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Old 04-06-2020, 09:56 AM   #121
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Yes we will test new lows IMHO. This is because we "only" had about a 32% drop a month ago and the great recession hit 50% drop in the S&P500 and took almost a year to reach the bottom.

In both cases, there was complete loss of confidence. There may be mini rallys and high volatility with 1000 points swings which also happened during the great recession.

A V shaped recovery is wishful thinking because of the serious damage to our economy. IMHO, this damage is NOT temporary and will last longer than the corona virus.

In addition, heaven help the bullish investor if the corona virus is NOT temporary. There are recent reports in Japan and China that there are now new cases of the virus which bullish investors are currently ignoring....just like when they ignored the shutdown of Wuhan in late January.

IMHO, to get out of this mess, we need to have about 500 million test kits so that we can test everyone in USA at least twice so that the authorities can isolate the virus. We are not there yet.
Appreciate the response. It might come down to will the USA take on unlimited debt to stave off the market downturn.
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Old 04-06-2020, 09:58 AM   #122
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So what do you think. - 1) Bull Trap and we retest lows due to more unemployment, no economic growth, no end yet to covid-19 situation or 2) start of a Bull Run with a Fed tools (QE, buying equities) and Stimulus supported stock market ?

What I have learned over time is that I always want to stay 100% invested. So, I don't have to worry about it. It can be frustrating not having cash available to invest with. So, I try to buy as many monthly paying assets as I can. There are good dividend growth and high yield monthly ETFs out there if you look for them.

WisdomTree has several monthly paying US div growth ETFs and Invesco also has two. GlobalX also has a number of high yield options.
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Old 04-06-2020, 10:38 AM   #123
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I thought of an analogy. The economy was like a tree growing and healthy. We essentially cut that tree 1/2 down by flipping the switch on the economy to off. That tree will live, but the growth back will be slow. Not instantaneous like the cutting half off was. It takes several years for that tree to grow back to where it was.

Those branches cut off represent the jobs and people that are now gone. Turning the switch back on does not make those cut off branches come back to life.

The govt tries adding some fertilizer to help that cut tree. But the tree can't put those branches back on, it has to grow new ones.
Good analogy. The last great recession in 2008 took 5 years to recover. For the current 2020 Corona Virus recession, 5 years sounds about right to me. I reallocated from 60/40 to 100% treasuries in 2019 because I am retired and I cannot wait 5 years. I may be dead by then.

Since my VUSUX treasuries are up 10%, I am one of the few people who is making money during this bear market because I was cautious about believing that the record breaking bull market will last forever.
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Old 04-06-2020, 10:49 AM   #124
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Appreciate the response. It might come down to will the USA take on unlimited debt to stave off the market downturn.
While I can see that happening it makes no sense to me.... there is way too much focus on using monetary policy to prop up the stock market when only roughly half of Americans own stock directly or indirectly.

I'm not sure if the fed has its eyes on the right ball.
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Old 04-06-2020, 11:19 AM   #125
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While I can see that happening it makes no sense to me.... there is way too much focus on using monetary policy to prop up the stock market when only roughly half of Americans own stock directly or indirectly.

I'm not sure if the fed has its eyes on the right ball.
I think the focus is on propping up businesses, so there are jobs to come back to when the switch gets thrown to startup again. Of course the market will react to what it perceives as moves that will speed that up. I suspect the recovery is going to be something between a V and a U, and hopefully the economy will look healthy again by this time next year. Can't lose sight of fact that the economy was healthy before the virus shut things down. This situation is totally different than the great recession which was man made and took a long time to get back to healthy employment levels.
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Old 04-06-2020, 11:31 AM   #126
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But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.
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Old 04-06-2020, 11:45 AM   #127
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But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.
It makes it even easier for them to loan money.
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Old 04-06-2020, 11:53 AM   #128
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Appreciate the response. It might come down to will the USA take on unlimited debt to stave off the market downturn.
The federal government will avoid a "collapse" but will not avoid a "market downturn". This is what happened during the 2008 recession. They did what was only necessary and then stop.......and let the recession happen.

For example, when the government took over GM, the government made sure that the existing GM bonds and GM stock are now worthless due to the bankruptcy. This is because the government was not going to accept any liabilities to the bond holders and stock holders using tax payer's money.

My manager at my former job had insisted that the government will not allow GM to fold. However, I gently told my manager that his statement is true but that does not stop the government from screwing the investors. When my prediction came true, I naturally never discuss that issue with my manager again.

I had worked for the federal government for 34 years prior to working for this local manager so I was more aware how the federal government work. "The government works for the people and not just for the investors".

Please note that the recent $2T bailout is designed to avoid a collapse and is designed for the people.
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Old 04-06-2020, 11:55 AM   #129
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While I can see that happening it makes no sense to me.... there is way too much focus on using monetary policy to prop up the stock market when only roughly half of Americans own stock directly or indirectly.

I'm not sure if the fed has its eyes on the right ball.
Well the most powerful folks are in that 50% ownership. It could go on for another let's say 7 months....
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Old 04-06-2020, 12:44 PM   #130
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Way too early to buy and money market yields are grinding to zero. So I am contenting myself with stalking the very short term fixed income markets for high rated stuff that provides an actual yield. Have bought some 1 month brokered CDs yielding 1% and found a couple small muni pieces rated AA or better that mature in a couple months and yield 2 to 3% until they do. Will keep doing this sort of thing until it is time to start buying.

I really want to see a retest of the lows to have any kind of confidence in an upswing. We can't resume normal life and economic activity until it is safe to freely roam about. Short of everyone getting the virus or an effective vaccine rolls out, I don't see how that happens. Flattening the curve means restrictions have to stay in place for a long time.
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Old 04-06-2020, 01:11 PM   #131
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But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.

My wife owns a small business and the SMA interest rate is still 3.75% and not zero.

Reference:
https://www.sba.gov/about-sba/sba-ne...virus-covid-19

I have complained about this but the banks did relax the eligibility standard so it is easier to get the disaster loans based on the corona virus.

Understand how this works: The fed loans money to the banks at near 0% interest and the bank then loan the money to small businesses at 3.75% in order to cover the higher risks by the banking industry because there may be wide spread bankruptcies even after getting the loans.

I wished my wife can acquire a small business loan at near zero interest but the bank needs this profit margin to cover the risk. There may be some banks who may lower the interest rates for small businesses with excellent credit but the demand is so great, I do not see an incentive for the banks to do so.

The government has a condition which the loan can be forgiven...but only if we do not layoff people. I suspect the 3.75% profit may also be used to fund this. There is some talk about a phase 2 for small business since it is obvious that the original loan program may not work out.
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