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Old 03-31-2020, 09:25 PM   #41
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I wanted to discuss this one point a bit more. If, as it appears, the Fed is going to try to print its way out of this crisis, doesn't that point to a significant devaluation of the dollar - making cash like assets a poor position? I agree that equities are risky and very likely to fall from here, but I'm not at all sure cash is the answer.

FWIW my best solution to this is still to hold my nose and keep my equity allocation, but I would think that a good argument could be made for commodities or RE. I'm curious about what you folks think.
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I'm glad you asked. I've been staying out because I can't tell which way any of this is going. I do not see wild inflation as a fait accomplait (pardon my French) no matter how much money gets printed. There are ways to handle that. And if we have no money, like a depression, NO MONEY, how is actually having money going to cause inflation? Money on top of money yes, maybe, but not if it's just filling a hole where there needs to be money. But I am not an economist and even with ways to deal with any future inflation the Head Shed might choose not to for a variety of reasons (mostly political probably) or might be earnest but just incompetent about it.

All that being said... so since inflation would suppress stocks for a while (possibly my remaining lifetime) and cash is obviously going to lag, what's good to own?

Real estate? Gold? They're the 2 biggies everyone always brings up. I do not want to own actual real estate. Would REIT funds be a suitable surrogate? There are funds that invest in gold related companies but people have told me they can go under and only real physical gold will do. I say that's a crock. Almost nobody could feasibly own gold.

And what percentage of a portfolio would be needed to reasonably keep up with inflation?
These are good questions and thoughts. I don’t have an answer. Figuring that out is my next step. I doubt there’s a simple answer but hopefully I can have a better outcome by trying. I think there’s probably some low hanging fruit, like stay away from (xyz). What “xyz” is, I don’t know yet but I’m sure it’s there. I’m sure there’s also some things to move toward, though I agree, I don’t see myself owning large percentages of gold.

I think the most likely thing is that I will focus on high quality cash products like short term govt bonds and CD’s but I believe I’ll also get back in the market. Probably focusing (over weighting) in certain industries. The research begins.
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Old 03-31-2020, 09:36 PM   #42
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I increased cash slowly (by taking gains) over the last two years, but put a 8% of cash back in stocks two weeks ago when we bounced off the 40% stock allocation (back up to 43%, now 46%, a level at which I feel a bit better).

My online gig ends in May (checks end in September), so in part I was building cash for that, and also felt the market was a bit "richly" valued for rosy outcomes.



After SS, I do plan to gradually move back up to a 60-30-10 allocation on a rising path allocation (I moved down to 48% from this over the last 24 months, very gradually). This helped, although if the market had a to the moon shot over the last 6 months, I probably would feel not so good (but OK). I figured the next 3-4 years are the most crucial, so I dialed back on risk until I draw SS.
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Old 03-31-2020, 09:41 PM   #43
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I think the most likely thing is that I will focus on high quality cash products like short term govt bonds and CD’s but I believe I’ll also get back in the market. Probably focusing (over weighting) in certain industries. The research begins. .
That's my interim position. Cash, short term bonds, as somebody on this forum said about 10 yrs ago when we were discussing this exact same thing, are the closest thing to "overnight money." You'll never get rich but at least it's something and it keeps you in the game for a while.


I'd own lots of gold if I thought was it's the place to be. But not physical gold.

So, what companies do better in an inflationary environment? This might not be the best time for index investing since inflation overall doesn't help stocks till it's over or nearly over. Then it takes years to level out.

Haven't checked in years but there are/were specialty funds that are essentially "commodities index funds." Maybe 25% of a portfolio would be acceptable and efficacious a la the Permanent Portfolio's 25% gold....?
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Old 03-31-2020, 09:51 PM   #44
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how is actually having money going to cause inflation? Money on top of money yes, maybe, but not if it's just filling a hole where there needs to be money.

Ask Zimbabwe. I’m pretty sure that wasn’t money on top of money
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Old 03-31-2020, 09:54 PM   #45
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Ask Zimbabwe. I’m pretty sure that wasn’t money on top of money

Like that has to apply to us? There's a ton of information behind that story.
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Old 03-31-2020, 09:55 PM   #46
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In the fall and early this year I was selling some long held positions into rallies.

As the market began to fall, I redeployed my cash awaiting re-investment (well, still have about 3% available) into long term secular growth stocks as the market was declining.

I also repositioned some of my bond money with an eye toward higher quality. During the selloff I liquidated a portion of my ST bond fund to raise cash for possible use in the next 3-5 years out of an abundance of caution. I expect to reinvest that in bonds once we are on the other side.

I also put a lot of cash into CDs over the past 12-18 months which is looking very good right now.

During the selloff I was buying.
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Old 03-31-2020, 10:10 PM   #47
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+1 that is right where I am right now... there is too much smoke in the air to see anything clearly... the prospect of 100,000 - 240,000 deaths in the US with the interventions is truly stunning.

I do believe in American business and will get back in once the smoke clears.... but perhaps not direct equity investment for a while... likely investments with more limited downside like LEAPS calls.
I don't believe that was what they were saying. They put a high number out to shock some people into staying at home. Many are not following the rules even in New York. Mass religious services were still being held in New York, Florida, and other states. This is how it all started in New York and in South Korea. A lot of people are not taking this seriously. Many are sick and still going out in public. San Francisco was the first city to lock down followed by Los Angeles and then the state of California. That may have made shocking headlines, but they did it for good reason as they don't have enough test kits and pending test results are now at 57,400. The private test labs are becoming a bottleneck. City and state officials wisely shut things down as they realized it would be futile to contain a pandemic without adequate testing capability.

As this article states: "Within the clinical-testing world, it is an open secret that Quest Diagnostics—one of the industry’s two big players, along with Labcorp—has struggled to scale up its operations in California. And yet, Quest has continued to accept specimens from across the country, leading to a huge backlog of tests at the company’s facility in San Juan Capistrano."


https://www.theatlantic.com/health/a...crisis/609193/

I don't think Los Angeles will be like New York as the population density is nothing like New York. What the governor is worried about from today's conference is finding the elderly dead at home like in Italy. So he is taking measures to make sure people in the community check on their neighbors by phone, text, or email.

Italy, Germany, and Switzerland appeared to have reached their apex.

Cities and states that have not shut down will only prolong the problem.
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Old 03-31-2020, 10:33 PM   #48
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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.
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Old 03-31-2020, 10:58 PM   #49
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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.
That's what I believe. Set the bar so low, and claim victory. The average person is pretty gullible. The unknown variable is just how many will take a stay at home seriously. Italy did not until about 8 days ago.

The Fed will have to come in and save the commercial mortgage backed security market. That's already expected by the market. With tenants skipping on rent, those mortgage bonds are no better than subprime mortgages. When the effects of the stimulus wears out, we are in for some serious trouble.

Many sectors are racing to zero or are circular firing squads like energy and retail. The travel industry will take some time to recover and so with the restaurant industry. The strong businesses will survive and the weak will perish. This is pure Darwinism as applied to industry and commerce.
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Old 03-31-2020, 11:25 PM   #50
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I have increased cash position by selling equities that I had gains in, AA now at 63/24/13. Staying the course and will increase stock percentage slowly (to 75/20/5) after the Corona virus growth curve flattens in the US as long as the unemployment stays below 10%. If unemployment goes over 10% I will not add to equities. In any case I will maintain a minimum of 25% in Cash and Bonds for living expenses for the next 10+ years, letting equities run up or down.
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Old 04-01-2020, 06:39 AM   #51
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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.
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Old 04-01-2020, 07:12 AM   #52
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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.
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Old 04-01-2020, 07:18 AM   #53
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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.
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Old 04-01-2020, 07:28 AM   #54
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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.
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Old 04-01-2020, 07:55 AM   #55
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Excellent chart!
Not to derail the discussion and I haven't read every post, but where is this chart available?
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Old 04-01-2020, 08:06 AM   #56
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here


https://covid19.healthdata.org/proje...X3G9v0E7ogVFqM
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Old 04-01-2020, 09:19 AM   #57
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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.
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Old 04-01-2020, 11:45 AM   #58
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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.
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Old 04-01-2020, 11:54 AM   #59
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Investment decisions always involve trade offs and there are varying degrees of being right and being wrong.
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Old 04-01-2020, 12:24 PM   #60
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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.
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