Get out now and beat the debt ceiling crash?

[steelyman]

I think you should either sell or turn off your TV and get on with your life. The nice thing about the second option is you don't have to fret about when to buy...

Best advice I've heard all week.

 

[Coolius]

There are simply too many unpredictable geopolitical and economic events that can cause a market crash; just a quick glance includes these potentially disastrous ones:

1. Debt ceiling annihilates the US credit rating, causing hyperinflation and the world financial system collapses.

2. Middle East flares up even more, eventually resulting in open hostilities, war and ( God Forbid ) nuclear attacks between Iran and Israel.

3. Greece gives the EU the finger and quits, causing Italy, Portugal, Ireland and Spain to consider this easy way out of their financial problems.

4. Obama decides to stay in Iraq & Afghanistan, and for good measure starts meddling in Libya's and Syria's conflicts.

5. More terrorism in the US and the world.


6. Your disaster du jour inserted here.......


So, do I retreat into my cave with my guns, ammo, and MREs or do I continue to live as usual? Do I go to all cash which can be vaporized by hyperinflation, or stay in the market? None of these are palatable or practical, obviously.

As other folks have said, I believe the market has discounted, to varying degrees, the possibilities of these happening.

I am overweight in the energy sector, and the rest of my investments are heavily tilted towards individual corporate bonds ( which I intend to hold to maturity ), and CD ladders.

Anyway, that's my 2 cents ( before hyperinflation ).

 

[Independent]

Given all the rhetoric out of DC, I'd expect lots of people to say there's at least an x% chance of a bad result and decide to sit on the sidelines for a while.

Of course, finding the "sidelines" might be hard. Historically, you would buy US Treasuries, that doesn't seem so wise in this situation.

The lack of a drop suggests that the large investors believe that the rhetoric is just red meat for the respective bases, and when the crunch comes there will be a deal. In this case "believe" might be the result of face-to-face assurances from the politicians that the rest of us don't get to hear.

I'm staying where I am. I figure I probably know less than the big players, so I'm not going to try to bet against them.

 

[arebelspy]

I think everyone's being a little hard on the OP. I could very well see a big drop in a day or two due mainly to the circumstances he's espousing.

However, that still doesn't mean I'd try to time it here.

The two best comments (or the two that made me go "hmmm.. I'll have to think about that more") were these, IMO:

If you are really worried do some hedging.

Options are available... you can write 'em too!

That's a key. How much do you think it'll go down? And then, how much are you willing to bet? And last, how close can you hit the peak (which was a while past most likely) and trough? A 10% drop and a bet of 10% of your portfolio and you can make 1.1% extra if everything works out OK. Is that worth it?

Hmm..

 

[donheff]

Yeah a crash seems immanent but if a solution is found we may get a rally. Or the deadlock continues and the markets tank but then Obama pulls a Bush and asserts executive privilege based on the (not at all far fetched) proposition that the debt ceiling is unconstitutional and after the dust settles the market rallies, or tanks again, or...

 

[M Paquette]

The good news is that in the event our esteemed Congresscritters do what many of us expect, that the interest rate on what remains of our Treasuries will be much higher...

 

[rcbrad]

I sometimes wonder about getting out now also. For now, I am not sure what to do. I certainly am not investing any new dollars for now.

The problem is that the potential debt ceiling crash is just one of a fair amount of other failures that could cause a crash/collapse.

 

[LOL!]

Rebalance, rebalance, rebalance. That's all you need to do.

BTW, why didn't you start this thread last week before the market was up 6+% this week? What has changed? If you had bailed last week, you would've missed a very nice uptick. Of course, equities could go down 6% next week. So what? Markets are supposed to fluctuate.

 

[GregLee]

... but party enmity hasn't been this bad since the duel between Hamilton and Burr!

I think you're a little paranoid, but let me introduce you to true paranoia. Big money wants to drive little guys out out of a rising market. If they can scare you off with tales of political fights, so that you are induced to sell low, that's good for them, bad for you.

 

[harley]

The big question for me is WWDD? (What would Dex do?)

The other big question for me is why the heck did the market go up 5% this week? There was no significant news, good or bad. To get a 5% rise I'd expect to hear that unemployment was down to 7%, or China had quit manipulating the value of the Renmimbi, or dogs and cats were seen living together...

Until I get answers I'm not doing anything.

 

[samclem]

The good news is that in the event our esteemed Congresscritters do what many of us expect, that the interest rate on what remains of our Treasuries will be much higher...

With Greek 10 year bonds now at about 16% APR, I'm ready to jump in with both feet. That's way more than the annual increase needed to meet my SWR, and the rate is guaranteed. Hey, they are government bonds, what could go wrong?

 

[LOL!]

No significant news? Are you kidding me? Did you see what the Greek parliament did? It could've gone the other way.

Also the ISM report today was big.

But the 6% rise was after a 4% drop 2 weeks ago, so net +2% on the Greek news. Not such a big move after all.

 

[steelyman]

Is this e-r.org or Yahoo! Finance?

 

[ziggy29]

I sense a boat-load of revisionist, looking through rose-colored glasses, history here. If I get motivated later, I might try to google up some infamous quotes from the 'genteel' times of 30-40 years ago.

Well, you obviously know better than the folks who lived it and experienced it.

And really, I would suggest there are far better uses of one's time than going out of one's way to "win" a trivial argument on a message board that really doesn't amount to anything but idle banter. Is it really that important to you? Wow.

 

[ERD50]

Well, you obviously know better than the folks who lived it and experienced it.

And really, I would suggest there are far better uses of one's time than going out of one's way to "win" a trivial argument on a message board that really doesn't amount to anything but idle banter. Is it really that important to you? Wow.

Well, you made the claim - I'm just telling you how it sounds to me. And w/o data, nether claim means anything, really.

To be honest, it made me curious. Are things worse today? There is a lot of 'good old days' talk on a variety of topics. So I was thinking about seeing if I could find anything to back up either view. Not sure why my curiosity deserves a 'wow', but whatever.

-ERD50

 

[REWahoo]

Are things worse today? There is a lot of 'good old days' talk on a variety of topics.

It's been a while but once again it's time for....

YouTube - ‪Monty Python - Four Yorkshiremen‬‏

 

[Animorph]

I'm not sure the "crash" effect wouldn't be worse for government debt instruments than for equities. The U. S. credit rating gets lowered when it happens. Equity effects are secondary.

 

[Dreamer]

We have been on vacation for last 1 1/2 weeks. We are now staying at DD's house and they do not have cable or satellite, so we have not been watching the news and have barely glanced at a newspaper. So, no worrying for us, since we are ignorant about what is going on in the world. Wish I could convince DH to cancel Direct TV and the newspaper, but I don't think that will happen. I am not smart enough to time the market successfully, but would probably be worrying, if I was at home watching the news.

 

[harley]

No significant news? Are you kidding me? Did you see what the Greek parliament did? It could've gone the other way.

Also the ISM report today was big.

But the 6% rise was after a 4% drop 2 weeks ago, so net +2% on the Greek news. Not such a big move after all.

Oh, some trailer park country decided to take out a loan at a Paychecks-r-Us UN branch, and that's supposed to convince me the economic crisis is over? That's the biggest news I've heard since Britney Spears shaved her head. Yeah! Doubledown on the blue chips!

 

[ladypatriot]

I'm taking heat now and I know I deserve it. Intellectually, I really do know that timing is a no- no and I haven't succumbed to it for more than a decade. (Of course I also knew that timing was a no-no when I was doing it 15 years ago.)

But cashing out now strikes me as a reasonable thing to do at the moment. With all of the enmity between Democrats and Republicans these days, doesn't it seem likely that sooner or later the market is going to react to the possibility of a default? I mean isn't it obvious to everyone?? Don't you guys hear what the opposing sides are saying about each other on MSNBC and CNBC? Really, these guys are in servious opposition to each other.

I don't watch MSNBC but I do watch CNBC for entertainment in the early morning (Squawk Box). Hey, it beats that inane drivel on Today or Good Morning America.

The markets are always reacting to something; next week it will be the June employment report, or some other data. We hung on through the slow crash of 2008 and into the lows of early 2009, buying along the way. That experience reinforced our commitment to a diverse asset allocation and disciplined investing.

That being said, DH and I always have a little cash on hand for opportunity investing. If the market tanks in reaction to the debt crisis (which I think has been sensationalized by the media), then I'm going to buy into some ETF's I've been researching. And if the market rallies in reaction to a resolution of the debt crisis, then I'm probably going to sell a little off the top of some investments, and hold that money until the next market downturn.

 

[rescueme]

Today's "editorial comment" on a possible double dip recession :

 

[Midpack]

It's been a while but once again it's time for....

YouTube - ‪Monty Python - Four Yorkshiremen‬‏

Thanks, best post on this thread...

 

[HFWR]

Double dip? Why, back when I was a kid, we couldn't even afford one dip...

 

[ls99]

With Greek 10 year bonds now at about 16% APR, I'm ready to jump in with both feet. That's way more than the annual increase needed to meet my SWR, and the rate is guaranteed. Hey, they are government bonds, what could go wrong?

Don't worry, as in all Greek conundrums, Deus Ex Machina will solve the problem.

 

[jacob]

But cashing out now strikes me as a reasonable thing to do at the moment. With all of the enmity between Democrats and Republicans these days, doesn't it seem likely that sooner or later the market is going to react to the possibility of a default? I mean isn't it obvious to everyone?? Don't you guys hear what the opposing sides are saying about each other on MSNBC and CNBC? Really, these guys are in servious opposition to each other.

Sure, it's possible to time big things like the housing bubble and the dot com bubble. Many people did it. Most didn't. (I did pretty well by going defensive in 2007 and going hot in 2009. It's not like timing requires inside knowledge, but it does require paying attention to the big picture.) However, those were structural problems on main street with millions of people and millions of documents being involved. Eventually nobody even knew who owed what to whom.

Conversely, raising the debt ceiling is nothing new. It happens every other year and it's settled by 435 people (or however many shows up) sitting in the same room. What's unusual is how much media exposure it's getting this time. That's the only thing new about it.

If you look at how the market responds to the European debacle, political disagreement on some measure causes the market to drop 2% on a Monday. Then the politicians agrees on something after closing. Then the market is up 2% a Tuesday. And so on. Much of the current stock market volatility seems to be driven by USD/EUR exchange rates. Something bad happens in Euroland, the USD/EUR goes up, and the US market goes down. And vice a versa.

What you should be looking for [namely, the next bubble] is widespread defaulting on the municipal level. That's a systemic problem. Another thing to keep your eye on is a rise in commodity prices, particularly a run up in oil above the $150 level. These will crash the market because laying off government workers or paying that much for energy will affect everybody.

Whether to raise the debt ceiling is a political/accounting problem. It can be fixed in one room.