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Saturday, May 02, 2020

I don't give financial advice, but...

... I don't give financial advice!  I also don't have a financial degree.  You are on your own financially - as in all things.  Most importantly, don't attempt to hold me responsible for your own actions.  Only a fool would act based on some random guy's blog posts!

So... taking stock of the situation:

Unemployment is up, up, up.  People are not making their rent, mortgage or car payments, nor are they shopping till they drop.  Yet the stock market is making new highs every day.  Who are you gonna believe, the stock market, or your lying eyes?  Lets have a look at the people who are in charge of these things to answer that question...

I've been to college, and wasn't impressed by the intelligence or initiative of the students around me - especially compared to those I served with in the nuclear Navy.  Anyone with time and money can finish college.  The Navy has to winnow out the idiots.  You cannot afford use credentials as a basis to decide who can operate a nuclear reactor deep underwater.  In that hostile environment, excellence is a requirement, but a credential from some Important University is not.

If you think that someone who has a college degree is smarter or better than you, think again.  Most of the Pre-Med students I came across were either greedy or wanted prestige, and they would cheat to get the grades.  Many more young people have been sold a bill of goods that the only way to be successful is to get a degree.  That just isn't true.  I trust none of them with my finances or my life, because 90% of them are even more stupid than I am.  Few have any integrity, including the schools.

Keep in the back of your mind that someone with a PhD probably accidentally released this virus on the world.  These scientists scoured the four corners of the globe to capture bats that carried SARS coronavirus, so they could study and experiment with it.  Now it's out of the lab and killing people.  End of rant about all the smart people in the room.  I'll get back to them shortly though, because they are in charge.

So we have a spot of bother going on with the economy right now.  This of course is due to a global pandemic of a never-before-seen virus that's killing lots of people in spite of a global quarantine.

Everything will be OK though, because college-educated folks (hedge funds, mutual fund managers, and the Federal Reserve, CDC, WHO, governments) are on it!

So it's all good!  The stock market is doing just fiiiiine.  Yeah, it swooned a little bit, but it's back, baby!  Maybe just a little lower than it was, but it's going to kick ass now that everyone is going back to work!!!

Everyone will be back to working for 'the man' soon, thanks to hysterical "open the economy" propaganda - probably funded my 'the man'.   Are you ready to lose your McLife for your McJob?

Yeah, probably not.  Everyone will *not* be going back to work right away.  The need for social distancing will keep people off jets, trains, and cruise ships.  Warren Buffet just announced that he will be liquidating all his airline holdings.  It looks like he is reading this the same way I am.

The virus will also keep people out of sports stadiums, gyms, concerts, and restaurants, all of which are used to stuffing their in customers elbow to elbow to maximize cash flow.  Sorry, that's not happening any time real soon.  Theme Parks with people crammed in so tight they can't breathe, and being bled for every penny ...not soon, and maybe not again.

Furthermore, it's also likely that most people are not going to be lining up to take out a massive long-term loan to buy that new car, boat or RV.  They might decide the old one will do just fine for a few more years, because that loan is about paid off.  Ditto renovating the kitchen, installing that saltwater swimming pool, and traveling to Italy to tour Tuscany.  Big-ticket purchases may be on hold for quite a while in a stunned and financially reeling citizenry.

There is a distinct possibility that many people will have reflected a bit on how pointless all that activity really was, and maybe stop so much thoughtless consumption.  Gotta have the latest Iphone on the day it's released?  Or camp overnight at Best Buy on Black Friday?  Maybe those won't be a thing going forward.

I'm going out on a limb here, and stating that the stock market is currently extremely divorced from the actual economy.  Consumer spending makes up about 60% of the US economy, and I'm guessing that is down by at least 50%.  At the end of March it was already down 7.5%.  My other assumption is that those smart people who rig the financial sector are attempting to keep the market looking decent while they get out.  After they sell all their stocks to your pension fund, the market will be allowed to collapse.

The market currently does not reflect the massive damage that the economy has already suffered, and I have no explanation why that is so.  The market is supposed to be lifted by a healthy economy, not by share buybacks or Fed interventions.  Bailouts for the well-connected seem to be what's holding it up thus far, but that activity cannot continue.

There will also be a number of "Bear Market Rallies" when short-sellers have to cover their positions.  Do not be fooled - those brief pops are not signs that the market is recovering.  The charts, even if they are from Europe, show that things are not going well.  Markets will eventually have to reflect this reality.


As I said earlier, I don't give financial advice.  I will tell you what I've done to protect my modest retirement nest egg though.  It's up to you to decide whether these moves are sound or stupid, and whether to ignore, follow or modify.

Before this pandemic started, I had about 50% of my retirement in Money Market mutual funds - basically in a cash savings account.  Money Market funds don't make money.  Importantly however, Money Market funds don't LOSE your money.  They are a nice harbor to anchor your ship during a financial storm.

25% of my retirement was in Fidelity Contrafund.  This one has done quite well over the past 10 years, and it rebounded very nicely from the recent market turmoil.  I am pleased with this fund.
25% was in JP Morgan MidCap Value.  This fund has done so-so over the same time frame, and it did not rebound noticeably from the recent turmoil.  I had modest performance in good times, and poor performance in hard times.  I'm dumping this one right now.

Most of the funds offered by the company retirement plan have recently taken a bit of a beating - which is to be expected.  According to the dashboard on my retirement planning account, I'm down -4.4% since January 1, mainly on the JP Morgan fund.  That isn't too bad, considering the spasms the market has been going through.

However, I'm not keen on losing more than that.  I anticipate that the stock market will be back in the news very soon, and not in a good way.  It's never a good plan to stand still and get run over by a bus, so I've moved some money around.

100% of the JP Morgan fund has been transferred to a money market fund (sold for cash).
80% of the Fidelity fund has been transferred to the same money market fund.  That leaves about 10% of my money in a very good fund, Fidelity Contra.  The rest is in cash.

I also directed that all future contributions go to the Fidelity Contra fund, and I increased the amount I am contributing.  The reasoning behind this is that I expect the stock market to tank, very badly.  I also expect it to overshoot to the low side.  I want to purchase additional Fidelity Contra while the market is low.  Buy Low, Sell High.  And Contra is a very good fund to buy.  I will also dive back into Contra from the Money Market Funds when I suspect the market has bottomed out, perhaps a year from now.  That's the plan at this point in time, anyway.

The above is still not financial advice - you need to take ownership of your own behavior.  Don't drink fish tank cleaner.  That *is* advice, and you still need to take responsibility for your behavior.

For what it's worth, when the previous financial crisis hit, my 401(k) only lost -0.4%, thanks to being in a similar cash position.  Everyone I worked with who decided to stay invested got whacked for about 30%, and only caught up 3-4 years later.  As I've said before:  Remain calm, analyze the situation, and then act rationally.  Also, as with toilet paper and hand sanitizer, you need to act *before* everyone else panics. 

There is a financial storm brewing  The storm is not over the horizon - it's in our face right now, and the hail is about to start pelting us, to be followed by a tornado.  Plan accordingly!


2 comments:

Eric said...

Hey Spud, glad to see the new posts. I to see that the worst is still to come and it will take a lot longer to level off than what most folks think. I also changed up my 401K plan to a very conservative mix, but I did this in November 2018 when there was a big hit to the stock market. Yeah I know I missed out on big gains during 2019, but I did not lose any money ether and I sleep better at night.
So when the Wuhan virus took it's initial toll a couple of months back, I to did not see much of a hit since I was already in a good place. And like you since we are lucky for the moment to still be gainfully employed in the power industry, I have kept my 401K contributions maxed out. So far so good as my 401K total is still increasing steadily due to my steady contributions.
I do realize there is no guarantee that our savings are 100% safe going forward. but even if you cash out and stuff it under the bed or in a hole, it may not be worth much down the road when inflation hits us hard later due to all the massive printing of money to bail everybody out. So for now I am OK with slowly moving forward & not going backward. Only time will tell if this works out.

Mark said...

Hey Eric,
It sounds like we are on the same page. Better to miss out on a little bit of market gain than to get walloped by a massive loss. At our age, it's best to be cautious. Not that many years to recover if half your savings is lost to whatever mood the stock market is in.