Good time to be in cash

[dex]

This is a good time to be in cash and wait for the peak in interest rates next year.
The Fed will continue to raise rates, inflation will pick up over the winter and I think a tax benefit for companies to repatriate earning into the USA will end this year.

Cash - not bonds, stocks or homes should do nicely over the next 6 - 8 months.
Then look to get into bonds, junk bond funds at least.

The US$ has and will get a little stronger. But, the interest rates should begin to fall just as the euro land interest rates begin to rise.
___________________________________________________

Treasuries Fall as Foreign Demand at $13 Billion Auction Falls

Nov. 9 (Bloomberg) -- U.S. Treasuries fell the most in two weeks as demand from international investors, who hold about half of all U.S. government debt, declined at the second bond auction by the Treasury this week.

Indirect bidders, which include foreign central banks, bought 21.1 percent of the $13 billion in five-year notes, down from 45.8 percent last month, the Treasury said. The drop in debt prices wiped out more than half the rally the past two days. The Treasury will sell $13 billion of 10-year notes tomorrow.

 

[brewer12345]

Today was not pretty in the bond market, for sure. I wouldn't be too eager to load up long duration teasuries. However, there is plenty of attractive shorter duration or floating stuff out there to buy. I also think there are attractive equities to be bought.

Housing, well, can't disagree that the party is over. I still need a place to live and I still have no plan to move any time in the next 15+ years.

 

[azanon]

Interest rates are still low; viewed historically. I recommend stocks still.

 

[retire@40]

There have always been reasons for people to want to stay in cash and not to invest in the stock market.

In 1991 people were afraid of investing because we were about to enter into a war with Iraq.

In 1989 people were afraid to invest because of the fear that the government had to bail out the S&Ls.

In 1988 people were afraid after Black Monday.

In 1987 people thought they missed the boat when the Dow hit 2000.

In 1983 people were afraid because unemployment was at 10% and banks were failing.

In 1981 people were skeptical of the future of US businesses when Chrysler needed a $400 million loan to stay in business.

In 1980 people were afraid of a war when Iran was holding US hostages.

In 1977 people were afraid of inflation killing the economy when coffee was at $5 a pound.

In 1976 people were afraid of the stock market when New York City almost went bankrupt.

In 1963 the Dow dropped 4% the day Kennedy was assassinated but recovered all losses on the very next business day.

In 1941 the market dropped 1.72% the first week following Pearl Harbor but recovered in just 5 months.

In every one of those years or any year in between, if you had invested in the stock market, you would be worth a considerable amount more today. Invest for the long-term in the stock market and you will be rewarded.

 

[dex]

retire@40
I thing a person should be in and out of various markets (not just stocks) at various times alla Ben Stein "Yes, You Can Time the Market!"

 

[brewer12345]

Sure, but if you invested in 1963 you lived through some absolutely Fugly times to be an investor in the 60s and 70s.  Not saying that makes all that much of a difference in the very long term, but it does if you have a shorter time horizon.

 

[dex]

brewer12345,
The stock market didn't go anyplace from '63 to about 82 but, bonds did OKl is the 60's not well in the 70s up until about '82. Then in '82 bonds and the stock market did well.

Which investment are you refering to?

 

[Michael]

Interest rates are still low; viewed historically. I recommend stocks still.

Year end rally, then sell in May and go away.

 

[Jarhead*]

Sure, but if you invested in 1963 you lived through some absolutely Fugly times to be an investor in the 60s and 70s.  Not saying that makes all that much of a difference in the very long term, but it does if you have a shorter time horizon.

Yep, the folks that retired at the "traditional age" in the early 60's, were mainly "screwed",
and spent the last 20 years of their life trying to figure out how to stretch their income to allow for the basic necessities of life.  (Shelter and food).  The brave souls that retired early (55 or so), if their health permitted it, were back in the workforce once inflation really started to crank on.
An ugly period, and one I wouldn't wish on my worst enemy.

 

[wabmester]

John Bogle, the king of buy-and-hold, was on one of our local radio stations yesterday promoting his new book.

He got some pretty good questions during the call-in portion of the show, in which he said:

1) He's 30% stocks and 70% bonds.

2) International exposure might not be such a bad thing after all.

3) He used Japan as an analogy for what could happen to the US.

4) He was appalled by both our debt and current account deficit.

Bogle is the last guy I would expect to be a bear, but he generally sounded pretty bearish.

Here's the interview:

Bogle on KUOW

 

[dex]

ex-Jarhead,
Let me give you another possibility or scenario for someone who retired at a traditional age in the early 60's.
They were born between 1905 - 1915.
1915 - 1929 dust bown and growth of industrial USA
1929 - 1941 Depression
1941 - 1958 2 wars and a recession

What they have:
Social Security
Pension - possibly - good chance
Savings - possibly - good chance
Home - possibly (paid off - possibly)
Health costs and insurance lower than today - yes
Able to deal with adversity - yes
Realistic expectations about life - yes

It was the inflation of the 70s and early 80s that hurt many retired people.

Next month the CPI will hit 200 - the base is 1982. In other words prices have doubled in 22 years.

I don't see how the 60s were that bad for the retired. The 70's and early 80's were bad due to inflation.

 

[dex]

John Bogle, the king of buy-and-hold, was on one of our local radio stations yesterday promoting his new book.
He got some pretty good questions during the call-in portion of the show, in which he said:
1) He's 30% stocks and 70% bonds.
2) International exposure might not be such a bad thing after all.
3) He used Japan as an analogy for what could happen to the US.
4) He was appalled by both our debt and current account deficit.
Bogle is the last guy I would expect to be a bear, but he generally sounded pretty bearish.
Here's the interview:

Considering his net worth (alot - I would guess) this is a major vote for the idea of deflation.

That is similar to my view. I think the Fed will begin to reduce rates next year in the face of a slowdown.

 

[Michael]

He's 30% stocks and 70% bonds.

Considering that he is about 70 or so, the standard formula 100 minus age would give that approximate allocation. He has a good point about the deficit though. The Republicans are out of control. Where is Newt when you need him?

 

[Gone4Good]

There have always been reasons for people to want to stay in cash and not to invest in the stock market.

Nice post and a good list.  You forgot to mention the near perpetual threat of thermonuclear annihilation from 1950-1990 as a reason for pessimism.  Now we have terrorism - seems almost trivial by comparison.  

"Stocks climb a wall of worry."  It can't be any other way.  I don't believe you can time the market on any consistant basis and its dangerous to your financial health to try.  Most of the gains in equities typically occur over a small percentage of trading days.  Miss those days in the market and you're pretty much screwed.  

 

[wildcat]

No timing in this cat. Let it ride and use a little play money to shift around in case I think I am smarter than the next guy.

 

[wabmester]

"Stocks climb a wall of worry."

Lots of worry *should* be priced into this market. Inflation. War. Terrorism. Corporate corruption. Outsourcing. Pension crisis. Oil crisis. Massive debt. Trade deficit.

I just wish that these fears were reflected in the market P/E. Prices aren't as crazy as they were a few years ago, but they don't seem to reflect a healthy amount of fear. Too much trust that the Federal Reserve will somehow make everything OK.

 

[greg]

For what it's worth, below are the current rates on treasury bills at TreasuryDirect. Current short term rates are near 4% for 4-week and 13 bills. It take about five minutes to sign up, and it may be a good alternative to longer duration CDs. If you can't trust the US gov't, who can you trust?

http://wwws.publicdebt.treas.gov/AI/OFBills

--Greg

 

[brewer12345]

brewer12345,
The stock market didn't go anyplace from '63 to about 82 but, bonds did OKl is the 60's not well in the 70s up until about '82.  Then in '82 bonds and the stock market did well.

Which investment are you refering to?

Bonds and stocks. If you are following an inflation-adjusted withdrawal plan, the mid-60s were perhaps the worst time in history to retire, worse than the Depression. Stocks and bonds went nowhere, but inflation zoomed up.

 

[BigMoneyJim]

*I* can't time the stock market. And cash is expensive. Staying out of debt and saving into a small mix of asset classes should keep me in the upper half of the wealth distribution no matter what fortune or famine is ahead.

 

[Gone4Good]

Lots of worry *should* be priced into this market.  Inflation.  War.  Terrorism.  Corporate corruption.  Outsourcing.  Pension crisis.  Oil crisis.  Massive debt.  Trade deficit.

I just wish that these fears were reflected in the market P/E.   Prices aren't as crazy as they were a few years ago, but they don't seem to reflect a healthy amount of fear.   Too much trust that the Federal Reserve will somehow make everything OK.

I agree that risk premiums are slim.  But many of the issues you reference are of lesser concern than in year's past.  Inflation is a fraction of what it used to be.  Outsourcing is a boon for corporate profits.  Terrorism is a small risk compared to the cold war.  Iraq isn't the problem that Vietnam was.  Debt and trade deficits were the boogieman of the 80's- right before the market took off.  Corporate corruption is so 2002 (some people even suggest the quality of earnings today is better than any time in recent memory) - and meanwhile corporate balance sheets are flush with cash.

I'm not suggesting that everything is peachy.  But things are still pretty good by most standards. 

 

[wildcat]

Greg ---

Cool avatar, I'm jealous.

 

[greg]

Wildcat: Thank Martha; she found it. She called me from work and said she found a picture of Alexander Haig. I said I'd rather be a mushroom cloud. Her picture leaves a nice glow, like a blonde, easy to find in the dark. We've been running around the house cracking wise about being Mr.&Mrs. Putin: "Mr. Putin, show me your secret Swiss bank account." "If you show me your oligarchs." bla, bla, bla. I'm trying to talk her into pretending we're ruling a Russia without pants next weekend. Nyet?

--Greg

 

[haha]

I recommend stocks still.

Well ****, what are we waiting for?

 

[azanon]

Well ****, what are we waiting for?

I'm entitled to an opinion haha.  Deal with it.

..........

Whether one should be in cash or not, and to what extent, should also have a lot to do with what your investment goals are (how long off) and what kind of timeframe you're looking at. For those that dont know, i'm 34, so for my retirement account, volatility is literally not a concern at all to me. As azazeal sang in that Denzel movie "Time...... is on my side!"

 

[yakers]

"Time...... is on my side!"

Of course, ultimately, we're all dead.