Get out now and beat the debt ceiling crash?

[veremchuka]

Interesting comment at 5:25 where Louis discusses the huge run up to the crash. On Oct. 19, 1987 the Dow lost 22 or 23%, to put that in perspective today that would be a loss of 2785 points in just 1 day! That makes the flash crash in May (when it was down over 900 points at the bottom) look like just another down day of 1% or so. Now we lost a lot over the past 7 weeks but we gained it all back in just 8 days! Another huge run up prior to another crash? I don't expect that but ...

 

[Delawaredave5]

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.

Maybe your asset allocation is too aggressive/volatile for you. Adjusting equities 5-10% downward (or whatever) might be a first step.

The phrase "cashing out" belongs in Vegas - not investing.

 

[73ss454]

OK, we are in about 3 weeks into this 4 week prediction. Major market crash within the next week, look out below. (heh)

 

[Snowx800]

If you think it's going to crash do you move AA to more bonds then buy back into equity's when they are low

 

[73ss454]

If you think it's going to crash do you move AA to more bonds then buy back into equity's when they are low

The thought here is to sit tight since no one knows what the market is going to do. If you think the market is going to go up or it's going to crash you'll probably be wrong so sit tight and you'll get your share.

Read the thread through and see what was said.

 

[Zathras]

I remember a prediction of S&P 870 in the near future. I believe that was about 2 years ago now?
Predictions are fine, but investing based on fear or greed typically doesn't work out well.

 

[bbbamI]

Wall St. Makes Fallback Plans for Debt Crisis - Yahoo! Finance

From the article....

Timothy J. Sloan, Wells Fargo’s chief financial officer, said that if Congress could not reach a deal or if there was a spike in interest rates, his bank would be there to handle the situation. But in terms of specifics, he said, there was not much banks could do. “Because nobody knows what is going to happen, nobody knows how to prepare,” he said.​

So there ya go...

 

[Zero]

I've been considering selling VTI in my IRA and just waiting out the 2-3 weeks of uncertainty. I have about 30% profit in it that I would like to preserve.

 

[HFWR]

If you think it's going to crash do you move AA to more bonds then buy back into equity's when they are low

Well, it's anyone's guess in terms of magnitude, but interest rates will likely rise sharply, so bond prices will likely be hit as well.

I'm standing pat...

‪Caddyshack - Bishops Epic Golf Game‬‏ - YouTube

 

[TromboneAl]

Here's a question: would kicking the can down the road likely lead to a downgrading of the credit quality?

 

[donheff]

Here's a question: would kicking the can down the road likely lead to a downgrading of the credit quality?

It wouldn't absent all the sturm and drang over the current crisis or it should have already. There should not be a debt ceiling, other countries don't have them. Congress passes laws that spend money and incur obligations and we must meet them. The debt ceiling is simply a self imposed roadblock to permit economic brinksmanship. But now that the Hill has demonstrated that they are incapable of reaching compromises to deal with even short term issues, let alone long term, the rating agencies have started getting religion. This from the idiots who rated sub-prime trash tranches AAA.

 

[Purron]

Here's a question: would kicking the can down the road likely lead to a downgrading of the credit quality?

Ask these guys.

 

[ERD50]

There should not be a debt ceiling, other countries don't have them.

Like Greece? Maybe this is what helps keep us out of trouble?

I think we'd agree that they shouldn't vote to pass a budget w/o also voting to raise the debt ceiling if that budget requires it. To do otherwise is a classic 'left hand not knowing what the right is doing' (and don't take Right/Left as political descriptions there ). But they DO know it, it's crazy. But the budget was passed and signed. That was wrong, IMO.

-ERD50

 

[MichaelB]

Here's a question: would kicking the can down the road likely lead to a downgrading of the credit quality?

S&P has threatened to downgrade. See here

At issue is a warning the company issued July 14 that there is a 50 percent chance S&P would downgrade the government’s credit rating within three months if lawmakers didn’t approve a “credible” deficit reduction package as part of a plan to raise the debt cap. U.S. Rating Rests On S&P

And here

Standard & Poor’s reiterated that there is a 50 percent chance that it will lower the U.S. credit rating within three months as lawmakers struggle to reach agreement over raising the nation’s debt ceiling and deficit reduction. S&P Reiterates Warning of 50% Chance of U.S. Downgrade Within Three Months - Bloomberg

S&P seems to have painted themselves into a corner and may have to carry out the downgrade threat even if Congress does something meaningful. If Congress really does nothing on the deficit and just extends the debt ceiling, the likelihood of a downgrade is high.

 

[MichaelB]

Like Greece? Maybe this is what helps keep us out of trouble?

I think we'd agree that they shouldn't vote to pass a budget w/o also voting to raise the debt ceiling if that budget requires it. To do otherwise is a classic 'left hand not knowing what the right is doing' (and don't take Right/Left as political descriptions there ). But they DO know it, it's crazy. But the budget was passed and signed. That was wrong, IMO.

-ERD50

Fully agree.

 

[FIREd]

Here's a question: would kicking the can down the road likely lead to a downgrading of the credit quality?

This is what S&P's government credit rating guru had to say:
News Headlines

 

[TromboneAl]

There should not be a debt ceiling, other countries don't have them. Congress passes laws that spend money and incur obligations and we must meet them. The debt ceiling is simply a self imposed roadblock to permit economic brinksmanship.

I agree that they are not using it in the right way, but I like the general concept behind a debt ceiling. It's kind of like taking out three cookies from a box, and then putting the rest of the cookies on a high shelf.

That makes it harder to just keep eating cookies mindlessly. However, if you just go to the high shelf and get the rest of the cookies, the strategy is useless.

Perhaps after raising the debt ceiling 74 times, someone should have said "This isn't working."

I remember reading this story to Jenny:

"Cookies" by Arnold Lobel
​

Toad baked some cookies. "These cookies smell very good," said Toad. He ate one. "And they taste even better," he said. Toad ran to Frog's house. "Frog, Frog," cried Toad, "taste these cookies that I have made."

​

Frog ate one of the cookies. "These are the best cookies I have ever eaten!" said Frog.

Frog and Toad ate many cookies, one after another. "You know, Toad," said Frog, with his mouth full, "I think we should stop eating. We will soon be sick and might get diabetes."

"You are right," said Toad. "Let us eat one last cookie, and then we will stop." Frog and Toad ate one last cookie.

There were many cookies left in the bowl. "Frog," said Toad, "let us eat one very last cookie, and then we will stop." Frog and Toad at one very last cookie.

"We must stop eating!" cried Toad as he ate another. "Yes," said Frog, reaching for a cookie, "we need will power." "What is will power?" asked Toad.

"Will power is trying hard not to do something that you really want to do," said Frog.

"You mean like trying not to eat all of these cookies?" asked Toad. "Right," said Frog.

Frog put the cookies in a box. "There," he said. "Now we will not eat any more cookies." "But we can open the box," said Toad. "That is true," said Frog.

Frog tied some string around the box. "There," he said. "Now we will not eat any more cookies." "But we can cut the string and open the box," said Toad. "That is true," said Frog.

Frog got a ladder. He put the box up on a high shelf. "There," said Frog. "Now we will not eat any more cookies." "But we can climb the ladder and take the box down from the shelf and cut the string and open the box," said Toad. "That is true," said Frog.

Frog climbed the ladder and took the box down from the shelf. He cut the string and opened the box.

Frog took the box outside. He shouted in a loud voice, "HEY BIRDS, HERE ARE COOKIES!"

Birds came from everywhere. They picked up all the cookies in their beaks and flew away.

"Now we have no more cookies to eat," said Toad sadly. "Not even one."

"Yes," said Frog, but we have lots and lots of will power." "You may keep it all, Frog," said Toad. "I am going home now to bake a cake."
​

 

[donheff]

I agree that they are not using it in the right way, but I like the general concept behind a debt ceiling. It's kind of like taking out three cookies from a box, and then putting the rest of the cookies on a high shelf.

That makes it harder to just keep eating cookies mindlessly. However, if you just go to the high shelf and get the rest of the cookies, the strategy is useless.

Perhaps after raising the debt ceiling 74 times, someone should have said "This isn't working."

Yes, but... My point was the ceiling does nothing but present an artificial obstacle that permits brinksmanship. I don't see it having any real value yet it presents tremendous risks. I like your metaphorical cookies but many of them are already on a high shelf called the annual budget. Any party (or big enough bipartisan group) can refuse to pass a budget or continuing resolution forcing a Government shutdown. The difference is that a shutdown does not stop us from meeting pre-established obligations, i.e. no default on treasuries, no suspension of SS or other critical payments. We can screw things up pretty well (witness earlier shutdowns) but we don't greatly risk rapidly ruining the "full faith and credit" of The USA and potentially wrecking the world economy.

 

[Purron]

Once upon a time, there was a King who loved his people very much. He promised them all the yummy cookies they wanted at a very low cost. The people were overjoyed and ate many cookies. Life was good! The people loved the cookies and the King was happy. When the bill for the cookies came in, the King was very angry. He couldn't decide if he should pay the bill, charge more for the cookies, cut down the cookie supply or go bankrupt. No one was happy anymore.

Moral of the story:

不能有蛋糕和也是吃它。

(Bable fish it - Chinese-trad to English http://babelfish.yahoo.com/)

 

[GregLee]

When the bill for the cookies came in, the King was very angry. He couldn't decide if he should pay the bill, charge more for the cookies, cut down the cookie supply or go bankrupt. No one was happy anymore.

I don't get it. Why was everyone unhappy? Because the King was angry? Because of the King's indecision? Are we supposed to assume the King didn't have enough money to pay the bill? And that he couldn't print more money to pay it? It's all rather obscure.

 

[novaman]

anyone selling their stock positions now??

 

[DblDoc]

No. Will be buying more on Monday. Whatever is lagging according to my AA.

DD

 

[73ss454]

anyone selling their stock positions now??

Nope, I'm just mad I don't have a bunch of money to put in.

 

[Spanky]

This from the idiots who rated sub-prime trash tranches

They are perceived as "financial geniuses" with MBA in finance from top business schools.

 

[Spanky]

anyone selling their stock positions now??

No, just stay the course. On the contrary, additional buying of equity may be needed to balance AA.