Increasing cash positions

[donheff]

I am in it for the long run but I increased my cash position to get a few years of expenses on the expectation that this could be a deep and long bear. After that, if equities are still trashed, I would have to tap my TSP (which is all in the safe G Fund) for living expenses incurring high taxes. DW and I are in the enviable position of having good pension income to cover the majority of our expenses. This has to be a scary time for those of you who are completely on your own. I feel for you.

 

[PatrickA5]

Other speculation that I have read is that it is overstated so that if the actual fatalities are "only" 20,000 that the Administration can claim what a great job they did.

Same reason the 2.2 million possible deaths is all of a sudden being mentioned a lot in the press conferences. That number has been floating around for a month now, but never mentioned until recently. Now it can be said that 2.1 million people were saved. And it will be.

 

[eytonxav]

So you're thinking that the graphic that they displayed that I included in post #25 is a big head fake? It could be. I dunno... but the graphic certainly got my attention... and from the President's somber tone during the press conference, it seems it may have captured his attention too.

Other speculation that I have read is that it is overstated so that if the actual fatalities are "only" 20,000 that the Administration can claim what a great job they did.

I don't get the concern about inflation... I think deflation is more likely as demand for goods will fall off the cliff and providers of goods and services will be desparate for sales and income. There are a lot of dominos.. unemployed people can't pay rent... landlords in turn can't make mortgage payments, etc. It could get ugly.

My guess is that they are showing those numbers to scare people into complying with the guidelines, not to make themselves look good if it ends up lower. What ever the motive, I do expect it to be significantly lower.

 

[donheff]

I think the outsize numbers in the post #25 graphic are probably accurate. They (the Task Force) also referenced the IHME model (shown below). This model is being shown to be pretty accurate as the day by day real data come in and replace the previous days' projections. We are doing a lot to limit the curve - it would undoubtedly skyrocket if we were still open for regular business.

 

[SoReady]

Excellent chart!
Not to derail the discussion and I haven't read every post, but where is this chart available?

 

[capjak]

here


https://covid19.healthdata.org/proj...J5eQ8SXE9RY96dPCP5BLozhNnKmaS5IX3G9v0E7ogVFqM

 

[OldShooter]

I'm late to this party, bur reading the last few posts I would submit that there is a false premise lurking here: That it is possible to know now what will happen in the future.

"Climate Science" has the same problem. To my knowledge humankind has never produced a model of a complex system that is useful for long-range forecasting. Weather prediction is about the best we have. We know all of the mathematics and they are pretty simple, but we cannot produce useful forecasts beyond a few weeks out. Why? The system is too complex. The old chaos example applies, the butterfly in Mexico that causes the hurricane in Florida.

Forecasting the economy? Fail. Forecasting the stock market? Fail. Forecasting political events like wars? Fail. Forecasting the fall of the Soviet Union? Fail.

Here's a chart I use in my Adult-Ed investing class to illustrate the quality of predictions. It shows "expert" forecasts of one simple parameter just four months into the future:

​

So, IMO studying and arguing the details of graphs like this is a complete waste of time. The only time they will be accurate is in the rear-view mirror when actual data has replaced the "forecast." Along the way the modelers will claim accuracy as yesterday's results are incorporated.

So, nihilism? No. Lots of things we can say and do. For example, without knowing numbers we know that respirators will probably be in short supply so we better make as many as we can. Without knowing numbers we know that the less contacts we have between people the more slowly the disease will spread, so we should be encouraging or even requiring people to stay at home and minimize contacts. Without knowing the numbers, we know that hospital beds will probably be in short supply so we better set up as many extra ones as we can. The same sorts of things apply to global warming.

But to know future numbers with any kind of useful accuracy? No.

 

[Freedom56]

Raised my cash level to 30% and still holding 70% bond and CDs. I dumped bonds of the major banks above par. They have too much exposure to energy, retail, and consumer credit , commercial loans, and almost no interest rate margin. Most consumers are total basket cases when it comes to their finances and so are many corporations. Things are going to get ugly even after the virus passes. I'm taking the gains on these bonds and raising cash. The coupons were too low relative to other bond investments. I'm keeping my concentration in technology, pharma, and telecom . The "work from home" theme will likely play out for a lot longer. I may buy back in to the financial sector, if there is another fire sale.

 

[COcheesehead]

Investment decisions always involve trade offs and there are varying degrees of being right and being wrong.

 

[Freedom56]

Investment decisions always involve trade offs and there are varying degrees of being right and being wrong.

That's true but. But my interest rate forecasts dating back over two years ago has been dead on. While rates were going up, I predicted a rate inversion months before it was even mentioned anywhere. As a bond investor, the YTM and risk of default are all that matter. You also have to have sufficient spread between your bond coupon and CDs. Bond ratings are irrelevant today and a lagging indicator. You need to look at the credit default rate (the cost of insuring a bond) implied rating.

I also have been forecasting the demise of the energy sector for many years along with the retail sector. Both those sectors are in a circular firing squad. Corporate bond funds are holding a lot of toxic debt from energy and retail sectors that are still rated "investment grade" but in reality can start defaulting over the next few months. The trend for equities will be down with many powerful counter-trend rallies. What we are seeing are technical bounces, at some point you will see PE compression as the growth forecasts make no sense whatsoever. Equity valuations for many companies are still absurd.

 

[sheehs1]

I think the outsize numbers in the post #25 graphic are probably accurate. They (the Task Force) also referenced the IHME model (shown below). This model is being shown to be pretty accurate as the day by day real data come in and replace the previous days' projections. We are doing a lot to limit the curve - it would undoubtedly skyrocket if we were still open for regular business.

I agree 100%, especially after reading the 20 page Imperial College Study that projected the 1.6 to 2.2 million US deaths without any mitigation. It also had charts for each non-pharmaceutical mitigation type and it's affect on decreasing the the 1.6 to 2.2 million curve. It's been referenced on these threads a couple of times.
I don't believe the numbers put out in the IHME model are at all inflated or are being used "to say we won". The curves were done with actual U.S. data.
If we do win or the numbers are lower consider the massive 360 degree effort it will have taken to get to that.

 

[Dtail]

I agree 100%, especially after reading the 20 page Imperial College Study that projected the 1.6 to 2.2 million US deaths without any mitigation. It's been referenced on these threads a couple of times.
I don't believe the numbers put out in the IHME model were at all inflated or are being used "to say we won". The curves were done with actually U.S. data.
If we do win or the numbers are lower consider the massive 360 degree effort it will have taken to get to that.

Agree too with the mitigation efforts.
However how many folks really were ever saying just let it ride type of comments.
It would be like saying that if one (who has doctor options) gets a broken leg and stated if he didn't go to the doctor, he would get gangrene and cut off the leg, but who would actually not do anything?

 

[dvalley]

I haven't sold and hope to not have to sell in this low market to generate cash.
I did think about stopping my 401k contributions and also taking dividends+CGs in cash as opposed to reinvesting. However, they're my DCA strategy right now while I'm holding on to my other cash should I become unemployed and the recovery takes a long time.

 

[LRDave]

You will be buying higher then today if you wait for the market to calm down.

A post that did not age well.

 

[targatom2019]

I did not know today was CALM day.

 

[11522914]

There have been plenty of articles written about the global financial crisis and how much money you would have lost if you only missed the best 5 or 10 days of the recovery.

How much would you gain if you only missed the worst 5 or 10 days of the losses?

 

[razztazz]

How much would you gain if you only missed the worst 5 or 10 days of the losses?

My guess is those biggest "up" days happened as counter rallies on the way down, or as it was coming off the bottom. IOW, you could have easily lived without them and made more money. They were just part of the losing.

 

[brokrken]

https://www.thesimpledollar.com/inv...best-stock-market-days-can-tank-your-returns/

One article that tries to make the point

 

[Mountain skier]

How much would you gain if you only missed the worst 5 or 10 days of the losses?

Excellent point

 

[razztazz]

https://www.thesimpledollar.com/inv...best-stock-market-days-can-tank-your-returns/

One article that tries to make the point

No. He talks about misstiming the market. Not timing the market. Yeah, if you do anything wrong it's usually bad. (Unless you get a government bailout.)

The above chart tracks a 38-year period, or roughly 10,000 days of stock trading. So, if you think you can time the market, you’re betting that you can get in and out without missing just five of those 10,000 days

Who says? He says. Straw man.

— which could happen at anytime. Not only a mere assertion it is a wrong assertion. No, they cannot simply "happen at any time."

To an average Joe like me, it seems far simpler to just stay invested rather than take on those odds.

Hopefully Joe knows himself better than the data he has presented

If you miss these biggest up days, by definition you have missed the biggest and/or most of the down days. You cannot help but win. If you're not interested in any of this, then yes, 40 years in the stock market thus far has shown to be a winner. But the often smarmy lecturing tone and false certitude of these bloggers grates.

 

[Jerry1]

https://www.thesimpledollar.com/inv...best-stock-market-days-can-tank-your-returns/

One article that tries to make the point

The point is taken and acknowledged. However, the point assumes that your goal is to maximize your investment return. A reasonable goal for sure. However, my goal is to secure my retirement and in that respect, I’m more concerned about losses than I am gains. If inflation doesn’t go crazy, I can live out my days on what I have now. So principle protection and inflation protection are very high on the concern list right now.

I plan on getting back in the marked soon, but after I’ve reassessed the situation. When I originally sat down and contemplated my AA, I never imagined something like this would happen. I’m not in anyway saying that the world’s going to end, but it “feels” (to me) like we’re entering something worse than the Great Depression. I don’t think there’s anything wrong with stepping back for awhile and re-evaluating how best to go forward given that I feel that way. Others may feel different and I respect that. If I was younger and had more time to recover or if I was older and had less time to worry about, I might act different. But I’m almost 60 and I don’t have time to recover too great of a loss and I most certainly do not want to go back to work and I feel like planning to live into my 90’s is still necessary.

So, in summary, feeling like I’m between a rock and a hard place trumps worrying about the five best days of the next bull market at this moment in time.

 

[razztazz]

Excellent summation. My benchmark has never been the S&P500 or some AA 60/40, 75/25 etc on a by-and-hold basis. My benchmark is simply "Do I have enough money."

The point is taken and acknowledged. However, the point assumes that your goal is to maximize your investment return. A reasonable goal for sure. However, my goal is to secure my retirement and in that respect, I’m more concerned about losses than I am gains. If inflation doesn’t go crazy, I can live out my days on what I have now. So principle protection and inflation protection are very high on the concern list right now.

I plan on getting back in the marked soon, but after I’ve reassessed the situation. When I originally sat down and contemplated my AA, I never imagined something like this would happen. I’m not in anyway saying that the world’s going to end, but it “feels” (to me) like we’re entering something worse than the Great Depression. I don’t think there’s anything wrong with stepping back for awhile and re-evaluating how best to go forward given that I feel that way. Others may feel different and I respect that. If I was younger and had more time to recover or if I was older and had less time to worry about, I might act different. But I’m almost 60 and I don’t have time to recover too great of a loss and I most certainly do not want to go back to work and I feel like planning to live into my 90’s is still necessary.

So, in summary, feeling like I’m between a rock and a hard place trumps worrying about the five best days of the next bull market at this moment in time.

 

[luckydude]

Cash is king, especially in times like these.

I remember back in the Dot Bomb days when DW and I were both laid off within a week of each other. Between what little emergency fund we had + 2-week severance pay I got (she got no severance because her company simply went belly up), we had just enough $ to last us a couple of months. Thankfully we both got jobs within a month, but it was a close call and we learned our lesson.

Ever since then we've made a point of maintaining a large cash pile just in case. Right now we have 5% of our NW in cash (MM and CDs) = 7 years of annual expenses. We don't care about maximizing the returns from these funds. We just want the peace of mind knowing that no matter what happens with the market, we have enough to see us through the market downturns without being forced to liquidate our assets at possibly fire sale prices.

 

[statsman]

Right now we have 5% of our NW in cash (MM and CDs) = 7 years of annual expenses.

That has to be one sizable net worth. 5% = 7 years of expenses?! Wow.

 

[luckydude]

That has to be one sizable net worth. 5% = 7 years of expenses?! Wow.

Yep, we've been extremely lucky (hence my profile name) with a sizeable inheritance + good Megacorp careers (especially DW's). Not that we deserve it, but we won't complain

But even with a big pile, I am still getting a bit unnerved by the market downturn and uncertainties. We just sold an investment property that netted us another 3 years worth of living expenses. DW wants to do a 1031 exchange but I am trying to convince her to wait and see how this pandemic thing plays out in case we need that extra cushion.