Did our market timers buy at the bottom?

[donheff]

As mentioned above, I moved $100K into a total stock index on 8/24 (missing the bottom - or more accurately, most recent bottom - by a few points). My intention was to exit when the stock rebounded although when a rebound is enough is hard to guess. Yesterday I realized I could get out with a little better than 5% gain and escape the (temporary) calamity if the Fed decided to raise rates after all. I ended up exchanging $50K yesterday and let the rest ride. Today, after a brief market bump up following the Fed announcement I decided to get rid of the other $50K. The exchange went through at the close a little lower than yesterday's. What the heck, that $100 K was gambling outside my AA and locking in $5K in gains pays for DW's next biking trip (Normandy in June). I could just as easily have lost so I would recommend playing like this with no more than you are comfortable trashing.

 

[Fermion]

I bought enough at the bottom that now I am in danger of losing my 2015 ACA subsidy if I sell the wrong things.

Selling just $1000 more in stock gains might lose me $2200 in subsidy. Tricky situation.

 

[donheff]

I bought enough at the bottom that now I am in danger of losing my 2015 ACA subsidy if I sell the wrong things.

Selling just $1000 more in stock gains might lose me $2200 in subsidy. Tricky situation.

I did my exchanges in iRAs so CGs are not an issue.

 

[Fermion]

I did my exchanges in iRAs so CGs are not an issue.

I wanted to do that but you can't get free rides in an IRA like you can in a margin account. Even though I never went on margin, I traded over $270,000 one day in an account with only $95,000 in it. With the IRA I would be facing a 90 day suspension of trading if I tried that.

 

[donheff]

I think you have bigger cojones than me. I would be afraid to gamble on margin. I use two of DW's retirement accounts with similar holdings - one to move into the bond fun from total stock and the other vice versus to get around the frequent trading rules. I assume you could do it directly with ETFs but I so rarely do it getting into ETFs seems like more hassle than warrented.

 

[utrecht]

Using margin for short term trades is no big deal. I do it all the time. If I buy $250,000 worth of GOOG, Im not going to lose $250,000 on a short term trade. I may lose a few thousand If I'm wrong but that's about it unless theres some big announcement that I dont know about which would be pretty rare on a big stock like GOOG. Better yet, I can control the same amount of GOOG stock using options with less risk and WAY less money outlay

 

[Fermion]

I don't think you understand margin vs cash accounts.

In a cash settlement account like an IRA, if you have $10,000 in it, and you buy $10,000 of stock, then sell it for $10,500, then buy $10,500 of the same stock or another stock, you have to wait three days to sell it.

In a margin account, if you have $10,000 in it, and you buy $10,000 of stock, sell it for $10,500 then buy $10,500 of the same stock or another stock, you don't have to wait three days. You can actually keep trading without violating the free ride rules (eventually you might hit a limit of trades depending on the account rules).

If you never have an investment for more than the cash in your account, even in a margin account, you are never really on margin and won't get charged margin interest or risk a margin call.

 

[utrecht]

I don't think you understand margin vs cash accounts.

In a cash settlement account like an IRA, if you have $10,000 in it, and you buy $10,000 of stock, then sell it for $10,500, then buy $10,500 of the same stock or another stock, you have to wait three days to sell it.

In a margin account, if you have $10,000 in it, and you buy $10,000 of stock, sell it for $10,500 then buy $10,500 of the same stock or another stock, you don't have to wait three days. You can actually keep trading without violating the free ride rules (eventually you might hit a limit of trades depending on the account rules).

If you never have an investment for more than the cash in your account, even in a margin account, you are never really on margin and won't get charged margin interest or risk a margin call.

Are you talking to me?

 

[Fermion]

Are you talking to me?

No, donheff

 

[TallTim]

I wouldn't call it market-timing per se, but it became pretty clear pre-market on the 23rd or 24th of Aug that it was going to get very ugly and quickly - just based on SPX and other index futures and overnight news and performance out of Asia as well as the lousy EU opening trading ..

So I placed a number of ridiculously below market limit orders for blue-chip and highly liquid tech names, taking advantage of portfolio margin brokerage account ...

think buying AAPL <95, AMZN <500 an GOOG <600 ... so Sept has thus far been a very profitable month and clearing those postions for nice profits

 

[RobLJ]

Bought GM at 27.50 and WNR at 40.50 on Aug. 25th. Both are still up, so far--although GM only slightly.

 

[jon-nyc]

I could just as easily have lost so I would recommend playing like this with no more than you are comfortable trashing.

This is my problem with market timing or any other form of gambling. My level of risk aversion is such that the amount I'm willing to lose isn't enough to make the potential gain very interesting.

I mean, I still buy dips often enough, but it's really band based asset allocation more than market timing.

 

[RAE]

I didn't buy, because I don't think we are at the bottom, yet. Time will tell

I agree. I don't think buying on the dips is going to work very well in this downturn. Market is overvalued, and the Fed has basically run out of bullets (and ideas) on how to keep it afloat. And without Fed manipulation to keep things going, I don't think the economy is strong enough on its own to justify these stock prices (for the most part).

I could be all wrong.......wouldn't be the first time.

 

[Fermion]

I just don't see where the money is going to go if it doesn't stay in the market. Bonds just don't even keep up with inflation.

 

[Totoro]

Maybe houses again?

 

[ejman]

I agree. I don't think buying on the dips is going to work very well in this downturn. Market is overvalued, and the Fed has basically run out of bullets (and ideas) on how to keep it afloat. And without Fed manipulation to keep things going, I don't think the economy is strong enough on its own to justify these stock prices (for the most part).

I could be all wrong.......wouldn't be the first time.

I don't understand the comment that "the Fed has basically run out of bullets (and ideas) on how to keep it afloat"

As I understand it, the Fed has the ability and power to create money out of thin air in unlimited quantities and inject it into the economy by a variety of methods (even Ben's magic helicopter) the short term interest rate being but one tool in their arsenal. Of course unlimited creation of money may have other impacts (such as extreme inflation) but I think it's way too early to conclude that the Fed is out of either bullets or ideas. But of course, as you said ... I also could be all wrong...and it certainly wouldn't be the first time either

 

[dallas27]

I don't understand the comment that "the Fed has basically run out of bullets (and ideas) on how to keep it afloat"



As I understand it, the Fed has the ability and power to create money out of thin air in unlimited quantities and inject it into the economy by a variety of methods (even Ben's magic helicopter) the short term interest rate being but one tool in their arsenal. Of course unlimited creation of money may have other impacts (such as extreme inflation) but I think it's way too early to conclude that the Fed is out of either bullets or ideas. But of course, as you said ... I also could be all wrong...and it certainly wouldn't be the first time either

Injecting more money when rates are at zero is expansionary but doesn't have any upside. It just pushes public money into riskier assets and creates bubbles unnecessarily, thereby increasing risk of a large meltdown.

They are indeed out of bullets.

Fed has three tools.
1) change the discount window rate which affects bank extra reserves holdings
2) change the mandated reserve ration fir banks
3) print money and buy any asset (but they only buy US bonds/bills/notes)

All three tools have basically the same impact to the macro economy.


Sent from my iPhone using Early Retirement Forum

 

[donheff]

It seems to me that quantitative easing (printing money) may or may not be a positive step and is a bullet that is still in the chamber. The biggest flaw in that tool may be that Congress didn't/wouldn't take advantage of the easing to spend on infrastructure. Without a concerted effort to try a Krugman approach we will never know if it would have worked much better than the wishy washy approach we took.

 

[dallas27]

It seems to me that quantitative easing (printing money) may or may not be a positive step and is a bullet that is still in the chamber. The biggest flaw in that tool may be that Congress didn't/wouldn't take advantage of the easing to spend on infrastructure. Without a concerted effort to try a Krugman approach we will never know if it would have worked much better than the wishy washy approach we took.

There is more money in the system than businesses want to borrow, that is why we are at zero. Adding more will just cause problems.

So while yes they do still have bullets, the barrel is pressed against their temples. They would be foolish to pull the trigger without either increasing commercial demand or government borrowing.


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[ERD50]

There is more money in the system than businesses want to borrow, that is why we are at zero. ...

Bingo!

I recall just after the 2000 bubble popping, Bob Brinker addressed this on his radio show. He explained that industry increased capacity in the late 90's to meet demand during the bubble. Now, with lower demand, the last thing they need to do is borrow money to expand.

That is exactly what I saw in my industry. Heck, we were selling off stuff we bought a year or two ago (maybe even stuff we recently bought and hadn't installed/used yet) for maybe 10-20 cents on the dollar. No one else needed it either, they expanded just like we did. We needed cash flow, not equipment.

-ERD50

 

[aja8888]

Bingo!

I recall just after the 2000 bubble popping, Bob Brinker addressed this on his radio show. He explained that industry increased capacity in the late 90's to meet demand during the bubble. Now, with lower demand, the last thing they need to do is borrow money to expand.

That is exactly what I saw in my industry. Heck, we were selling off stuff we bought a year or two ago (maybe even stuff we recently bought and hadn't installed/used yet) for maybe 10-20 cents on the dollar. No one else needed it either, they expanded just like we did. We needed cash flow, not equipment.

-ERD50

Kinda like what's going on in the oilfield right now.

 

[NW-Bound]

And why is there an oversupply problem?

I may be getting philosophical here, but perhaps the world is getting saturated with "stuff". We do not really need bigger houses, larger SUVs with V12 engines. Nor can we eat and drink more. How much fancier TVs, tablets, or smartphones do we really need? A generic desktop PC already packs nearly 100-1000x the power of a supercomputer that was the pride of a national research lab like Lawrence Livermore back in the mid 80s. All that computing power just for email and surfing the Web.

So, Europe distills wine to make alcohol to burn in cars, while in the US some dairy farms recently dumped milk into pits because they overproduced.

Not the entire world is this fat and happy, of course. But the poor people in Burma or the sub-Saharan countries who can use more of the "stuff" have no way of paying for it.

 

[daylatedollarshort]

And why is there an oversupply problem?

I may be getting philosophical here, but perhaps the world is getting saturated with "stuff". We do not really need bigger houses, larger SUVs with V12 engines. Nor can we eat and drink more......Not the entire world is this fat and happy, of course. But the poor people in Burma or the sub-Saharan countries who can use more of the "stuff" have no way of paying for it.

Keynes described this as the "solving of the economic problem" - technology ending man's struggle for subsistence. In 1930 he predicted the world we live in today - technological unemployment, not enough jobs to go around, a world of abundance of consumer goods (true for many but not all) in the developed nations. I have this essay printed out and I read it now and then. I think it helps to counteract all the ads I'm exposed to on a daily basis.

 

[NW-Bound]

Thanks for the paper.

Keynes was talking of the abundance of goods due to improved production back in 1930, almost a century ago. Hah! And he did not live to see the supermarkets we have today, where food is abundant and so cheap (if you know how to shop).

So, how do we spend so much money? I guess it may become a moral obligation for the people who have money to spend, to keep money in circulation, so that others can have jobs. If they don't spend, the government may have to find a way to take it away, to redistribute that wealth.

I think my personal obligation to spend is somewhere between 3 and 4%WR.

 

[kcowan]

Still sitting on "cash" waiting for the bottom. Nibbled a bit at 3 stocks. 2 of the 3 are down marginally but pay 4% divvies. Probably will get serious when we return from Italy at end of October.