Wed 1 Oct 2008
Ok, people, if this?thing is going to happen, that obviously sets us up for a certain future, depending on your views. So, if you had $100,000 to invest in the aftermath of a bill passing and you had total flexibility (within reason, e.g. stocks, options, futures, metals, Treasuries, FX), do you have a bead on an optimal “Living-with-the-Bailout” portfolio/asset allocation plan? I’m stumped right now (or rather more concerned with stopping the bill that dealing with the aftereffects) but wondered if any of you smart dudes had one in the works. And I obviously know that you all will be concentrating on things like debt reduction etc. but I’m interested more in your ideas for profiting from this even if you don’t plan to actually pursue that route. I’d also like to see how the plan ties into your outlook for various markets.
October 2nd, 2008 at 11:15 am
I was gonna say cash and gold, but it looks like canned food and shotguns might be more appropriate.
October 5th, 2008 at 10:58 pm
My portfolio is moving towards: 30% cash, 30% gold, 30% Ultra Short S&P 500, 10% survival packs (that is non-perishable food items and and shotguns for you city slickers).
October 9th, 2008 at 11:55 am
As the dust settles a bit, my current plan is to potentially expect a long-ish period of slow economic growth. Cash is king. Cash producing assets seem like the best asset class to ride out this period…
The bonds trading at a discount (that I wrote about separately) are on my short list of candidates, as are several of the energy trusts and MLPs that have very high yields.
When P/E ratios are fluctuating rapidly because of dramatic changes in both P and E, the actual cash flow and dividends become more important.
Ultimately, even if today (or tomorrow) marks the bottom of the bear market, I don’t think a new, vigorous bull market will be starting right away. I believe we will have lots of time, so patience is in order.
October 9th, 2008 at 12:08 pm
To answer your specific plan for the hypothetical $100k…
(The assumption is that this doesn’t include your savings fund for consumption and emergencies so that we can have a pure theoretical exercise…)
I’d be scaling into the following allocations…
20% closed-end bond funds trading at discounts
20% energy trusts and MLPs or MLP funds
20% targeted for gold and gold stocks
40% cash
I’m not eager about getting into gold or gold stocks right now, so I probably wouldn’t be scaling into those, or be scaling slowly and waiting for a trade catalyst before putting that money to work.
The 40% cash would be defensive and basically my “wait for ridiculous prices” fund. Money market rates are low, but he who loses the least in bear markets is ultimately a winner.
October 9th, 2008 at 3:00 pm
Also take a glance at the Now & Futures investing grid for ideas.
http://www.nowandfutures.com/investing.html
October 9th, 2008 at 4:03 pm
I was also assuming that the stock market won’t proceed downward at the same pace it has been… if stocks fall far enough (e.g., S&P drops below 500, ~70% total fall), I would be buying the broad indexes. I certainly hope this doesn’t happen, but we’re currently proceeding downward at ludicrous speed…
October 9th, 2008 at 4:51 pm
To quote Karl D about buying now:
“This is the “value trap” problem that many investors fall into. You see the market down 30% and think its a great buying opportunity.
It is a great buying opportunity only if earnings going forward can be sustained. But in this case, they cannot. It is flatly impossible; with Treasury borrowing money like a madman, tacking on more than 20% to the national debt in the space of months, carrying costs will inevitably rise as will taxes. Both of these have a multiplier effect (in the wrong direction) on corporate profits, and in addition the “faux profits” from financial engineering have all disappeared at the same time.”
About gold, is your hesitancy because you are seeing deflation as more likely than hyperinflation or do you see inflation but simply think gold will get cheaper before it gets more expensive? Or something else?
October 9th, 2008 at 5:34 pm
I don’t consider the broad indexes to be “value” right now. But at 70% off of peak prices, my opinion would change.
And with gold… yes. The fundamentals are lined up with gold, but I’m waiting for confirmation from prices.
Deflation fears in the short term. Gold may get cheaper before it goes higher. Gold stocks are getting relatively pummeled by nature of being stocks. And that big downtrend (HUI) since March scares me.
I like the idea of gold, but don’t know if the timing is right yet. Luckily I can adjust my opinion and positions as time unfolds.
October 12th, 2008 at 12:37 pm
After a little more thinking, there’s another reason I’m cautious on gold right now… the fact that it’s not *already* in flight heading to the moon.
Within the last year, we’ve (arguably) seen every gold fundamental argument become more bullish, to the point of absurdity. Yet even with this backdrop, gold has been muddling around.
It seems as though gold is in a coma, and simply not aware of everything else going on. Or with the interconnected nature of the markets, all the market participants are in a coma… I expect gold to wake up from said coma sooner or later, but I’m not basing a lot of trades on the fundamentals until the price action confirms.
My trading accounts are small enough that I can move from 0% to 100% invested in a single day without causing any problems or distorting volume on securities. Most of the big money can’t do that, so they have to buy into weakness when fundamental information indicate they should… I guess that’s one of the benefits of being small.