Great Depression 2.0

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rockthisworld
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Great Depression 2.0

Post by rockthisworld » Fri Jul 31, 2020 9:26 am

Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.

Dave55
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Re: Great Depression 2.0

Post by Dave55 » Fri Jul 31, 2020 9:28 am

I think stocks will drop. Now for my ethical speech: "I could be wrong".

Dave

RJC
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Re: Great Depression 2.0

Post by RJC » Fri Jul 31, 2020 9:28 am

Big tech did not get the memo

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abuss368
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Re: Great Depression 2.0

Post by abuss368 » Fri Jul 31, 2020 9:33 am

No one knows. We can only tune out the noise, keep costs low, and continue to buy. Over the long term we should be fine.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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abuss368
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Re: Great Depression 2.0

Post by abuss368 » Fri Jul 31, 2020 9:34 am

RJC wrote:
Fri Jul 31, 2020 9:28 am
Big tech did not get the memo
Excellent articles in the WSJ regarding how Big Tech is preparing with the work from home, video conferences, and so forth. Bricks and mortar hurting.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Great Depression 2.0

Post by abuss368 » Fri Jul 31, 2020 9:35 am

Depression definition from Investopedia:

https://www.investopedia.com/terms/d/depression.asp
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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HomerJ
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Re: Great Depression 2.0

Post by HomerJ » Fri Jul 31, 2020 9:50 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
You're talking about market-timing. But like you said, "We don't truly know what the future brings", so it doesn't make sense that you are talking about market-timing.

However, you are talking about just future contributions for the next few months, not shifting money you already have in the market, so small opportunity cost.

I suppose it will make you feel better to do something. Even though usually doing nothing is the smarter move in investing.

The danger is that you will guess right (and it is just a guess), and then think you're smart enough to market-time in the future with larger amounts of money.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

Valuethinker
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Re: Great Depression 2.0

Post by Valuethinker » Fri Jul 31, 2020 9:53 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
The bad crashes in world history - we really know of only 2, 1873 and 1929. We of course have no GDP statistics (a concept only actualised in the 1930s by Simon Kuznets) for 1873 -- just backcasting.

What was true of those was widespread collapse of financial intermediaries: bank runs in the USA (in particular the immigrant-focused Bank of the USA), Credit Anstalt in Vienna in 1931, that led to the collapse of the international trade payment system).

This was also the situation in 2008 post Lehman, however the authorities took unprecedented measures (in effect nationalising large chunks of the financial system) worldwide.

All the evidence was, and this also proved to be true post 2008, that the recessions after financial crises are particularly painful and long lived. By contrast there was a very bad recession c 1980-81 in the USA, but the recovery thereafter was very swift, hence Ronald Reagan's reelection in 1984.

This however seems to me to have little financial content in it. AFAIK there have been no major financial institutions go bust, and no widespread panic among investors or depositors.

This is more like a war. The governments of the world simply took a lot of the civilian economies, typically 20-30% of GDP, offline. That's what they do in wartime - but then they replace it with military activities such as conscription and war production. The economies of the world are now slowly coming back, and all the signs are that since recurrent flareups of the virus are happening even in countries that have very low total death figures (Taiwan, Hong Kong, Australia, South Korea), that the recovery will be long and muted (barring the mass deployment of an effective vaccine).

Or, as they say, when future historians devote themselves to the study of the year 2020, they will be asked "but which month?" ;-).

The potential for a rapid recovery is there, and the structure of this recession/ depression is not the sort of world-ending disaster that we faced in 2008-09, when it literally became impossible, even as a blue chip corporation, to borrow money in money markets for a few weeks post September 13, 2008. When one of the world's 3-6th largest banks by assets (Royal Bank of Scotland) was essentially insolvent.

But this war does not look like it will be over soon, either. At least, the casualties are still piling up, whatever the success of some countries in (so far) containing it).

Investing? Shrug. Stay the course. You are I are not going to call it better than the markets.

Blue456
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Re: Great Depression 2.0

Post by Blue456 » Fri Jul 31, 2020 10:01 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
If I was only contributing into VTASX then yeah I would be concerned.

runner3081
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Re: Great Depression 2.0

Post by runner3081 » Fri Jul 31, 2020 10:01 am

Not worried at all, plenty of time until retirement. Timing might actually be good for a depression, personally speaking!

EnjoyIt
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Re: Great Depression 2.0

Post by EnjoyIt » Fri Jul 31, 2020 10:02 am

I take my financial advice from Dori in the movie Finding Nemo.

“Just keep swimming buying, Just keep swimming buying.”
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

Robot Monster
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Re: Great Depression 2.0

Post by Robot Monster » Fri Jul 31, 2020 10:06 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
Why not robotically invest your contributions? Yes, you will undoubtedly invest in the peaks, but you will also invest in the valleys, and it'll all average out nicely. This eliminates the possibility you'll end up sitting on a bunch of dry powder forever and ever. Be like the Terminator. The Terminator powers through market uncertainty without hesitation.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

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TheTimeLord
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Re: Great Depression 2.0

Post by TheTimeLord » Fri Jul 31, 2020 10:09 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
What signs are you talking about? Seriously, I really want to know.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

deltaneutral83
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Re: Great Depression 2.0

Post by deltaneutral83 » Fri Jul 31, 2020 10:11 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP? Will asset prices continue to climb or another drop? We don’t truly know what the future brings but there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
Your asset allocation is too aggressive. You need enough in fixed income to not blink if equities should drop 50% while simultaneously being unemployed for 6 or so months. That's the rue of thumb I always use (particularly from Oct 2007-March 2009) and I see many on here much smarter than I use that as a baseline. While the scenario already happened in our lifetimes, it's bound to happen again over the next 40 years. And you don't want to lock in losses at 50% off highs to make rent. I don't worry about the apocalypse 75+% reduction in equities as there will be bigger problems than money at that point. Come to think of it, I don't really stay glued to the news anyhow.

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arcticpineapplecorp.
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Re: Great Depression 2.0

Post by arcticpineapplecorp. » Fri Jul 31, 2020 10:20 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP?
if you really want to be informed, you've got to read past the headline and dig down deep.

listen to this planet money 8 minute show (the indicator) in which economist Justin Wolfers describes what that number actually means. It's not what you think. It means:
It turns out the way Americans report their GDP statistics is a little more confusing than you might realize. What actually happened is in the second quarter we produced 9.5% less than we did in the first quarter. So you might think we should report that as a decline in GDP as -9.5%. What we do instead is we say if we continue to plummet at that rate for an entire year, at the end of the year how much lower would it be? That's what 32.9% means. It says if the economy kept declining at a rate of -9.5% quarter after quarter after quarter after quarter, 4 quarters later our level of output would be 32.9% less. Now that's unrealistic. This was the worst quarter probably in American history.

source: https://www.npr.org/2020/07/30/897481676/gdp-32-9
still makes April, May and June the three worst 3 months in the history of the US economy.

And this GDP report is not like the others...https://www.npr.org/2020/07/30/897481676/gdp-32-9
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Great Depression 2.0

Post by hirlaw » Fri Jul 31, 2020 10:27 am

Whenever I get nervous about the stock market in the current pandemic, I look back to the last major pandemic, in 1918-19.

How did the stock market and the economy do after that? The Roaring 20's. :moneybag

alluringreality
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Re: Great Depression 2.0

Post by alluringreality » Fri Jul 31, 2020 10:29 am

rockthisworld wrote:
Fri Jul 31, 2020 9:26 am
Anyone concerned with the biggest drop in GDP?
The VIX remains elevated compared to averages from recent years, so yes I presume people remain concerned with how the current situation could play out.
Will asset prices continue to climb or another drop? We don’t truly know what the future brings
Agree...
there are signs within the economy and the markets that lead me to stop contributing towards VTSAX and to build up cash reserves and await another buying opportunity.
My employment is connected with the greater economy, and I'm aware that economic events could end my employment. I include that possibility when making investment decisions. My non-equity holdings are partially intended to avoid selling equity in a severe downturn without employment. I primarily buy VTSAX in a 401k, so realistically without income I'm not going to plan on buying additional stock. Unless such an event plays out, I'll just keep with my buying plan.
Last edited by alluringreality on Fri Jul 31, 2020 10:44 am, edited 1 time in total.
Targets: 15% I Bonds, 15% EE Bonds, 45% US Stock (Mid & Small Tilt), 25% Ex-US Stock (Small Tilt)

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arcticpineapplecorp.
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Re: Great Depression 2.0

Post by arcticpineapplecorp. » Fri Jul 31, 2020 10:30 am

hirlaw wrote:
Fri Jul 31, 2020 10:27 am
Whenever I get nervous about the stock market in the current pandemic, I look back to the last major pandemic, in 1918-19.

How did the stock market do after that? The Roaring 20's. :moneybag
yep. bad past returns pave the way for future better returns. and good past returns pave the way for future worse returns.

to the OP, ask yourself the following question:

Would you rather invest in a market in which when you ask the question, "How's it going?" the answer is either:

"Horrible. It can't possibly get any worse."
"Amazing. It can't possibly get any better!"

If it can't get any worse, that means it's likely to get better, right?
If it can't get any better, that means it's likely to get worse, right?

(I'm not saying things can't get worse. They can. But in the past, the times of maximum pessimism happen to have coincided with the best times to have invested). Because you're after FUTURE returns. You're not focused on what's happening now. You're waiting to grow your money over time. That means you're hoping the future is different from today. It usually has been. The one constant is change. People unfortuately have recency bias where they extrapolate the recent past out indefinitely into the future. That's not how things happen. Bad things end and things get better. Good times also end and things can get worse.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

tiburblium
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Re: Great Depression 2.0

Post by tiburblium » Fri Jul 31, 2020 10:36 am

I am feeling more bullish on stocks now than I was in Janurary of this year

delamer
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Re: Great Depression 2.0

Post by delamer » Fri Jul 31, 2020 10:39 am

OP, how old are you and/or how close are you to retirement?

columbia
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Re: Great Depression 2.0

Post by columbia » Fri Jul 31, 2020 10:41 am

I prefer the phrase Global Grand Recession.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: Great Depression 2.0

Post by Misenplace » Fri Jul 31, 2020 10:47 am

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