Is the next downturn coming soon...?

[JoshTrent]

Darn, I was hoping you were talking about COVID!

I wish I was!

 

[2177V]

I am not concerned about a crash because the market always recovers. I am more concerned about inflation more than a crash because the last double digit inflation was 1974 and most investors do not know how to prepared for inflation. I did some research and I reallocated my AA to:

25% value equities
25% treasury bonds
25% income producing real estate
25% commodities which include VCMDX.

"Value" equities investment is supported by the following link:

https://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp

VCMDX is a hedge against inflation and involves derivatives which means high risk but high reward. Bonds provides a hedge against a crash or a bear market but does NOT provide a hedge during inflation. Prices of Commodities rises with double digit inflation.

Income producing real estate generally keep up with inflation.

Treasuries are my safe haven in case the SHTF. If the stock market decline due to inflation fears, I tend to buy equities at low prices using my treasuries.

in 2019, I had reallocated to 100% treasuries and then the 2020 crash occurred so I reallocated to buy equities as low prices so I did very well. I am now anticipating double digit inflation so I am well positioned in the event double digit inflation do occur in 2022 or 2023. The federal government has a high debt and is printing money. The government will benefit during double digit inflation because as wages goes up, the tax revenues goes up. This is a stealth tax increase without the political backlash of a normal tax increase. I suggest people track current inflation rates and compare it to historical inflation rates at:

https://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx

 

[FIREarly]

DCA

 

[ejman]

Digging out the data for the period of 1/2015-1/2019, I saw that I did not get anywhere near that 31% market return for the 4 years. So what did I do wrong? Were my stock picks that bad?

But, but, but one look on Quicken told me the story: in those 4 years, I withdrew a total of 14%. Yikes! And I was never 100% in stocks, so cannot compare myself to that 31% market rise.

Ah, I feel much better, knowing I did not mess up that badly.

And now with a WR of less than 1% due both to lower expenses and portfolio growth, I am certainly not afraid of any market crash. I still want to grow my stash, to see how well I can manage my own money.

PS. I did trail Wellington MF for the above 4-year period, due to my holdings of international equities.

Yeah, those pesky international equities. Most everything I've read says to own international equities in some measure. But they have only brought grief for the last what 15-20 years? Maybe it's time they start earning their keep.

 

[ejman]

I am not concerned about a crash because the market always recovers.

It does until it doesn't. Here is chart of the Nikkei since its peak in 1989. Here we are more than 30 years latter https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

 

[kbst]

I Agree

Comparing public equities to GDP makes little sense IMHO, for variety of reasons.

Instead, equity valuations are best understood relative to interest rates, the single most important driver of equity values.

Am I ready for a "crash"? Always. I stand ready to buy more equities as I did last year.

But I do not "worry" about a crash. Worry is completely unproductive and shortens your life.

Instead I prepare myself. And the most of important part is to be mentally ready to buy stocks when they are falling and worry is rampant.






In my view the money is made in down markets, when everyone wants to sell. That's when I buy.

I’ve been buying and selling Carnival in my ROTH and SEP since the downturn and made $725k. I did the same with Suntrust in 2008. That’s how I early retired 11 years ago at 50.

 

[target2019]

My early morning thought for you is that a provocative title works for a time. Then it's necessary to provide a thought or two to sustain us in glorious retirement.

MarketWatch is clicks-driven, and that tends to drive away the personalities here. It is free though, and more interesting than watching tickers rise and fall.

I suppose the backstory to your question is about economies and the hope which investors have about the future. Has your opinion changed at all? Are you going to reduce equities and accumulate more cash to use in the next decline?

My reaction to these downturns included increasing my 401(k) contributions throughout the crash.

I am currently residing in a GMT +2 location, so I'm sure that my posts come through at strange times.

I was more interested in opinions based on the Economics of Buffet's "indicator". In hindsight, I realize I didn't place enough emphasis on that in the OP. FWIW - the link in the OP was from MSN (owned by Microsoft), originally based on an article from Business Insider (owned by Insider). It was not a MarketWatch (owned by Dow Jones) Article. I appreciate what a click-bait article is, I was reading more into what Buffet was quoted as saying.

Input noted on how titles of threads can be a turn-off. Thank you for that.

I am paring small long term gains on a bi-weekly basis. While it's a fact that I am missing out on some gain presently, I am "hopeful" to be buying in the near term (< 1 year) at a larger discount will work to my favor. To me, the opportunity cost is worth it.

I don't follow these type of quotes much anymore. Sure there are interesting people like Buffet, Shiller, etc., but I'm a pretty boring investor with total market funds in 85% of the portfolio. The asset allocation does not get out of balance by much.

I did decide just now to make 2-3 trades to pay taxes. One of those will be a trim of a position in tech industry. Another will be an exit, so one less individual company to look at.

In a way I guess I am adjusting to high stock prices by removing some of the reward. But it's a very limited amount.

 

[cyber888]

Fed tapering may slow the market down a bit, but not by that much. Here's the thing - unless the Fed hikes up the Prime Rate from 3.25% to 3.50%, which will still happen anytime in 2023, I'm not changing my asset allocation of 75% - 25% (the 25% includes my cash holdings/emergency fund). My 401K is 80% - 20%. Then again, the Fed promised to hike prime rate 3 years after the 2009 recession - but that did not happen. It took much more - 7 years? Only Bullard of the Fed wants to taper, by the way, and he tries to make a lot of noise about tapering. I still think he will get voted out by the majority of the Fed board.

 

[Montecfo]

^^^^^
Just to be clear, the FED sets the Fed funds rate. Banks set the prime rate.

 

[Timeisprecious]

There are always talking heads/articles that predict doom. One of these days one of them will be right. Until then their track record is pretty inaccurate.
Answer to your question is no, not doing anything different today than I was yesterday, or one month ago, or 6 months ago. Or plan to do any anything different for foreseeable future.

+1. It seems everyone wants to be a prophet or son of a prophet these days. Most are inaccurate time after time.

 

[cyber888]

^^^^^
Just to be clear, the FED sets the Fed funds rate. Banks set the prime rate.

Sure - the prime rate always mirrors the Fed fund rate, so no difference to me. Always been the case. The Fed sets the fund rate, and in turn, the bank sets the prime rate as the banks mirror the Fed's rate's.

 

[corn18]

Sure - the prime rate always mirrors the Fed fund rate, so no difference to me. Always been the case. The Fed sets the fund rate, and in turn, the bank sets the prime rate as the banks mirror the Fed's rate's.

Wall Street doesn't care much about the prime rate. They care about discounted future cash flows from companies. And that is calculated from the 10 year rate. And they are not in lock step.

 

[ncbill]

I am not concerned about a crash because the market always recovers. I am more concerned about inflation more than a crash because the last double digit inflation was 1974 and most investors do not know how to prepared for inflation. I did some research and I reallocated my AA to:

25% value equities
25% treasury bonds
25% income producing real estate
25% commodities which include VCMDX.

"Value" equities investment is supported by the following link:

https://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp

VCMDX is a hedge against inflation and involves derivatives which means high risk but high reward. Bonds provides a hedge against a crash or a bear market but does NOT provide a hedge during inflation. Prices of Commodities rises with double digit inflation.

Income producing real estate generally keep up with inflation.

Treasuries are my safe haven in case the SHTF. If the stock market decline due to inflation fears, I tend to buy equities at low prices using my treasuries.

in 2019, I had reallocated to 100% treasuries and then the 2020 crash occurred so I reallocated to buy equities as low prices so I did very well. I am now anticipating double digit inflation so I am well positioned in the event double digit inflation do occur in 2022 or 2023. The federal government has a high debt and is printing money. The government will benefit during double digit inflation because as wages goes up, the tax revenues goes up. This is a stealth tax increase without the political backlash of a normal tax increase. I suggest people track current inflation rates and compare it to historical inflation rates at:

https://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx

Unfortunately, 1974 wasn't the last year of double-digit inflation.

Pity the poor 1965 retiree who faced increasing inflation for the entire first half of a 30 year retirement!

https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi

 

[Montecfo]

Sure - the prime rate always mirrors the Fed fund rate, so no difference to me. Always been the case. The Fed sets the fund rate, and in turn, the bank sets the prime rate as the banks mirror the Fed's rate's.

Mirrors?
Fed Funds rate is 0.25 pct.

Prime is 3.25 percent.

 

[Gumby]

Mirrors?
Fed Funds rate is 0.25 pct.

Prime is 3.25 percent.

In my experience, it mirrors the rate changes. So, usually, if the Fed Funds rate goes from 0.25% to 0.50%, the Prime rate will go from 3.25% up to 3.50%
See the graph here Chart: The U.S. Prime Rate vs. The Fed Funds Target Rate vs. 1-Month LIBOR vs. 3-Month LIBOR

 

[Montecfo]

In my experience, it mirrors the rate changes. So, usually, if the Fed Funds rate goes from 0.25% to 0.50%, the Prime rate will go from 3.25% up to 3.50%
See the graph here Chart: The U.S. Prime Rate vs. The Fed Funds Target Rate vs. 1-Month LIBOR vs. 3-Month LIBOR

I think we are torturing things quite a bit here.

There is in fact not even a single "prime rate", each bank sets their own. The Wall Street Journal publishes a single prime rate based on the rate charged by the top 70 percent of the top 10 banks by assets. Changes to a bank's prime rate may be the same as or similar to changes in the FED funds rate, though with some time lag, but that is up to each bank.

It is just more efficient and accurate to simply refer to the Fed Funds rate when that is what is meant.

 

[WestUniversity]

Yes. No. Maybe. One this is for sure… we’ve never been closer. [emoji38]

 

[Gumby]

I think we are torturing things quite a bit here.

There is in fact not even a single "prime rate", each bank sets their own. The Wall Street Journal publishes a single prime rate based on the rate charged by the top 70 percent of the top 10 banks by assets. Changes to a bank's prime rate may be the same as or similar to changes in the FED funds rate, though with some time lag, but that is up to each bank.

It is just more efficient and accurate to simply refer to the Fed Funds rate when that is what is meant.

I'm not the one who was snarkily picking nits about the meaning of the word "mirror". You and I both understood what cyber888 meant.

 

[2177V]

It does until it doesn't. Here is chart of the Nikkei since its peak in 1989. Here we are more than 30 years latter https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data

The fear of a Nikkei crash and slow recovery has always been with us. However, if you look at the debt/GNP ratio of Japan, that ratio is one of the highest. This means Japan cannot stimulate their economy by borrowing more. US is getting there...but it may takes some time for the US to get a similar debt/GNP ratio as Japan's.

As I stated previously, I fear inflation more. COVID is suppressing demand which is NOT inflationary. However, if COVID goes away in 2022, then demand and business activity will pick up which may explain why the stock market is doing so well. However, it is also potentially inflationary. If inflation do rises, the FED has no choice but to raise interest rates. However, this will then suppress business activity and the stock market.

I do not think there will be a crash since the FED will probably raise interest very slowly to avoid shock therapy. Latest FED computer model predicts this situation of rising interest rates will be in late 2022 or early 2023 which is when they have to raise interest rates. However, I believe it may come sooner in early or mid 2022 which explains why I already reallocated my AA. Market timing is impossible to the exact day but market timing one year ahead is what I like do. For example, VCMDX is an inflation hedge fund and is doing very well in 2021 even though inflation is only creeping up. My real estate holdings are also doing well so my current inflation friendly AA is where I want to be.

 

[Montecfo]

I'm not the one who was snarkily picking nits about the meaning of the work "mirror". You and I both understood what cyber888 meant.

No offense intended (and none taken ). I did not know what was meant since it never has occurred to me to link the prime rate to the Fed. But that's just me.

Hopefully we can return talking about the coming meltdown.

 

[Born2Fish]

Hopefully we can return talking about the coming meltdown.

My pre-retirement estimate for monthly spending in retirement was too high.

Most of my portfolio is in pre-tax accounts. After 18 months retired I find I have 38% cash/Stable Value in pretax accounts and only need 1%/year withdrawal for essential expenses until DW begins SS in 4 years, then 0%.

I'd like to add to stocks to achieve 10% cash/stable value. This seems like the worst time ever to make that move.

I have 15% bond funds/Preferred Stocks. I don't feel like this is a good time to ratchet up Bond funds.

I'm in "deer in the headlights" mode, too!

 

[Sunset]

I’ve been buying and selling Carnival in my ROTH and SEP since the downturn and made $725k. I did the same with Suntrust in 2008. That’s how I early retired 11 years ago at 50.

That is fantastic..

Was it involving options or just buy low, sell high, repeat , repeat ...

How much $$$ did you initially involve in this grand adventure

 

[Markola]

Fidelity Magellan Fund manager Peter Lynch:

"Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves."

 

[chassis]

This article lays out an interesting indicator that WB supposedly uses..

https://www.msn.com/en-us/money/markets/warren-buffetts-favorite-market-indicator-hits-205percent-signaling-stocks-are-way-too-expensive-and-a-crash-may-be-coming/ar-AANLNCp?li=BBnb7Kz

A basic valuation of the entire market calculated:
Wilshire 5000 Total Market / GDP

Currently this stands at roughly 205% ($46.69T / $22.72T) - as of 2Q21 GDP

The article notes that for both the dot com bubble (late 1990s) and the 2007/2008 crisis, this indicator remained under 150%.

The article does acknowledge there are Companies whose valuation is based domestically, but don't contribute 100% of their income to the GDP.

I respect those who hold their AA through these downturns. However, I pose the following questions to those who take a more active approach..

- Are you preparing for a "crash" in the near future?
- If so, how?

I have found myself of late, trimming some earnings off Index Funds (in my tIRA & Roth) in very small increments to cash on a bi-weekly basis. I think it's the "the NASDAQ hits a new record" that gets me thinking..

@JoshTrent The next downturn is closer today than it ever has been. No one knows the exact day it will arrive. What is your estimate of when the big day will be here?

I am preparing for a crash by being fully invested in the market.

 

[pjigar]

This article lays out an interesting indicator that WB supposedly uses..

https://www.msn.com/en-us/money/mar...d-a-crash-may-be-coming/ar-AANLNCp?li=BBnb7Kz

A basic valuation of the entire market calculated:
Wilshire 5000 Total Market / GDP

Currently this stands at roughly 205% ($46.69T / $22.72T) - as of 2Q21 GDP

The article notes that for both the dot com bubble (late 1990s) and the 2007/2008 crisis, this indicator remained under 150%.

The article does acknowledge there are Companies whose valuation is based domestically, but don't contribute 100% of their income to the GDP.

I respect those who hold their AA through these downturns. However, I pose the following questions to those who take a more active approach..

- Are you preparing for a "crash" in the near future?
- If so, how?

I have found myself of late, trimming some earnings off Index Funds (in my tIRA & Roth) in very small increments to cash on a bi-weekly basis. I think it's the "the NASDAQ hits a new record" that gets me thinking..

How do you know the valuations do not make sense? If a dollar is worth 50 cents then that ratio is now 102.5%. I don't know what future holds but the current market valuations have a far more complex story and it keeps on changing every hour. No one knows what will be the story tomorrow. Time in the market matters the most rather than timing the market. I realized a while back that risk (as defined by the Wall street and academia) is nothing but price fluctuations. The real risk for a retail investor is their reaction to the market prices. To avoid the real risk, simply don't react and stay invested for the eternity.