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COVID-19 -based going to cash jitters?
Old 02-23-2020, 08:42 AM   #1
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COVID-19 -based going to cash jitters?

I am definitely not an alarmist by nature - I stayed long through every reset in the stock market over the last 45 years ...

BUT, in non taxable accounts - tIRA and rIRA - is this a good time to be thinking about an "all out" move?

My reading from places like CIDRAP (Studies show COVID-19 virus likely has multiple infection routes | CIDRAP and CDC warns community COVID-19 spread could take place in US | CIDRAP) leaves me a bit squeamish - wrt to health and money.
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Old 02-23-2020, 09:12 AM   #2
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No change for me, but I'm already pretty conservative at 42% equities, mostly in taxed accounts, with about a year expected to my FIRE target.
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Old 02-23-2020, 09:21 AM   #3
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I am definitely not an alarmist by nature - I stayed long through every reset in the stock market over the last 45 years ...

BUT, in non taxable accounts - tIRA and rIRA - is this a good time to be thinking about an "all out" move?

My reading from places like CIDRAP (Studies show COVID-19 virus likely has multiple infection routes | CIDRAP and CDC warns community COVID-19 spread could take place in US | CIDRAP) leaves me a bit squeamish - wrt to health and money.
So if it is as bad as you fear, why worry about trying to time the market and preserve your nest egg? You (we) will be dead and have no need for money.
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Old 02-23-2020, 09:32 AM   #4
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I’m at 50/50. I have plenty of cash and short-term funds already. I think this could have a severe economic impact, but I don’t think most companies are going to go out of business.
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Old 02-23-2020, 09:38 AM   #5
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I've been 98% cash/CDs/munis/treasuries and I am doing the exact opposite - using this as an opportunity to pick up bargains from folks who are being frightened unnecessarily.

Sure, the virus is bad and may take time to go away. However, we need to differentiate between one-time shocks and permanent issues. This is obviously a one-time event. More than likely, a year from now nobody will even be talking about it. Before it came about, who spoke about Ebola, SARS, etc.? Nobody - it happens, we work through it, and life carries on.

I would not pull everything out, or make drastic changes to AA unless you were already contemplating it and are prepared to keep it permanently or for a very long time going forward. If you are very concerned and really considering making an all-out move, maybe there's a bigger issue that you do not have an appropriate AA and it's too overweight in equities for your risk tolerance?

This is an election year. Nothing dramatic will happen on the policy side of things to rock the boat. We'll likely see the stock market rallying in to the elections. So, at some point between now and maybe Labor Day, we're very likely going to see the markets begin advancing and hitting new record highs. You're going to want to be in at that time. I wouldn't want to be timing things thinking I could figure the exact point in time to get back in. If you completely cash out and miss the next move higher, it's possible you won't be getting back in.
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Old 02-23-2020, 09:54 AM   #6
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Money won't be worth anything if this is the extinction event. So you could cash out, buy beans, and bullets, and wait to make a killing or live an extra year or two in your shelter eating beans....

Some people suggest for an asset allocation that you would already have a bunch of bonds/interest earning things in your non-taxable accounts for tax efficiency.

I'm certainly not going to do an all out move, as I cannot predict the market, let alone who will live though this.
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Old 02-23-2020, 10:14 AM   #7
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This has clearly become a pandemic. Plan accordingly.

Obviously the cruise lines will get hurt here. What other industries could get clobbered? Airlines? Movie theaters? Hotels? I would like to find a combination of lots of people together to make the business work, high fixed costs and plenty of debt.
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Old 02-23-2020, 10:35 AM   #8
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I mean you would have thought the cruise lines would be crushed by this but they are holding up fairly well. I made a little bit on my CCL puts but cashed it out because it is just holding up better than one might expect.

I don't cruise but evidently there are a bunch of you guys who do and are not put off by being held captive on a prison ship while getting food that looks like it came from a hospital.
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Old 02-23-2020, 10:37 AM   #9
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I mean you would have thought the cruise lines would be crushed by this but they are holding up fairly well. I made a little bit on my CCL puts but cashed it out because it is just holding up better than one might expect.

I don't cruise but evidently there are a bunch of you guys who do and are not put off by being held captive on a prison ship while getting food that looks like it came from a hospital.
Iím just waiting for the impact. Itís amazing that it hasnít happened yet.
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Old 02-23-2020, 10:48 AM   #10
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This has clearly become a pandemic. Plan accordingly.
Still not anywhere near the numbers we see in the common flu year after year. The numbers are minuscule. Pandemic means "occurring over a wide geographic area AND affecting an exceptionally high proportion of the population"

https://www.merriam-webster.com/dictionary/pandemic

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Obviously the cruise lines will get hurt here. What other industries could get clobbered? Airlines? Movie theaters? Hotels? I would like to find a combination of lots of people together to make the business work, high fixed costs and plenty of debt.
Once again, one time issue or permanent? The markets are going to exaggerate it no differently than the nightly news headlines and the fear being driven online. Is it the end of the cruising and travel industries? Extremely unlikely. Might we see a further dip in share prices over the next 3 to 6 months? Possibly. However, the scope continues to be primarily limited to the region. Even the locals see that. Travel agents indicate inquiries and bookings for the cruise lines continue for dates a year out. The cruise lines are also indicating they are seeing little change regarding bookings outside of the Asia region.
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Old 02-23-2020, 10:48 AM   #11
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OK - there is a wide area between nothing happening (treating covid 19 like SARS) and extinction.

Pressure on certain types of businesses? Sure. Airlines, cruise ships, etc.

If it does get out of the bag and we start seeing more significant events, either in transmission that is uncontrolled, or death rates that are uncontrolled, then a broad effect could be the result.
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Old 02-23-2020, 10:53 AM   #12
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A lot of stocks will get pinched, but it's hard to know which sectors will get hurt more.

Oil got pummeled immediately, but as mentioned earlier cruise lines hold up so well, which is perplexing. About the virus health risk caused by smoking, should we start to short tobacco companies?

On the other side, there will be companies less affected, such as utilities, domestic food producers and industries, pharmaceuticals, etc...
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Old 02-23-2020, 11:04 AM   #13
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On the other side, there will be companies less affected, such as utilities, domestic food producers and industries, pharmaceuticals, etc...
Yeah, but what is Tesla going to do?!?! That's what is REALLY important!
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Old 02-23-2020, 11:04 AM   #14
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Keeping my eye on already-stressed Chinese banks and Chinese business debt. No idea whether Chinese bank defaults could trigger worldwide banking woes, but it will be interesting to watch. (Keeping my 50/40/10 asset allocation...)
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Old 02-23-2020, 11:15 AM   #15
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Oil got pummeled immediately, but as mentioned earlier cruise lines hold up so well, which is perplexing.
Not extremely perplexing. The cruise lines have seen their share prices take a beating already. The shares of CCL/CUK, which is the strongest company among the Big-3, are off 30% from 52-week highs and pays 5% dividend at current prices. The earnings will take a one-time hit this year (as will the other cruise lines), but the company is strongest in the sector having the lowest debt and debt ratios. Of their 100+ ship fleet, I believe only 4 of them operate in Asia. They are extremely well-diversified in every facet of their business when it comes to itinerary, target customer, luxury vs. economy, and so on.

I would never touch RCL or NCLH shares as they are both highly leveraged. CUK shares however, paying over 5% dividend, with the lowest PE, and their strong balance sheet is a bargain. I'm slowly accumulating and will continue to. Five years out the shares will be significantly higher. In the mean time, with interest rates continuing to fall, the 5% dividend will keep me happy.

So again, one-time issue or permanent one?
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Old 02-23-2020, 11:17 AM   #16
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Keeping my eye on already-stressed Chinese banks and Chinese business debt. No idea whether Chinese bank defaults could trigger worldwide banking woes, but it will be interesting to watch. (Keeping my 50/40/10 asset allocation...)
Chinese government has already indicated they are prepared to step in and provide as much liquidity as necessary so it will not escalate.
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Old 02-23-2020, 11:18 AM   #17
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Keeping my eye on already-stressed Chinese banks and Chinese business debt. No idea whether Chinese bank defaults could trigger worldwide banking woes, but it will be interesting to watch. (Keeping my 50/40/10 asset allocation...)
To the extent the gubmint has the ability to do so, I cannot imagine they will allow large banks to fail.
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Old 02-23-2020, 11:28 AM   #18
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Still not anywhere near the numbers we see in the common flu year after year. The numbers are minuscule. Pandemic means "occurring over a wide geographic area AND affecting an exceptionally high proportion of the population"

https://www.merriam-webster.com/dictionary/pandemic



Once again, one time issue or permanent? The markets are going to exaggerate it no differently than the nightly news headlines and the fear being driven online. Is it the end of the cruising and travel industries? Extremely unlikely. Might we see a further dip in share prices over the next 3 to 6 months? Possibly. However, the scope continues to be primarily limited to the region. Even the locals see that. Travel agents indicate inquiries and bookings for the cruise lines continue for dates a year out. The cruise lines are also indicating they are seeing little change regarding bookings outside of the Asia region.
This stuff is loose and spreading in Asia, Italy, Malaysia, possibly Africa, probably Hawaii, and I would guess in the lower 48. Sounds like a pandemic to me. The media and gubmint have done their best to keep the party going as long as possible ("just the flu, bro"), but I think the herd is starting to get the vague idea that all is not right. Pretty soon I think they are going to start to panic at real or imagined packs of wolves closing in. When that happens, the very overvalued market is going to have its reckoning.

As far as real world outcomes, there is a lot we really do not know. However, just with what we can see now, this new plague spreads very easily, consumes huge amounts of healthcare resources, and in the event that it becomes widely spread the death rate will rise a good bit because the healthcare system will quickly be overwhelmed. With that very definitely in the range of possible outcomes, how do we value equities? If quarantines and the cancellations of anything involving large groups of people become widespread, what will that mean for the economy? Exercises for the reader. I would suggest that merely including these possibilities in the range of outcomes should result in a materially lower price for risk assets.

I don't care to speculate on the truly awful outcomes (this mutates into something a lot worse). Just based on what we can see now, the valuation of the equity market mystifies me. I think cruise lines, hotels, airlines, movie theaters, restaurants, etc. and all at a huge risk if there are either enforced restrictions on gatherings of people or the populace (like me and many board members) simply starts avoiding these sorts of situations. If you don't see the world that way, I would welcome hearing your arguments why the sun will continue shining regardless of this new plague.
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Old 02-23-2020, 11:34 AM   #19
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If you don't see the world that way, I would welcome hearing your arguments why the sun will continue shining regardless of this new plague.
I'm not looking for a debate. You have your dire view, and you're free to go with it. I have mine and will go with it as well. I doubt I will convince you of my view, and I know that you are not going to convince me of yours. So, no reason to waste our afternoons on it.
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Old 02-23-2020, 11:36 AM   #20
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To the extent the gubmint has the ability to do so, I cannot imagine they will allow large banks to fail.
It's been reported that the Chinese Central Government has already asked banks to accommodate small-to-medium businesses which can't make loan repayments due to quarantines devastating sales. What I'm watching is how this unfolds. There may be a point at which the government can no longer prop up bad debt-ridden banks.
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