So I bought S&P 500 2500 puts

Running_Man, thanks for your thoughts, they are always interesting and appreciated (by me, anyway). I share many of your concerns.
 
Running_Man,

Just wanted to say you scare me....

I appreciate the thought you put into a bunch of your posts, they are inspiring and interesting and sometimes terrifying.

Often after some time, I look back and wish I had not been so chicken to take an action, or hold so much stock, or live in IL.
The good news is I don't get a pension, so I only have to move to avoid the pension effects of IL :D
 
With the recognition phase hitting today, I will be selling 30-40% of my put position today, I am expecting the after tax profit will be enough to cover me to 2400 on the S&P500 while allowing to hold a good percentage of puts in case this gets really out of hand rolling into next year. Not to hard to see happening considering the comedy act coming out of the FED and Treasury.


The hard part is going to be buying back stocks with the proceeds, considering I think ultimately this is likely to go to 1200 on the S&P during the coming year. will probably be buying individual stocks, had considered a couple percent of MTUM thinking it would recover more on a bounce while holding major stocks for me, but decided that is too much of only a gamble and decided I will buy individual stocks paying decent dividends with good balance sheets. One thing I am doing is raising my precious metal percentage of my portfolio to 7.5% from 5%.
 
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Running_Man said:
....

If you look at the Princess Diaries clip they are actually looking down and saying "inconceivable" which is the point of the clip, not actually that I am claiming this is the end....
Click to expand...

I never correct typos but I absolutely must here, in memory of William Goldman: The Princess BRIDE, not Diaries.

Carry on.
 
Running_Man said:
The hard part is going to be buying back stocks with the proceeds, considering I think ultimately this is likely to go to 1200 on the S&P during the coming year.
Click to expand...

Yikes........1200, huh? I thought I was pretty pessimistic, but you may be right, considering the continued chaos coming out of DC these days (which is only going to get worse in the coming months, the way it looks). It's a time for caution and playing defense, in my view.
 
Yeah sorry, but there is no protection against 1200 S&P

Do you realize how many pension funds would go bust at that level? I mean if you are going to say 1200 on the S&P you might as well say zero and national default.

(which actually makes holding precious metals realistic, but I don't think we are going there)
 
gstillson said:
Yeah sorry, but there is no protection against 1200 S&P

Do you realize how many pension funds would go bust at that level? I mean if you are going to say 1200 on the S&P you might as well say zero and national default.

(which actually makes holding precious metals realistic, but I don't think we are going there)
Click to expand...

This is not true, and if it were true the underlying message you would be conveying is that the stock market price upholds the economy and not the other way around, or more directly that US government need stocks in order to be functioning. 1200 on the S&P 500 is only taking into consideration a moderate recession and a reversion to the global PE and dividend ratios. To state the US needs a higher stock market price in order to function is a pretty poor reason to hold stocks. It is the recent market action that makes the view I held from the start as a possibility as more likely. Historically bad stock market moves usually result in the economy reflecting why the market declined, not the other way around. There is no reason for the US market to be trading at a premium other than US far superior enforcement of investment financials.

This is different for pension funds at 70% stocks and withdrawing 4-6 percent per year they are in trouble as is anyone holding a pension for it to continue uncut.
 
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gstillson said:
Yeah sorry, but there is no protection against 1200 S&P

Do you realize how many pension funds would go bust at that level? I mean if you are going to say 1200 on the S&P you might as well say zero and national default.

(which actually makes holding precious metals realistic, but I don't think we are going there)
Click to expand...
At the current 2,350, it's based on P/E of about $130 and 18 P/E ratio. So either the P/E or the ratio is going have to take a pretty big haircut. If PE takes haircut that means earnings is about $70. That's a 46% drop, similar to drop for 2001, and short of what 2008.

Or maybe PE sets at average of $95 and then PE Ratio would need to be 12.6. Based on historical records neither of these is impossible, but seems to be a stretch, but few if any thought that 2350 was possible for 2018.

S&P P/E - 30 Years
YearS&PPEP/E Ratio
2018$2,351$13018.1
2017$2,790$11224.8
2016$2,275$9923.1
2015$1,919$9220.8
2014$2,028$11018.5
2013$1,822$10816.8
2012$1,480$9515.6
2011$1,301$9713.4
2010$1,283$8914.4
2009$1,124$5918.9
2008$866$1848.5
2007$1,379$7917.4
2006$1,424$10214.0
2005$1,279$8914.3
2004$1,181$7815.2
2003$1,133$6717.0
2002$896$3823.3
2001$1,140$3532.4
2000$1,336$7218.4
1999$1,426$7219.8
1998$1,249$5821.5
1997$963$6215.5
1996$766$6212.4
1995$614$5611.0
1994$465$529.0
1993$473$3812.5
1992$435$3412.8
1991$416$2914.3
1990$325$408.1
1989$340$467.4
1988$285$505.7
 
bobandsherry said:
At the current 2,350, it's based on P/E of about $130 and 18 P/E ratio. So either the P/E or the ratio is going have to take a pretty big haircut. If PE takes haircut that means earnings is about $70. That's a 46% drop, similar to drop for 2001, and short of what 2008.

Or maybe PE sets at average of $95 and then PE Ratio would need to be 12.6. Based on historical records neither of these is impossible, but seems to be a stretch, but few if any thought that 2350 was possible for 2018.
Click to expand...

Stockman has been warning about this all year:

https://moneyandmarkets.com/stockman-recession-market-correction-trump/

“No one has outlawed recessions. We’re within a year or two of one. When it happens, the earnings, $124, $130 a share, will drop to $75 or $80. Put whatever multiple you want on it; that says the fair value of the S&P going into the next recession is well below 2,000 to 1,500 — way below where we are today. Now if you think the economic gods have outlawed recession, that this business cycle will last forever and we’re in some kind of Nirvana, go ahead with the valuation you have today. Otherwise it makes no sense."
 
njhowie said:
Stockman has been warning about this all year:

https://moneyandmarkets.com/stockman-recession-market-correction-trump/

“No one has outlawed recessions. We’re within a year or two of one. When it happens, the earnings, $124, $130 a share, will drop to $75 or $80. Put whatever multiple you want on it; that says the fair value of the S&P going into the next recession is well below 2,000 to 1,500 — way below where we are today. Now if you think the economic gods have outlawed recession, that this business cycle will last forever and we’re in some kind of Nirvana, go ahead with the valuation you have today. Otherwise it makes no sense."
Click to expand...

Honestly, you can go back almost any year and find someone who predicts a recession. People tend to highlight when they are right, rarely go back and say they were wrong.

Back in Dec 2015 JPM predicted 76% chance of recession in 3 years - well, 3 years is over and no recession - if it happens next year is that still a win?

76% Chance of a Recession in the Next 3 Years Says JP Morgan | Money

In same month/year Citi was on record as predicting a recession in the next year at 65%.

U.S. Economy: Economists at Big Banks Think One Will Strike Soon | Fortune

But then let's look specifically at Stockman....

2013
He wrote a book and predicted stormy times for the US. OK, maybe 6 years later he may be right, but is that wisdom or just throwing out random comments? I can go on record every year making the same doom and gloom prediction and then when it happens I'll say "See I was right!".

https://www.theatlantic.com/politic...d-stockmans-stark-warning-for-america/274554/

2015
in August of 2015 he said "I think it's pretty obvious that the top is in". S&P was at 2078, so hardly at the "top".

https://www.cnbc.com/2015/08/07/stocks-are-a-disaster-waiting-to-happen-stockman.html

2016
He said November 2016 "I see a recession coming down the pike in 2017. The stock market is going to go down and it's going to stay down long and hard because, for the first time in 25 years, there's nothing to bail it out."

https://www.cnbc.com/2016/11/22/david-stockman-doubles-down-on-his-sell-everything-call.html

Guess he was wrong then too.

2017
Then in 2017 he's on record "The market is pricing itself for perfection for all of eternity. This is crazy. . . . I think the market could easily drop to 1,600 or 1,300. It could drop by 40% or even more once the fantasy ends."

https://www.econmatters.com/2017/05/david-stockman-financial-collapse.html

So... Say things often enough and eventually you'll be right?

He's not the only one who does this, but you gave me a perfect example to use.
 
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Running_Man said:
This is not true, and if it were true the underlying message you would be conveying is that the stock market price upholds the economy and not the other way around, or more directly that US government need stocks in order to be functioning. 1200 on the S&P 500 is only taking into consideration a moderate recession and a reversion to the global PE and dividend ratios. To state the US needs a higher stock market price in order to function is a pretty poor reason to hold stocks. It is the recent market action that makes the view I held from the start as a possibility as more likely. Historically bad stock market moves usually result in the economy reflecting why the market declined, not the other way around. There is no reason for the US market to be trading at a premium other than US far superior enforcement of investment financials.

This is different for pension funds at 70% stocks and withdrawing 4-6 percent per year they are in trouble as is anyone holding a pension for it to continue uncut.
Click to expand...

RM, I am not arguing with any of your points, but that last sentence I can't make heads or tails of. Can you elaborate some more.
 
It is true that Stockman is pretty much a Permabear, along with many others who have been predicting a bear market for much of this decade.

I'm hardly a Permabear, but stopped being bullish in 2016 when didn't have a correction. I turned bearish this year. Knowing that the market always over corrects 2000ish back to our 2015 levels plus an additional 10% so call it 1800-1900, seems well within the range of likely events.

We bounced pretty hard of the bottom in 2009, so I wouldn't be surprised to see a repeat in 2019.
 
Running_Man said:
This is not true, and if it were true the underlying message you would be conveying is that the stock market price upholds the economy and not the other way around, or more directly that US government need stocks in order to be functioning. 1200 on the S&P 500 is only taking into consideration a moderate recession and a reversion to the global PE and dividend ratios. To state the US needs a higher stock market price in order to function is a pretty poor reason to hold stocks. It is the recent market action that makes the view I held from the start as a possibility as more likely. Historically bad stock market moves usually result in the economy reflecting why the market declined, not the other way around. There is no reason for the US market to be trading at a premium other than US far superior enforcement of investment financials.

This is different for pension funds at 70% stocks and withdrawing 4-6 percent per year they are in trouble as is anyone holding a pension for it to continue uncut.
Click to expand...

If there is room for a bunch of QE then maybe, but if there is nothing to create a V recovery from a drop to 1200 then tax base will fall off as employment collapses and company profit goes away. Pension funds will be faced with cutting benefits, which in many cases is prevented by laws so the governments there will need to raise taxes on a population that is already under great strain from seeing their assets reduced by half or more. Local defaults, statewide defaults? Bankruptcies, the center not holding, chaos.

All can be prevented by keeping the drop reasonable, maybe 1900 max with a sharper recovery so this is my guess as to what happens.
 
clifp said:
It is true that Stockman is pretty much a Permabear, along with many others who have been predicting a bear market for much of this decade.

I'm hardly a Permabear, but stopped being bullish in 2016 when didn't have a correction. I turned bearish this year. Knowing that the market always over corrects 2000ish back to our 2015 levels plus an additional 10% so call it 1800-1900, seems well within the range of likely events.

We bounced pretty hard of the bottom in 2009, so I wouldn't be surprised to see a repeat in 2019.
Click to expand...

Just a little confused as there was a correction in early 2016. And in late 2015.
 
audreyh1 said:
Just a little confused as there was a correction in early 2016. And in late 2015.
Click to expand...

You are correct, it looked like the S&P was down about 16%. I meant a correction of greater than 20% which is technically a bear market.
 
HadEnuff said:
RM, I am not arguing with any of your points, but that last sentence I can't make heads or tails of. Can you elaborate some more.
Click to expand...

From another thread where I commented on what I meant along these lines, this I wrote when the S&P was at 2785 in early December:

---------------------------------------------------------------------------------
There are some comments in this thread along the lines of if we got through 2007-2009 we showed we can get through anything. That was an extraordinary bear market in that the Federal government spent 8 trillion and the FED supplied 4 trillion in order to keep the banking system from imploding and net did next to nothing for the economy. The median 55-75 year old has about 200K in total assets of which about 60K are actual investments and the rest is real estate equity.

With so little savings and a huge supply of 55 and over people about to hit the job market wall another bear market, which very likely is just beginning will be devastating to the average 55-75 year old. By the end of it I expect many will have a total depletion of savings and forced liquidations of their housing.

Pensions, which many in this group do have will be claimed and the pension funds, despite their probable desire to buy stocks at lower prices will be forced into redemptions to meet the growing boomer retirement. In 2007 the average pension fund held 86% funding, despite the large stock market rally since March 2009 the most recent data for 2017 is funding of 71%. More problematic is the ratio of active employees in the fund to actual retirees has dropped from 2.03 in 2007 to 1.38 in 2017, reflecting the demographic shift. A bear market is going to put a major dent in most of these public pension funds, which are all going to distribution mode and the net assets contained in these public pension is 4 trillion dollars.
https://www.nasra.org/publicfundsurvey

Before the answer of FIRE CALC shows this can all be lived through try to do the math for the average 65 year old retiring with 68K of investments, SS and a stock market that returns to the valuations of 1973-1974 (6PE). Because there is so little thought given to this possibility - as evidenced first and foremost by the lack of savings the median 55-75 has been able to accomplish, consumerism of the 70’s to the 2000’s is going to push into retirement a large group of people to confront economic reality starkly different than the go-go spending days of their youth. That is not so for the average person in this forum, yet the comfort in the worst case being 4% over the next decade as being debated in the King of Index investing thread will be severely challenged as the average retiree is going to be indirectly responsible for the selling a lot of stock, whether they want to or not and a bear market is sure to excelerate this process.

Since 55-75 year olds hold a great deal of stock in their meager balances, there is an implication of forced liquidations that is likely to occur that is going to be far larger than anything we have seen in decades. IF the bear market hits I shudder when I think of the potential outcomes, comforting long term investment sayings are no response to math. Timing, math and valuation are all arriving at the tarriff crossroads at the same time. It could be a Dicken’s of a time:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Click to expand...
The one factor that I am taking into account is the likelihood that the Federal Reserve has a very close eye on this as well and as such is very likely to strongly defend the S&P500. So inflation becomes a very possible solution to the potential bear market.


-----------------------------------------------------------------------------------------------------
The ;last part subsequently the FED has shown they are not aware, they may fast become aware.
 
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Why the quotes from the Tale of Two Cities* by Charles Dickens?

*The late 1700s French Revolution and Reign of Terror.
 
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audreyh1 said:
Why the quotes from the Tale of Two Cities* by Charles Dickens?

*The late 1700s French Revolution and Reign of Terror.
Click to expand...

The opening lines, to me, are as valid today as they were when Dickens wrote them -- there are two level people are living on two very different plains -- the very rich and the very poor. I am comparing the amount of pain that is going to spread among the unprepared with their average of 140K housing equity, 60K stocks and a pension, to the one percent with their millions in ROTH IRA's, should the 2008 type fall once again become into vogue, don't think it will quite as easy to save the bankers again.

Prior to the French Revolution France was operating much the same as it had hundreds of years prior.
 
With the VIX increase this morning I sold another 30% of my put position this morning leaving me at 40% of my original position, though far higher value than that in dollars. After tax assumption I have nearly 6 times the total original investment, covers me around 2200 on the S&P 500. I have not purchased any stocks yet to get me back to 25% equities.

Issue is the last time the market fell 1.5% or more on six successive trading days was 1931 and it followed that up with a 12% rise in one day!. I would still expect quite a bit of tax selling at this point to harvest some losses, and 2100-2200 could still easily be hit in the next days but seems prudent to shave back at this point.
 
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Interesting! In a similar move I removed my hedges this morning but am only looking for 6%-8% bounce.
 
Running_Man said:
With the VIX increase this morning I sold another 30% of my put position this morning leaving me at 40% of my original position, though far higher value than that in dollars. After tax assumption I have nearly 6 times the total original investment, covers me around 2200 on the S&P 500. I have not purchased any stocks yet to get me back to 25% equities.

Issue is the last time the market fell 1.5% or more on six successive trading days was 1931 and it followed that up with a 12% rise in one day!. I would still expect quite a bit of tax selling at this point to harvest some losses, and 2100-2200 could still easily be hit in the next days but seems prudent to shave back at this point.
Click to expand...

You may be right on your investments. But I don't see why one would look at 1931 as any kind of model akin to today's market. That economy was in the early stage of a depression and the volatility was like nothing we have seen in our lifetimes. In 1930, one year before, the market was down about -28%. And 1929 was no beauty either.
 
DOW up almost 1100 today, S&P up 116, each nearly 5%. So what changed from Monday to today? Market just not rational these days.
 
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