Yield curve getting flatter, and flatter

[NW-Bound]

So, are you increasing your equity allocation?

It's interesting how people act. During a recession, investors are reminded that in the long run stocks will recover, and one should stay put. And all sorts of historical data are presented to back that up.

Recently, it has been pointed out on many Web sites that the market will keep on rising after a yield curve inversion. Some quote a number close to 20%.

Why does one then not go 100% stock AA, as the odds are in your favor?

OK, perhaps you do not want to push your luck, and will sell all once you get 10% from here. That's $100K for each $1M you throw into the market. And it's low risk. Historical data backs this up. Buy, buy, buy...

Just another example of cognitive dissonance...

 

[OldShooter]

... historical data ...

“But in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.”

--- E. J. Smith, 1907, Captain, RMS Titanic
​

 

[NW-Bound]

In simpler words, people are always thinking "maybe this time will be different".

 

[marko]

In simpler words, people are always thinking "maybe this time will be different".

I'm thinking it will be the same. And over just as quickly.

 

[copyright1997reloaded]

It's the end of the world as we know it....and I feel fine.

 

[SecondCor521]

So, are you increasing your equity allocation?

I'm considering it. But I'm at 93% now and have been intending to move slowly and opportunistically to 95%, so that's not really worth writing about.

I'm going to try to wait until I feel a pit of despair and worry that maybe I was too heavily weighted in stocks first, though.

I may also be [-]paralyzed by fear[/-]lazy and not do anything too.

 

[COcheesehead]

3-month: 2.40%
10-year: 2.40%

After curve inversion - equity market has experienced peak outperformance of consumer staples vs. S&P 500:

2006-2008: +28.6%
2000-2002: +24.5%

 

[NW-Bound]

3-month: 2.40%
10-year: 2.40%

After curve inversion - equity market has experienced peak outperformance of consumer staples vs. S&P 500:

2006-2008: +28.6%
2000-2002: +24.5%

I have a lot of individual stocks and sector ETFs.

The only one going up today is a utility ETF. Next is a consumer-staples ETF which is roughly flat.

 

[COcheesehead]

I have a lot of individual stocks and sector ETFs.

The only one going up today is a utility ETF. Next is a consumer-staples ETF which is roughly flat.

I have a boatload of individual bonds that went up today like a typical stock. #notnormal

 

[audreyh1]

My bond funds rallied this week big time.

 

[NW-Bound]

I do not have much of these [-]stinkin'[/-] precious bonds.

The bitty bit that I have is insignificant, compared to the gain on the covered call options that I sold. Even then, these options reduce my today's loss by a mere 10%.

 

[audreyh1]

I have a boatload of individual bonds that went up today like a typical stock. #notnormal

But unless you trade your bonds, that gain doesn't do anything for you.

 

[COcheesehead]

But unless you trade your bonds, that gain doesn't do anything for you.

I trade selectively. If I get a good pop on a shorter duration bond, I sell it. If the coupon is good, I keep it. I am up almost 9% YTD with a heavy bond allocation. I sleep well.

 

[audreyh1]

I trade selectively. If I get a good pop on a shorter duration bond, I sell it. If the coupon is good, I keep it. I am up almost 9% YTD with a heavy bond allocation. I sleep well.

Interesting, thanks.

I thought maybe you were one of the folks who hold bonds to maturity, collecting the coupons, and ignoring the real-time fluctuations in the value of your bonds. But apparently not!

 

[marko]

I thought maybe you were one of the folks who hold bonds to maturity, collecting the coupons,

Way off topic but "collecting/clipping" coupons always reminds me of a friend who asked how my aged, wealthy, great-aunt was doing. I said: "Oh, she's fine...clipping coupons, hanging in there".

He felt bad. He thought she was broke and clipping supermarket coupons to make ends meet.

 

[COcheesehead]

Way off topic but "collecting/clipping" coupons always reminds me of a friend who asked how my aged, wealthy, great-aunt was doing. I said: "Oh, she's fine...clipping coupons, hanging in there".

He felt bad. He thought she was broke and clipping supermarket coupons to make ends meet.

Funny. This will be a joke lost on the young. Modern bonds don’t have physical coupons anymore. Gone the way of rotary dial phones and CD’s yielding 13%.

 

[foxfirev5]

I watched the market value of my CD ladder drop five figures as rates rose. It didn't bother me bit. Now the value is above par. It still is not a concern. The interest keeps rolling in. If my income drops eventually, hopefully inflation will be low as well.

 

[street]

I'm holding and going to do nothing, when you don't which way to go, standing pat is my choice. It will be interesting to follow yield curve inversion to see what takes place. I have said it before, I don't contribute to these events because I don't have a clue. I keep on enjoying the learning and knowledge of so many people here. Thanks for sharing your expertise and knowledge.

 

[Freedom56]

All right! One must always look for a silver lining. I may be able to procure that class-B motorhome cheaper.

During and right after the Great Recession, there were a lot of RVs on sale. And for many years after that, there was no new design as manufacturers were just trying to survive, and many did not. Now, they all have new designs which will be available to me for the next downturn.

Will I be able hold my nose and buy? That's the real question.

After the Great Recession, we ended up buying a recently built condo in Florida at 22% of the previous selling price. Class A RVs were selling at a fraction of the their original purchase price back then. If you plan to use it frequently, hold your nose an buy, otherwise pass. My neighbors to my left and right both had huge Class A RVs. The appeared to use them about 2 weeks per year and the spent much of the year washing and maintaining them for that 2 week trip. Both sold them at a fraction of what they paid for them. They also sold their boats. Unless you plan to use it frequently, you are better of renting one when you need it.

 

[njhowie]

But unless you trade your bonds, that gain doesn't do anything for you.

And unless you sell your bond funds, your gain doesn't do anything for you.

 

[OldShooter]

... I have said it before, I don't contribute to these events because I don't have a clue. ...

Lao Tzu: "The wise man is one who knows what he does not know."

Your comment, actually, is unintentionally funny. There are thousands, maybe tens of thousands, of people making predictions, each of whom knows exactly as much as you know about the future: zero.

It is the same as waiting for one of that infinite number of monkeys to produce Shakespeare. There are enough predictions extant that at any point some of them will be correct. These monkeys will be promoted by acclimation to "genius monkey" status as economic oracles. They will retain that status until they make some more predictions.

As I read threads like this one with excited comments about what happened yesterday, this quotation from Warren Buffet comes to mind : “The stock market is a device for transferring money from the impatient to the patient.”

... standing pat is my choice ...

Me, too. We'll look at our portfolio during the week between Christmas and New Years, as we always do. Some years we even make a trade.

 

[audreyh1]

And unless you sell your bond funds, your gain doesn't do anything for you.

I sell some from my bond funds when I rebalance and stock funds have dropped. So it definitely does something for me.

 

[Christine]

Funny. This will be a joke lost on the young. Modern bonds don’t have physical coupons anymore. Gone the way of rotary dial phones and CD’s yielding 13%.

I've never seen physical stocks or bonds. And in my fifties I don't think of myself as young.

 

[NW-Bound]

After the Great Recession, we ended up buying a recently built condo in Florida at 22% of the previous selling price. Class A RVs were selling at a fraction of the their original purchase price back then. If you plan to use it frequently, hold your nose an buy, otherwise pass. My neighbors to my left and right both had huge Class A RVs. The appeared to use them about 2 weeks per year and the spent much of the year washing and maintaining them for that 2 week trip. Both sold them at a fraction of what they paid for them. They also sold their boats. Unless you plan to use it frequently, you are better of renting one when you need it.

This will be to replace my existing motorhome, which I have had for 8 years and have been wearing out.

 

[OldShooter]

I've never seen physical stocks or bonds. And in my fifties I don't think of myself as young.

When DW was a new broker in abut 1973 she had a colleague who had a hooker as a customer. The hooker's purchases were limited to bearer bond munis bought in individual purchases of less than $10,000. The hooker then clipped the coupons and, I guess, could deposit them in a bank account since they were tax-free.