Hypothetical limited nuclear exchange

[Midpack]

Why would market timing work better during a limited nuclear exchange than any other time? If it happens, I suspect we'll all miss the opportunity to sell high, or know when to get back in (as is always an issue). So we'll either stay the course or sellout near/at the bottom, might as well stay the course...

 

[SecondCor521]

I wonder if RV's would be priced at a premium. Mobility and relative self-sufficiency might be two traits people are interested if this scenario occurs.

 

[Ronstar]

If I had insider info of an attack, I would withdraw a bunch of cash and move everything to cash in my IRA before the event. But I don't think I would have any advance warning, so I would probably just stay the course.

 

[marko]

Stay the course, what other option is there really ?

Yeah. I look at 9/11 as the (to date) worst case scenario and IIRC the market fully recovered within a month or two. Even the Great Recession was a relatively short term event.

Of course a nuke would have much further reaching consequences, but aside from perhaps scooping up some bargains, I'd stay the course.

Market-wise everybody would be in the same boat so a drop in NAV would (might?) put everyone in a relative net neutral position, just at a lower price point. At least those who held on.

IOW if my portfolio dropped 50%, so would everyone else's and the economy would eventually adjust to a new water level.

 

[Fermion]

Hey, so yay! I am back online. At least one cell tower in the area has come back but no word on why they all went out at once, just a news report that there was a strange widespread cell outage. It is foggy here and 19% humidity. Wait, that is not fog, it is smoke! The air quality reading here is 2.1 It is fun to go to sleep in the middle of a forest with like 25 fires burning around you and no cell service.

Back to the topic. I expected "stay the course" would be popular and it is likely what we would do as well. As far as doing anything beforehand, I do not want to miss out on a relief rally if things blow over as they have every other time. The DOW could go to 25,000 while I sit here in the smoke with my #10 can of dried blueberries, shotgun, and cash. I do think having a little cash would not hurt. I already keep a year living expenses in pure cash in the bank earning 0.01% so it would not be horrible to have a little of that earning 0% but even more accessible.

After the event I would have to wait and see. If the market only dropped a little bit, like 10%, then I would probably move from current 70/27/3 to something more like 50/40/10.

 

[FIREd]

I already have a pretty conservative AA (not for geopolitical reasons, but to minimize sequence of return risk as we are still in the early stage of ER), so I'd probably stay the course. Some of my assets are held in Europe. And I have some cash and gold on hand too. I should probably start printing my Vanguard statements again, just in case. But there are too many possible scenarios to be fully prepared.

 

[Breedlove]

Sincerely , the problem on the peninsula will be over by the end of October and you can all sleep better .

Stay the course and we will be fine.

 

[Spock]

Yeah. I look at 9/11 as the (to date) worst case scenario and IIRC the market fully recovered within a month or two. Even the Great Recession was a relatively short term event.

Of course a nuke would have much further reaching consequences, but aside from perhaps scooping up some bargains, I'd stay the course.

Market-wise everybody would be in the same boat so a drop in NAV would (might?) put everyone in a relative net neutral position, just at a lower price point. At least those who held on.

IOW if my portfolio dropped 50%, so would everyone else's and the economy would eventually adjust to a new water level.

We are now 8-10 YEARS into the "Great Recession".
* The labor participation rate is still near its recession low.
* The US federal reserve is STILL buying mortgage backed securities.
* "nearly $11 trillion or roughly one-quarter, of global fixed-income assets yielded below zero at the end of 2016, according to Bank of America Merrill Lynch."
* Non-US central banks are on pace to purchase 3.6 TRILLION in 2017 alone.
If the economy recovered, why does it still require life support?

As far as "everybodies NAV dropped so no-harm-done", your assets dropped but that does not mean your liabilities/expenses will drop to match.

 

[marko]

We are now 8-10 YEARS into the "Great Recession".
* The labor participation rate is still near its recession low.
* The US federal reserve is STILL buying mortgage backed securities.
* "nearly $11 trillion or roughly one-quarter, of global fixed-income assets yielded below zero at the end of 2016, according to Bank of America Merrill Lynch."
* Non-US central banks are on pace to purchase 3.6 TRILLION in 2017 alone.
If the economy recovered, why does it still require life support?

As far as "everybodies NAV dropped so no-harm-done", your assets dropped but that does not mean your liabilities/expenses will drop to match.

Sorry, I was only referencing the stock market which I thought was the OP's main point and consideration. Personally, since March 09, I've done quite nicely in the stock market. Quite nicely; on-going recession or not.

As far as the NAV dropping, I would think if such a thing happened the prices/expenses would eventually drop as well. If everyone's income was cut in half prices would have to come down.

Having said that, my NW dropped considerably in the '08-'09 time frame but my dividends (which I mainly live on) stayed pretty much the same.

 

[Johanson]

I think I would stay the course. I'm 100% equities still.

 

[RunningBum]

Sorry, I was only referencing the stock market which I thought was the OP's main point and consideration. Personally, since March 09, I've done quite nicely in the stock market. Quite nicely; on-going recession or not.

As far as the NAV dropping, I would think if such a thing happened the prices/expenses would eventually drop as well. If everyone's income was cut in half prices would have to come down.

Having said that, my NW dropped considerably in the '08-'09 time frame but my dividends (which I mainly live on) stayed pretty much the same.

Depends what "limited" means. 9/11 was a few thousand people dead, two large building destroyed and another badly damaged. If California is hit, and millions of people die, a city or two is leveled, and most crops are contaminated, I think the standard of living will drop a lot for everyone. Less supply and not much of a drop in demand.

 

[Blue Collar Guy]

If I had insider info of an attack, I would withdraw a bunch of cash and move everything to cash in my IRA before the event. But I don't think I would have any advance warning, so I would probably just stay the course.

I literally just saw how much advanced warning we will get, Los Angeles gets 33 minutes, Chicago get 37 and NYC gets 39. Just enough time to say the Rosary twice. Calling my stock girl at vanguard is about # 237 on my to do list. The world will never be the same again if things go boom.

 

[Breedlove]

You have more chance of a major earthquake hitting California then a Nuclear attack . Chill out .

 

[marko]

Depends what "limited" means. 9/11 was a few thousand people dead, two large building destroyed and another badly damaged.

True, but there was a distinct psychological damage to the market that was considerably greater than "two buildings destroyed".

The market runs on predictability (and fear) and at that time no one knew what was going to happen next. Still the Dow recovered by mid-November.

Would the market shrug off a nuke event in a matter of weeks like it did in 9/11? I doubt it. But in a couple of years? Most likely IMO.

Hold and buy low.

 

[RunningBum]

True, but there was a distinct psychological damage to the market that was considerably greater than "two buildings destroyed".

The market runs on predictability (and fear) and at that time no one knew what was going to happen next. Still the Dow recovered by mid-November.

Would the market shrug off a nuke event in a matter of weeks like it did in 9/11? I doubt it. But in a couple of years? Most likely IMO.

Hold and buy low.

That's my point, 9/11 had a very strong psychological impact. The direct economic impact was not all that big. There were some lasting effects in additional security measures all over, but a lot of that is inconvenience rather than economics.

Losing California's crops, or Silicon Valley, would have a much larger and longer economic impact. I think things would recover, but not to the same level. As I said earlier, I would likely make no changes to my portfolio, but I'd almost certainly be cutting back on expenses until things did recover, if they ever did.

 

[Sojourner]

Depends what "limited" means. 9/11 was a few thousand people dead, two large building destroyed and another badly damaged. If California is hit, and millions of people die, a city or two is leveled, and most crops are contaminated, I think the standard of living will drop a lot for everyone. Less supply and not much of a drop in demand.

+1 ... Yes, even a very limited exchange could make 9/11 look minor by comparison in almost every way.

The most likely scenario, from what I've read and heard, is that millions of people on the Korean peninsula would be killed or, at the very least, severely affected and displaced, possibly for decades. This would profoundly affect not only the entire peninsula but also the world's second largest economy just across the border to the north. A major disruption of this scale to China and S Korea, not to mention the tremendous, long-lasting psychological impact from the utter devastation, could be 10 times as damaging to the global economy as was 9/11. And all of that is in addition to the direct impact of a strike (nuclear, cyber, or EMP) on U.S. territory such as Guam or Alaska or California.

So, IMHO, even a limited nuclear exchange could quite conceivably trigger one of the largest economic meltdowns in history. Probably far worse than 9/11 or the Great Recession. Even still, I'd be reluctant to make huge changes to my AA in the immediate aftermath, since I'd almost certainly end up selling low... very low... were I to follow the herd mentality.

Check out this excellent, fascinating podcast for an in-depth analysis of the situation:

 

[marko]

That's my point, 9/11 had a very strong psychological impact. The direct economic impact was not all that big. There were some lasting effects in additional security measures all over, but a lot of that is inconvenience rather than economics.

Losing California's crops, or Silicon Valley, would have a much larger and longer economic impact. I think things would recover, but not to the same level. As I said earlier, I would likely make no changes to my portfolio, but I'd almost certainly be cutting back on expenses until things did recover, if they ever did.

Point taken and agreed. Cheers!

 

[CaliforniaMan]

We have often flown Korean Air (through Seoul) when flying to SE Asia. I would expect that in the military buildup prior to a conflict or just in the news buildup, we would see some great bargain prices on air travel. But I doubt they would get low enough to make me fly through Seoul again. We will be avoiding Seoul for a while, so I guess something has already changed.

Things would eventually work out for us in the U.S., so we will pretty much just ride it out, as we have done through every other panic, but I really worry for the people of Korea, a conflict would be catastrophic. Still I do hope that it will play out as in the Cuban Missile Crisis and cooler heads prevail. I am just not that confident that they will this time around.

This is much scarier than 9/11, and we do not know how China will react. They would much rather see a separate North Korea on their boarder than the U.S. military. Their military is much more capable than last time around, and our economies are much closer linked. It is a scary time. I try to not watch the news too much nowadays.

 

[Walt34]

Still I do hope that it will play out as in the Cuban Missile Crisis and cooler heads prevail.

I was thinking the same thing today, that never since then have we been so close to really Bad Things happening. At least then I was 12 years old and had little clue what the stakes were.

I wish I was 12 again....

 

[Red Badger]

I'm more concerned with isis and their ilk, including countries like Iran and Pakistan (for very different reasons).
While little (fat) kim may be crazy, he intends to be a survivor. That's why he kills so many in or near his inner circle. He knows if he "pokes the bear" it's lights out for him and millions of his best friends in about 5 minutes. Once he heard the response (from both US and China) on his plan to "bracket" Guam with missiles, he back-burnered that plan ASAP.
Many of those nuts in the Mideast think they are doing Allah's work - survival is very much secondary.
We keep ~1 year cash at all times. And, like others here, i keep our metals portfolio current in assorted calibers and gages.

 

[W2R]

I have asked the moderators if I could present it for discussion and we agreed to try and keep things neutral, hypothetical and non-specific. We agree the topic will get locked or deleted if things go off kilter.

I don't know how we can be more clear than this. The above was decided by lengthy discussion and consensus of the mod team and Fermion. This thread cannot continue if it veers off into politics and discussion of the likelihood of war with specific countries, which is incendiary, possibly offensive to our international members, and has absolutely zero to do with the topic of this thread. Do NOT expect multiple warnings on this.

 

[CaliforniaMan]

...
I wish I was 12 again....

+1
That same thought has crossed my mind too recently, for any number of reasons.
Then the only thing I had to really really worry about around that time was learning that damn Morse code for Boy Scouts.

 

[Fermion]

Try to keep this generic and not name any countries so the topic can stay alive for awhile.

That being it was pointed recently that a leader of a country might look the past and figure they have nothing to lose. I guess we can talk about the past since it is not conjecture. They mentioned that present day leaders of rogue nations look at what happened to Saddam (noose around neck) and surely have that in the back of their mind. It might cause them to be cautious but at the end might cause them to go for broke.

My initial feeling after the event is that airline stocks would tank, oil stocks would soar, gun manufacturers would soar, food prices would go up so some of the big names would do well, shipping stocks would tank.

Some niche markets that provide radiation protection/detection items would do really really well. I mean they would probably go up 500% or more. If I did anything at all I might speculate a bit on those if I could identify them.

Biotech? I have no clue. People would still need drugs but I imagine biotech would take it on the chin like most other stocks.

So the only thing I can think to do other than stay the course is to identify beforehand some small and medium companies that produce radiation protection/detection items and be ready to jump on those the first day the market reopens. I am probably not the first person with this idea.

 

[ls99]

I'll do nothing, let vanguard sort it out.

 

[W2R]

This is a topic which is possibly in the back of everyone's mind but can devolve into bickering and arguments if politics are brought into the discussion. I have asked the moderators if I could present it for discussion and we agreed to try and keep things neutral, hypothetical and non-specific. We agree the topic will get locked or deleted if things go off kilter.

Well, we all tried! Moderator consensus is that it veered too far off topic due to politics, specific countries and leaders being discussed, and so on. We recognize that it is difficult to limit discussion to financial strategies in our current political climate, and we appreciate all of your efforts to do so. However, consensus is that the thread has gone far enough and needs to be closed now.

Thank you for the interesting on topic posts, and the efforts to keep this interesting thread on track.