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Debt Ceiling what to do with cash
Old 07-13-2011, 04:53 PM   #1
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Debt Ceiling what to do with cash

Hi kids,

I am a dirty market timer.

I have about 60% of our portfolio in MM Funds. Rest in Wellington and Wellesley.

I'm reading all this doomsday stuff about the debt ceiling. Money Markets breaking the buck, Stock market collapsing. etc. I agree it's probably BS but..

I can lose 20% and not shoot myself.

What the hell do I do at this point? Put in Savings and Checking at BOA. Where is safe place to hide for the next month?

What if this time it IS different? I was kinda right last time......

Thanks,

Wally
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Old 07-13-2011, 05:40 PM   #2
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Do like me. I have about $260,000 sitting in cash in our brokerage waiting for doomsday. In case doomsday doesn't happen, I have the rest in VTI, VXUS and some microsoft and corning options (just a tad).

I am kind of sitting on the fence whether I want doomsday or not. It would be a super opportunity to get into more VTI and VXUS for 10% or 20% off list price.

I guess when you have things balanced such that you don't care if the market goes way up or way down, you are invested correctly.
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Old 07-13-2011, 05:41 PM   #3
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Old 07-13-2011, 05:59 PM   #4
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Originally Posted by wallygator69
Hi kids,

I am a dirty market timer.

I have about 60% of our portfolio in MM Funds. Rest in Wellington and Wellesley.

I'm reading all this doomsday stuff about the debt ceiling. Money Markets breaking the buck, Stock market collapsing. etc. I agree it's probably BS but..
You'll be fine. Even if the politicians do fail bigtime and we have a delay in payments for a few days, the markets will recover quickly, and the only longer term effect may be 25 basis points higher interest rates than we would otherwise see. There may be a short term rout in the stock market, just like when they failed to pass the original TARP bill, but a several hundred point drop in the DOW might be needed to slap them back to reality.
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Old 07-13-2011, 06:39 PM   #5
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I think you already know the type of answers you'll be getting here.

Market time all you want and you might get it right this time but what about the next one and the following one and how do you when the entry point is? But then again, you probably won't listen so why am I even posting this….
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Old 07-13-2011, 06:50 PM   #6
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I think you already know the type of answers you'll be getting here.

Market time all you want and you might get it right this time but what about the next one and the following one and how do you when the entry point is? But then again, you probably won't listen so why am I even posting this….
Thus I think my suggestion of having some dry powder available to buy the bargains if/when they happen is not a bad plan. If you couple this with still being in the market via index funds, I think you can sleep easy.

I am forgoeing any slight interest on my brokerage account cash to have it immediately available for investing. I plan to invest 25% for each 5% drop in the market and be all in at a 20% drop. This is separate cash from my bonds, which are in 401K in PIMCO total return (although I think Mr. Gross might have us in a lot of cash there too).
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Old 07-13-2011, 07:02 PM   #7
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JP Morgan Chase bank account. You can forget about deposit insurance limits for the next month because JPM ain't going anywhere. A treasury default won't last long because once the poo hits the fan everyone will find compromise isn't such a bad word after all.
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Old 07-13-2011, 07:11 PM   #8
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JP Morgan Chase bank account. You can forget about deposit insurance limits for the next month because JPM ain't going anywhere. A treasury default won't last long because once the poo hits the fan everyone will find compromise isn't such a bad word after all.
I prefer my Wells Fargo trading account because I still have 78 free trades left!

Free trades >> 0.1% APY
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Old 07-13-2011, 07:12 PM   #9
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Thus I think my suggestion of having some dry powder available to buy the bargains if/when they happen is not a bad plan. If you couple this with still being in the market via index funds, I think you can sleep easy.

I am forgoeing any slight interest on my brokerage account cash to have it immediately available for investing. I plan to invest 25% for each 5% drop in the market and be all in at a 20% drop. This is separate cash from my bonds, which are in 401K in PIMCO total return (although I think Mr. Gross might have us in a lot of cash there too).
I love this strategy! Is it common practice or did you come up with it yourself?
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Old 07-13-2011, 07:17 PM   #10
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I love this strategy! Is it common practice or did you come up with it yourself?
It may be common, I am not sure. It just makes sense for me. If bonds were paying 10% and I was not concerned about interest rate risk I would probably just put the cash in bonds and rebalance after the chaos started. Cash isn't losing much over bonds for the short time it will take for this mess to go one way or the other however.

If you fear the market may take awhile to drop (I don't), you could instead sell cash secured puts on whichever index you would eventually like being invested in. This would give you some upside in a flat market, and protect you a little in a down market, and not leave you totally out in the cold if the market takes off (you would at least get the 3% or so put premium). Somewhat complicated to set up for those who are option newbies though.
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Old 07-13-2011, 07:27 PM   #11
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DoraM - DCA into market as it drops is a good idea but that's based on the assumption that it will drop. What if it doesn't? What if the market already took the risk of default into consideration now and default doesn't happen and the market shoots up? Then, you're foregoeing, not the slight interest in brokerage acct, but possible upside.

If 260k is a small piece of your porfolio, then that's ok. Heck, I even do market timing but on < 5% of my portfolio. I think the best strategy is to stay in your AA, rebalance when necessary, and DCA.
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Old 07-13-2011, 07:34 PM   #12
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DoraM - DCA into market as it drops is a good idea but that's based on the assumption that it will drop. What if it doesn't? What if the market already took the risk of default into consideration now and default doesn't happen and the market shoots up? Then, you're foregoeing, not the slight interest in brokerage acct, but possible upside.

If 260k is a small piece of your porfolio, then that's ok. Heck, I even do market timing but on < 5% of my portfolio. I think the best strategy is to stay in your AA, rebalance when necessary, and DCA.
This is why I have a good portion already invested in VTI and VXUS.

I am really thinking the cash secured puts would be better than trying to DCA into a falling market because they let you pick your entry price, and if you are wrong, you at least get the put premium. If it goes way below your entry price then you did better than the guy who was just holding the equity throughout.

Our cash is less than 30% of our investments, so it is not like we are totally out of the market right now...just have a bit set aside for bargain hunting
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Old 07-13-2011, 07:53 PM   #13
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I am really thinking the cash secured puts would be better than trying to DCA into a falling market because they let you pick your entry price, and if you are wrong, you at least get the put premium. If it goes way below your entry price then you did better than the guy who was just holding the equity throughout.
I have been doing this since '09 in a Roth brokerage account, more as an experiment than anything else. I sell cash-covered puts on the iShares Russell 2000 index, and if they get put to me I flip around and sell covered calls on the shares. Lather, rinse, repeat. It's interesting, but to be honest I haven't shot any lights out in terms of returns when compared to the indexes. I don't know how representative that time period is because of the way the market has been, so I may not continue to do it indefinitely. It does involve some work and choice of strike price, contract length and selling price. And it goes without saying in this neighborhood: who wants to work?
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Old 07-14-2011, 06:25 AM   #14
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You'll be fine. Even if the politicians do fail bigtime and we have a delay in payments for a few days, the markets will recover quickly, and the only longer term effect may be 25 basis points higher interest rates than we would otherwise see. There may be a short term rout in the stock market, just like when they failed to pass the original TARP bill, but a several hundred point drop in the DOW might be needed to slap them back to reality.
So the Vanguard Money Market Fund is going to implode and the cash is safe?

Thx to all

Wally
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Old 07-14-2011, 11:18 AM   #15
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Where is safe place to hide for the next month?
A body cavity could work.

Ha
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Old 07-14-2011, 11:34 AM   #16
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JP Morgan Chase bank account. You can forget about deposit insurance limits for the next month because JPM ain't going anywhere. A treasury default won't last long because once the poo hits the fan everyone will find compromise isn't such a bad word after all.

Actually if you put it in an account that does NOT have interest there is no limit on the FDIC insurance... put as much as you like in there... your choice of bank...
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Old 07-14-2011, 12:40 PM   #17
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So the Vanguard Money Market Fund is going to implode and the cash is safe?
I expect the following scenario to play out:
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Old 07-14-2011, 01:04 PM   #18
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Cash won't be safe because the FDIC will not have any funds to reimburse losses. And if finacial institutions fail, there will be no funds to bail them out. Panic indeed!
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Old 07-14-2011, 02:48 PM   #19
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Cash won't be safe because the FDIC will not have any funds to reimburse losses. And if finacial institutions fail, there will be no funds to bail them out. Panic indeed!
Actually to go a bit further, currency is a zero interest loan to the federal government. If you go back historically one sees that this is the case. (Actually today its to the fed but big difference there). If there is a default, then one has to worry about who will take currency, let alone checks and credit cards.
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Old 07-14-2011, 04:26 PM   #20
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Actually to go a bit further, currency is a zero interest loan to the federal government. If you go back historically one sees that this is the case. (Actually today its to the fed but big difference there). If there is a default, then one has to worry about who will take currency, let alone checks and credit cards.
This is a good reason not to prepay on your mortgage. If the US defaults, you can just buy up the worthless cash and use it to pay off your loan.
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