Waiting for bottom?

[pb4uski]

Options were extremely, historically cheap in January. They are fairly expensive now. All you have to do is look at the vix. ...

Yup, I'm patiently waiting for volatility to return to "normal", and then I'll consider buying some long-dated SPY LEAP calls to assuage my fear of missing out at a relatively low cost.

 

[Markola]

Options were extremely, historically cheap in January. They are fairly expensive now. All you have to do is look at the vix.



If you do not exclusively pray at the altar of saint Bogle, you must consider risk and reward when investing. Looking at the us equity market, I see extremely high earnings multiples, lots of volatility, and lots of uncertainty. Valuation appears to be very out of whack with the real world. This I wait on the sidelines. You may see something different and want to buy. You may be a index til death type. You pays your money and you takes your chances.

I pray at the alter of St. Bogle but I’ve sinned a little in the alley out back lately. My j*b is under some threat and, even if I’m kept, it is also looking like a colossal pain over the next several months as I am forced to downsize a good team I’ve built. Meanwhile, I’ve calculated that with some discipline, DW and I could be done with w*rk. Therefore, I’m moving out of stock funds in about $300k that we’d need access to in the next few years while whatever happens happens. I don’t want to see volatility in that pot of funds. The rest will stay around 50/50. Emotional choice? Yes.

 

[Mountain skier]

I believe you folks who are being conservative and increasing cash positions are making the right choice. You'd think the market will start to focus on main street's problems eventually- as in- dropping down for awhile. PE ratio's way to high currently. However I notice the market and logic not always congruent.

 

[Dtail]

I believe you folks who are being conservative and increasing cash positions are making the right choice. You'd think the market will start to focus on main street's problems eventually- as in- dropping down for awhile. PE ratio's way to high currently. However I notice the market and logic not always congruent.

IIRC, the market's largest upwards movement overall are when profits are down in the 10-25% range, but when it goes lower then the returns are not good.
March 2009 was the beginning of the bull market, but the economy was still terrible at that time. Possibly the same concept in 1982.
So perhaps if the 2nd quarter results are truly terrible, then it might finally align.

 

[Mountain skier]

IIRC, the market's largest upwards movement overall are when profits are down in the 10-25% range, but when it goes lower then the returns are not good.
March 2009 was the beginning of the bull market, but the economy was still terrible at that time. Possibly the same concept in 1982.
So perhaps if the 2nd quarter results are truly terrible, then it might finally align.

Interesting. I have read several posters on this site thinking July's Q2#'s may seriously drop the market.

Perhaps in July we'll finally know where the market is headed?

 

[pb4uski]

Most recent GDP forecast on CNBC's website. Big drop for second quarter and strong recovery in following 3 quarters... but even by 1Q2021 we are not back to level of GDP of 4Q2019.

	Median			Average
Base		100.00			100.00
2020Q1	-4.90%	98.78		-5.30%	98.68
2020Q2	-30.20%	91.32		-29.10%	91.50
2020Q3	15.00%	94.74		11.80%	94.20
2020Q4	10.00%	97.11		10.00%	96.55
2021Q1	4.00%	98.08		4.70%	97.68

 

[COcheesehead]

Times like this is where a bucket strategy can be beneficial.
To go all cash now or close to it seems so extreme and unnecessary. Then you’re just guessing - twice.
If you have funds to cover the short term, your own definition of short, that’s bucket one.
Funds to replenish bucket one, your income producing investments, that’s bucket two.
Then the “let it ride” bucket for 10-15 years out. Bucket three.

I like the old saying about bars of soap and portfolios. The more you mess with it, the smaller it gets.

 

[atmsmshr]

After reading pb4uskis reference, decided to look for and independent and hopefully objective perspective. The IMF is pillared in some circles, and is certainly a political creature. Still, it is one step outside of the USA political and media scene to give another perspective.

Linked below is the April 2020 IMF world economic forecast. States a lot of the obvious and that this economic downturn is worse than the 2008 financial crisis.

https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020

But what lights me up is how the heck can China emerge from this mess economically stronger!?!? This bit makes me want to get out the tin foil hat and sit on a grassy knoll to contemplate my belly button.

There are a couple of scenarios for USA/world recovery in the report.

1) Baseline - everyone plays nice together (but apart) and coherent public health policies around the globe result in the virus going away in the 2nd half 2020, but with USA GDP down about 6 points for the year. Strong recovery in 2021 - not yet matching 2019 GDP.
2) Outbreak continues into 2nd half of 2020. Subtract 2 more points growth GDP from baseline. More permanent 'scarring' (bankruptcies) destroys capital.
4) Outbreak recurs in 2021. Subtract 4 points growth. Even more bankruptcies.
5) Outbreak continues in 2nd half of 2020 AND recurs in 2021. Subtract 8 points growth from baseline.

For the baseline, there is some hand waving about supervisors telling banks to give debtors and mortgage holders a holiday by just sucking it up, and that emerging nations are less affected because their economies are not service oriented like the G7.

 

[joedil]

You will not see DOW 18K bottom again because markets already looked to 4th quarter and the FED already did what they could to shore up the markets. Best is to DCA back in starting on Monday.

I am not so sure about this -- it is going to take months for the country to re-open and even then, it will only be a partial opening....the airlines, casinos, manufacturing and other swaths of the economy will be hurting for some time....I think 18-20K for the Dow is likely...and it will take a while to recover.

Earlier this week, I moved some money out of my IRA's - I was totally in on stocks and bonds about 70/30 in a growth portfolio, and moved about 100K (about 10 Percent) to cash....these are accounts I am not pulling any money out of (I have a state pension, a deferred comp account, TIAA-CREF account (my wife has SS and TIAA that provide us with more than we need already) so I can wait for several years for them to recover, but I just hated being so much in on stocks and bonds that I needed to do something.... when the market tanks further, I will likely start dollar cost averaging back into growth mutual funds....

But I think these gains this week are crazy and do not reflect the true weakness of the economy and the length of time it will take to recover....I wish I did all of this when the market was at 29K, but at 24K I am ok...

 

[Dtail]

Again could just come down to the Fed intervention vs. everything else.
My bet right now is everything else, with the caveat of an announcement of a true vaccine cure.

 

[fisemper]

I can 100% guarantee for you to meet your goal.

Simply take your ~960k and put it in to a 4-year CD. depositaccounts.com show a handful of 4-year CDs which are paying 1.7% to 2.0%. This is a no risk, guarantee you will meet your goal, probably at the 2 to 3 year mark.

Will definitely check those out. I was hoping for 2% min but after I figured taxes I would need to be closer to 3%. The 960K is in four years. I could decide to stay on one more and put another ~72K away, but I would rather relax and try to get that over time until then.

Cheers!

 

[RobLJ]

I already was using a glided path upward strategy (increasing stock allocation after SS) and the online part-time gig ends in a couple weeks, so I've significantly dialed down stock allocation from 63% a couple years ago to 48% in January, scraping money to bonds/cash during market uplifts.
I sold a chunk in 3rd week of Feb when the "oh crap" hit the market, then bought some back in March to lift to 40% stocks, which I see as a minimum. The recovery has brought me up to 45% after selling a bit of what I bought in March.

I think the market, fueled by the Fed and expectation of a V-shaped recovery, is more overpriced than early this year and last year, so I lean bearish. I'm even gloomier at how the US has screwed up in getting ready for testing (perhaps this will start noticeably improving in two weeks, according to Fauci and tests have finally increased) but preparedness for contact tracing/isolation is close to non-existent. So unless the virus is significantly affected by heat, I see continuous breakouts, and thus I think there will be a prolonged economic effect, not V-shaped. We could luck out with a quick vaccine or an effective therapy, one hopes, but hope is not a plan for the next 18 months.

Obviously the efficient market has disagreed the last 3 weeks; we will see.
Basically, I'll use my 28% cash to buy more stock funds as the market drops in 5% increments, if it drops (and if I am right about the virus).
If not, I'm only down .5% compared to last year and 6.5% from the start of the year; I was very happy with portfolio levels last year as again I thought the market was overpriced. I also made the mistake of reading a history of the Spanish flu over X-Mas (had a great grandfather outside Boston who died in the Boston outbreak stemming from the huge WWI mobilization base there).

I'd prefer to be wrong about the virus (and my portfolio strategy), actually. At these market levels, I see a lot more risk than reward over the next year; the upside I suppose is that we're not spending much and even less if you factor in the cancelled travel plans for summer.

 

[jayanu]

Again could just come down to the Fed intervention vs. everything else.
My bet right now is everything else, with the caveat of an announcement of a true vaccine cure.

1) Singapore University predicts When Will COVID-19 End in various countries.
Data-Driven Estimation of End Dates

https://ddi.sutd.edu.sg/ 2Q and 3Q are ruined, 4Q it will pick up IF no second wave.

2) In the long run Buffet's philosophy is correct - bet on the USA.

3) There will be a new normal like it happens after every major milestone including 9/11. I always went to the airport in the nick of time, now I go 3 hrs earlier!

 

[RobLJ]

I think a 2nd (and also a 3rd wave) is likely, but hope they are right. I think something like the Singapore model is what the "market" is assuming. Ironically, Singapore seems to be experiencing its own 2nd wave, after opening up recently.
Also, I thought Singapore was warm, but maybe my geography is faulty.

However, I do not know anything, just think. (I've always seen the future as an almost infinity of matrices with contradictory likely scenarios.)

1) Singapore University predicts When Will COVID-19 End in various countries.
Data-Driven Estimation of End Dates

https://ddi.sutd.edu.sg/ 2Q and 3Q are ruined, 4Q it will pick up IF no second wave.

2) In the long run Buffet's philosophy is correct - bet on the USA.

3) There will be a new normal like it happens after every major milestone including 9/11. I always went to the airport in the nick of time, now I go 3 hrs earlier!

 

[Bunker]

I think a 2nd (and also a 3rd wave) is likely, but hope they are right. I think something like the Singapore model is what the "market" is assuming. Ironically, Singapore seems to be experiencing its own 2nd wave, after opening up recently.
Also, I thought Singapore was warm, but maybe my geography is faulty.

However, I do not know anything, just think. (I've always seen the future as an almost infinity of matrices with contradictory likely scenarios.)

SIN is warm. I live a hour flight North in Thailand. March/April/May is our hot season/summer, and we've had our share of COVID here. Still do.

 

[Closet_Gamer]

Most recent GDP forecast on CNBC's website. Big drop for second quarter and strong recovery in following 3 quarters... but even by 1Q2021 we are not back to level of GDP of 4Q2019.

	Median			Average
Base		100.00			100.00
2020Q1	-4.90%	98.78		-5.30%	98.68
2020Q2	-30.20%	91.32		-29.10%	91.50
2020Q3	15.00%	94.74		11.80%	94.20
2020Q4	10.00%	97.11		10.00%	96.55
2021Q1	4.00%	98.08		4.70%	97.68

Very interesting.

The distribution curve around any of these scenarios has to be huge given the number of massive unknowns.

The most likely roll at the craps table is 7. If you asked me to predict what the dice would say, I would tell you a 7. But 5/6 of the time I would be wrong...and 1/12 of the time wrong by more than 50%.

Papa needs a new pair of shoes! C'mon 7!

 

[FIREarly]

If you only have 4 years until retirement and we are going through the COVID19 black swann it is very dangerous to try and reach $10k/year in the stock market. Depending on your ability to save money, you might be able to save the majority of that each year (not knowing your spending habits/income/lifestyle).

Here is an article with basic ideas towards saving $20k/year (you'll only need to do half the work): https://www.savespendsplurge.com/how-to-save-20000-in-a-year/

 

[Redbugdave]

I think these highs we are seeing right now are propped up by the free money being cranked out and artificially high. It will be unstable because of the day traders and computer driven programs. Our economy is in bad shape right now and there will be a lot of bankruptcies coming up. Banks will not be lending and the news is already talking about lowering credit card limits. Oil companies will be tanking. It is worse over in Europe. My gut feeling...at least for me...is to stay out of equities for the next couple of months and sit tight. I think the market will not stay up like it is now. I am still earning with bonds.

 

[FIREarly]

My gut feeling...at least for me...is to stay out of equities for the next couple of months and sit tight. I think the market will not stay up like it is now. I am still earning with bonds.

MSFT*
TSLA*

*Not financial advice; Not a financial advisor