

scintillator wrote:
Wed May 27, 2020 7:06 am
I'm still on the sidelines for the most post. Obviously I wish I'd been in on the ride up to 3000, but I'm not giving up hope that what I think is the economic reality from this virus will manifest in the stock market in the short to medium term. If SPX never gets near where it was when I started this thread, and I get totally punished for this move, and all the Pollyanna retail permabulls win and I lose, [political comment removed by admin LadyGeek].
Why don't you dollar-cost average your sideline money over the next several months, perhaps in five installments. This was the road map Mohamed El-Erian offered investors who want to add to their portfolios during the coronavirus crisis.
https://www.cnbc.com/2020/04/01/mohamed ... arket.html
"I HAVE THE POWER!!!" ~ He-Man

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 » Wed May 27, 2020 7:24 am

scintillator wrote:
Wed May 27, 2020 7:06 am
scintillator wrote:
Sun Mar 29, 2020 8:49 pm
So I don't really see any hot takes here on predictions of inflation versus deflation in a scenario of protracted recession with several injections of stimulus. I guess I'll just keep the money in my settlement fund until I start redeploying into stocks in the next 2–18 months.

As for people saying I should buy inverse ETFs or puts, or short the market some other way, I'm not doing that because I'm of course not sure I'm right. And I would get wiped out if there were a cure or some other bullish development. Taking my stock exposure down from 90% to 20% is a form of shorting the market. I considered buying puts instead of selling the underlying, but it didn't make a whole lot of sense because of tax considerations (and now volatility is super high, so puts are very expensive). So the way I'm betting on this decline is by dramatically reducing my AA. And it seems stupid to buy an inverse ETF and have to pay short-term cap gains and high fees and suffer beta slippage when I'm long the underlying index. If I wanted that more exposure I would just sell more of the underlying index.

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.
I don't think the mortality rate is 1%. Korea has handled this better than any country with high infection rates and they're well over 1%. I think the death rate in the US should be over 2% even if hospitals don't get totally overwhelmed. Without adequate medical treatment, death rates should be well higher than 2%. I was only saying that we'll get to 100k dead in May if the lock-down is taken off at Easter like Trump announced last week. Even still, I think there's a good chance we get to 100k dead by the end of May even with an extended lock-down. I'll be sure to bump this in May if that happens. I think pretty much everyone in this thread fails to appreciate how virulent and deadly this virus is. Maybe we'll find an effective treatment; maybe the virus will mutate to something more benign; maybe I'm just wrong. But stating that 100k dead by the end of May "will not happen" could prove regrettable for you, and others in the market that share your certainty.
Just goes to show you that even when you get the core thesis right, you can still lose to people who get the core thesis wrong.

I'm still on the sidelines for the most post. Obviously I wish I'd been in on the ride up to 3000, but I'm not giving up hope that what I think is the economic reality from this virus will manifest in the stock market in the short to medium term. If SPX never gets near where it was when I started this thread, and I get totally punished for this move, and all the Pollyanna retail permabulls win and I lose, [political comment removed by admin LadyGeek].

Your core thesis missed the point that 70+ % of deaths are occurring in nursing homes. While very sad at a humanity level, to be blunt.... it's actually a postive economically. The morality rate is in the 0.4% range.

Certain industries will continue to struggle.... but most of the rest of the world is moving on. And even with a resurgence in the fall, I don't expect to see any further lockdowns imposed.

Stonks
Posts: 9
Joined: Mon May 25, 2020 12:26 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 Stonks » Wed May 27, 2020 11:50 pm

Just goes to show you that even when you get the core thesis right, you can still lose to people who get the core thesis wrong.
I can relate and sympathize to some extent with how weird this must feel. Not sure about SP 1800 but I didn't expect a two month rally to 3000! The market is a histrionic beast that doesn't always react how one might expect, or at least at the time you might expect. You actually might be right about 1800 eventually, who knows? Some try to reason the market with macro, technical, patterns, politics, sentiment or even social indicators. Others (like many Bogleheads) have given up trying to make sense of it, and just stick to a plan. Whatever and whenever you decide to re-enter, I would suggest dollar cost averaging. Hang in there.
Your core thesis missed the point that 70+ % of deaths are occurring in nursing homes.
Actually it's more like 43%, if you choose believe a May 26 article in Forbes magazine.

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