Precisely why Warren Buffet sold his airline holdings. This is also why Warren Buffet have a large cash position because there is too much risk buying equities for now. I also have a large cash position of 30% equities and 70% treasuries. When there are more sellers than buyers, the stock market decline.
Do you think Dow 18,000 was the bottom?
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Precisely why Warren Buffet sold his airline holdings. This is also why Warren Buffet have a large cash position because there is too much risk buying equities for now. I also have a large cash position of 30% equities and 70% treasuries. When there are more sellers than buyers, the stock market decline.
24601NoMore
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Brutal day, and I'm afraid the drop of the past few days (including today) could be the start of the next big leg down.
We're just north of 20.5% equities at this point, but with bond funds that have higher risk than perhaps I initially understood went through a very painful drop on the "total $$" chart in March. (Lesson learned - some bond funds like Bank Loan, Corporates and Emerging Markets can act darn near like equity funds during a downturn like we had in March).
All in all, our March downturn was beyond my SWAN levels at ~31% of what we have in equities or FI..so, even though I'd be locking in things under the 27K+ DOW we had just a short while ago, I'm seriously thinking of selling 12% of our equities holdings (mostly Internationals like OAKIX that have gone pretty much nowhere the past 5 years, some Small Cap and some Value funds) and a chunk of the higher risk (EM, Bank Loan) FI funds today.
Bottom line is that with COVID cases increasing in a bunch of states that opened too early and all the other chaos going on at the moment with protests and upcoming elections that the risk is just too great at these levels..and with a potential new house build coming up and all the $$ that will require, it's time at least for us to dial back the risk even further to ~18% equities..no desire to ride the roller-coaster back down if we don't "need" to take the risk.
We're just north of 20.5% equities at this point, but with bond funds that have higher risk than perhaps I initially understood went through a very painful drop on the "total $$" chart in March. (Lesson learned - some bond funds like Bank Loan, Corporates and Emerging Markets can act darn near like equity funds during a downturn like we had in March).
All in all, our March downturn was beyond my SWAN levels at ~31% of what we have in equities or FI..so, even though I'd be locking in things under the 27K+ DOW we had just a short while ago, I'm seriously thinking of selling 12% of our equities holdings (mostly Internationals like OAKIX that have gone pretty much nowhere the past 5 years, some Small Cap and some Value funds) and a chunk of the higher risk (EM, Bank Loan) FI funds today.
Bottom line is that with COVID cases increasing in a bunch of states that opened too early and all the other chaos going on at the moment with protests and upcoming elections that the risk is just too great at these levels..and with a potential new house build coming up and all the $$ that will require, it's time at least for us to dial back the risk even further to ~18% equities..no desire to ride the roller-coaster back down if we don't "need" to take the risk.
Montecfo
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Well, I guess it depends what you mean by "recover". I think you are overstating Powell's message, which was one of being supportive of the economy, as long as that takes.
BeachOrCity
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Dtail
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The market supposed to be forward looking, so no one knew this concept before Powell stated as such.
Perhaps with a few more drops, Powell might be "encouraged" to soften his message.
Freedom56
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This was long overdue. We have a huge bubble in mega technology stocks and even bankrupt companies who's stocks are headed to zero but were spiking up as much as 1500% based on twitter messages from Wall Street traders who were playing the old pump and dump game. Airlines were almost trading levels as if the weren't even impacted by this pandemic. Air travel will come back, but not to the levels of 2019 for many years.
Freedom56
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The Fed has only purchased a small portion of their allocation of Corporate bond ETFs. Just stating that they will purchase corporate bond ETFs caused traders that were shorting bond ETFs to cover their shorts. This stabilized the bond market and then the equity market. While equities continued to rise, the bonds troubled companies continued to fall.
https://www.ft.com/content/c8a4e1cd-1034-43de-86f7-be5190c77409
We will likely see the 10 year note head to zero over the next 12 months. However, the bond market will be a minefield with energy, retail, commercial real estate, industrial, and some financial companies headed for default.
Tiger8693
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I was wondering today how long it would take for all of the "really smart" investors to come out and remind everyone how they knew this was the end game, and that it will now be years before recovery. Just a few days ago, I and many others were not only back to even, but up from 1 year ago, and even for the YTD.
No ones knows didly for certain. It may be the beginning of another big, prolonged downturn. Or it could be an overeaction to some news yet again. Only time will tell.
No ones knows didly for certain. It may be the beginning of another big, prolonged downturn. Or it could be an overeaction to some news yet again. Only time will tell.
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Dtail
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So you think he is a 'yes man'
Not completely, but any policies which cause the stock market to fall will be questioned.
24601NoMore
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I suppose you're talking about me based on what you said.
If so, I sure don't claim to be among the "really smart" investors.
I do have a pretty good "gut", however, and we did rise way too far way too fast. I also follow politics and current events more closely than many have time to, as I'm ER'd and have always been a bit of a news junky to begin with.
With recent events, it does seem reasonable if not likely that this indeed COULD (emphasis: COULD) be the start of the next big leg down.
Guess we shall see. But it sure feels like it - TO ME. YMMV.
Dtail
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This is true, but some of the comments are about the bond market, which appears to be in worse shape currently than the stock market.
Tiger8693
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No, not talking about any one person. It is just interesting observation and I think everyone (me included) likes to validate their own thinking or actions taken.
In any event, I sure hope the naysayers are all wet!
24601NoMore
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No, not talking about any one person. It is just interesting observation and I think everyone (me included) likes to validate their own thinking or actions taken.
In any event, I sure hope the naysayers are all wet!
K - it's all good..and I hope for my and everyone else's sake to be totally and completely wrong
.
RunningBum
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Yeah, I'm not thinking of anyone in particular either, but we gained well over 20% since this thread opened (and there already was some recovery started then), and now with a 7% drop I wonder how many are jumping back in and declaring victory with their astute timing of the market. Probably still more falling to come...maybe. Maybe not. It would take another 25%+ drop to get to 18,000.No, not talking about any one person. It is just interesting observation and I think everyone (me included) likes to validate their own thinking or actions taken.
In any event, I sure hope the naysayers are all wet!
24601NoMore
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Well, we did unfortunately close below the 200 DMA on the S&P today, so the algorithms could / will probably go crazy and keep selling.
It's almost too predictable at times. Guess we'll see tomorrow..
Hoping my bond funds hold up better than they did in March. My EM FI was down ~19% Jan 1 to trough. Bank loan down 21%. Corp Bond 11% down. Even my all-time favorite PIMCO Income down 12+%. HY Corp 18.8% (but I expected that one). Even Wellesley at ~65% bond was down 15%. UGH!!! Guess I learned an important lesson about FI risk once you venture out beyond Treasuries. Shoulda just stuck to VBTLX and called it a day, but oh, no..I just had to reach for yield..
I finally learned dividends don't mean SQUAT if your principal is dropping like a stone in deep water..Like Sergeant Schultz, I don't know nothing, but wanted to capture gains and shave back to 45% stocks, so I sold 3% stocks Sunday, then left for Nevada's Arc Dome Wilderness and Berlin-Ichthsaurus Park Monday morning.
This was a bit of a shock after driving back to civilization this afternoon after a morning hike in the Monte Christos peaks--maybe I should have stayed at Arc Dome!
The COVID numbers in Arizona and Texas are very concerning, but I haven't been back long enough to absorb anything, really.
I think we're going out again in the Nevada outback next week, so this time I'll let you all know in advance.
If this keeps up, I may have to buy back stocks in a week or two.
This was a bit of a shock after driving back to civilization this afternoon after a morning hike in the Monte Christos peaks--maybe I should have stayed at Arc Dome!
The COVID numbers in Arizona and Texas are very concerning, but I haven't been back long enough to absorb anything, really.
I think we're going out again in the Nevada outback next week, so this time I'll let you all know in advance.
If this keeps up, I may have to buy back stocks in a week or two.
Markola
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How do you figure that? The Vanguard total bond index is having a strong year, up 6.6% already, while stocks are negative. The Fed just said they will keep interest rates at near zero for some time to come.
I agree with the opinion that we are at a start of the next leg down since the overall PE ratio is above the historical average. With the 2nd quarter earnings to be published around July, the PE ratio should increase even further since I expect the corporate earnings to take a hit. When the PE ratio is too high, this will mean buyers will hesitate on buying equities.
I believe bonds are very risky during this time because the Fed are buying some corporate bonds to prevent some companies from going under. Recessions are really good for the economy in the long term because inefficient companies should go under and zombie companies should not be propped up by the Fed. Here is a link on bond's performance during the last recession:
https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/
This is why I prefer government bonds over corporate bonds during a bear market. I am 30% equities / 70% treasury bonds and my portfolio has gone up since the crash mainly due to the performance of VUSUX which is +21.47% 2020 YTD.
https://investor.vanguard.com/mutual-funds/profile/performance/vusux
The stock market will decline after the number of COVID19 cases increase. The stock market was high because there was an expectation of the virus's impact on the economy to be minimized. The market will be spooked once again when the number of COVID19 cases increases due to the protests (tear gas causes coughing in a crowd) and the memorial day holiday (no social distancing at the beach and parks).
aja8888
Moderator Emeritus
Don't worry, the Fed is loading up their guns with more $trillions. Everything will be bailed out as needed (hedge funds, Reits, banks, bond funds, etc.). Remember, JP said they have more "tools". All will be good and the flowers will bloom again.
Vanguard VBTLX is having a strong year because it is 63.3% government bonds which always do well in a bear market. Read my previous comment on bond's performance during the last recession. However, VBTLX also have 17.6% Baa corporate bonds. Baa corporate bonds are higher risk during a bear market if some of the Baa companies goes bankrupt. This is why I invest in 100% treasury bonds such as VUSUX to eliminate that risk. VBTLX is still a good fund to have....but all the companies associated with the Baa corporate bonds in VBTLX must survive the recession. Too early to tell now since bankruptcies do take time.
Don't worry, the Fed is loading up their guns with more $trillions. Everything will be bailed out as needed (hedge funds, Reits, banks, bond funds, etc.). Remember, JP said they have more "tools". All will be good and the flowers will bloom again.
The government will pick and choose which one to bail out. During the last recession, the government bailed out GM and let Lehman Brothers fold. The reason: Letting GM fold will cost too many blue collar jobs while Lehman Brothers had less jobs at stake and Lehman Brothers made terrible decisions on their investments. The Fed will let some inefficient companies to fold while saving other companies to protect jobs. I would hesitate buying equities from companies with below average balance sheet or buying bonds with less than AAA, AA, A rating.
aja8888
Moderator Emeritus
Bold above by me.....I assume the "inefficient companies" that the Fed letfold didn't have employees?
It's a shame that the Fed picks and chooses what companies to let go under the rug seeing we apparently are supposed to have a capitalistic economy. Not getting political, but free markets should allow for the inefficiencies of business without playing favorites by government.
(of course we know how it really works...)
Dtail
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
My bond market reference wasn't to bond funds. It is more in line with what Freedom56 is stating that some companies can be heading to bankruptcy and some of the current bond prices relate to this potential concept.
Markola
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Got it. I agree there are a lot of zombie companies who couldn’t pay their enormous debts without help, which is scary. I like bond index funds. Part of the reason the total index fund is so strong, in addition to low interest rates, is the flight to safety happening with treasuries.
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