Original Topic as posted in May: ”What will you buy if the U.S. defaults on its debt and equity markets fall 10% or more?” I’ve broadened the topic out to allow other thoughts on the subject not directly related to specific things you might invest in.
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(Original Text from May)
With all the uncertainty about the debt limit and potential impact a default would have on equities I thought I’d toss this out for fun. U.S. stocks might get hammered hardest. But many global markets would probably also be sent reeling. U.S. bonds are owned by foreign governments and investors as well. Assuming there’s a silver lining somewhere in all this, what would you buy?
Not sure what I’d do.
- Commodities have been in a funk for awhile. If they fell further I’d sink some $$ there.
- Maybe just “cop-out” and spread a sum equally among the several different multi-asset / alternative funds I own. In effect, let the managers deal with it.
Comments
But if the market does pull back by double-digits, I would be buying a bit of everything. Keeping it simple....priorities in order:
1) S&P Index ETF (setup Limit orders).
2) Balanced/allocation funds to get some debt exposure (FBALX, FMSDX).
3) Add to SCHD (again, via Limit orders).
4) Maybe scoop up some beaten down sector ETFs.
For the taxable, looking at new positions in SPGP, RWJ, SYLD, and RWK. Might choose FMIMX over RWK. I'm still looking a midcaps. Then adding to SCHD, PEY, and CSB. In sectors, maybe new positions in PSCC, GRID, EVX, and FIW and adding to TDV and CSGZX. I have more cash in the taxable.
Still thinking about the IRA. Would probably add equally to VWELX, VWINX, PRWCX, GLFOX, FSMEX, FSUTX, PSCC, IYK, PRBLX, VDIGX, RWJ, and SYLD. Nothing new there. And not a lot of room to maneuver until I get rid of a few things.
Great question @hank.
FWIIW, the Capital Group continues to roll out active ETFs, both equity and fixed income, that have a seeming chance of doing well. CGGO, CGDV and CGXU certainly have performed well during their short lives, although I can't judge the FI funds.
Not many folks out there are forecasting an early summer rally, but I would not be at all surprised.
You could be absolutely right regarding a relief rally upon an agreement.
Biden, McCarthy and McConnell all making comments directly or alluding to the fact that a default is off the table. Actually, it doesn't seem as though the stock markets have been all that concerned about a default possibility. Even after today the S&P 500 is still up over 8.5% YTD.
What will I buy? Some more high-end single malt scotch.
... and equitiies on my shopping list that may plunge in value to fire-sale prices if/when/as the markets respond to the abject delusive insanity emanating from the idiots across the river from me.
Watch the markets pop higher on *any* news of a deal. If it's a short-term deal, 30-day delay, or other punting, I would expect a pop higher that's completely driven by the algos followed by a retracement down (or down hard) hours later once reality sets in and human traders get involved having had time to contemplate things. In which case, after things settle within 24-48 hours, expect more of the same chop until the next decision point is announced.
If it's a permanent deal, I think the market goes higher in a straightforward but perhaps accellerated / maniacal fashion that might be good for a swing trade at least.
One of the sticking point in the current negotiations is that there seems agreement for extension to some pre-election date (longer than 30-days) but not to 2024 post-election date.
A true permanent solution would be future balanced budgets, or making the debt-ceiling an integral part of the deficit budgets, i.e. , no pork-barrel/Christmas-tree deficit budgets without an appropriate increase in the debt-ceiling to keep all on the same page.
They say maybe 10% drop next few wks/large corrections
Get ready
10% down I will nibble as appropriate. (IMO such a move is hardly worth getting excited over.)
20% down I will buy in larger quantities.
30% down I will buy aggressively.
nb: not buying indices, buying individual stocks for the long-term
Absolutely right!
https://www.bostonglobe.com/2023/10/30/opinion/budget-deficit-federal-debt-mark-blyth-brown-university/
To add on … it strikes me as curious that over the past 12 months there have been discussions both affirming the safety of U.S. government issuance as well as threads which seem to decry the safety of such securities because there might be a U.S. default. More of an amusing take-away than a serious point.
I’m sure @Baseball_Fan, along with myself and others, will resist the temptation to drag this one into a political pile of dung. There’s been more than enough of that. Nobody wins. The board suffers when that happens. I really wish I hadn't posted the thread originally. Would not have done so in light of increased tensions today.
What would I do in the event of a default or shutdown? Nothing. Maybe watch for bargains to pick up should bonds or (more likely) equities have a sharp sell off. I’ve gone essentially to a 10 - holding portfolio (10% each portion). To add risk or decrease risk would normally require selling off 10% (say a particular multi-asset fund) and buying something else with the proceeds. Two funds I’d use as a defensive posture of last resort would be TMSRX and BAMBX, I used to think GNMA funds constituted a defensive position. However, recent volatility in that once docile group has been substantial the past couple years.
I was, however, able to read a bit of the article by pasting the URL to my Firefox browser, The author’s takeaway seems to be that federal deficits don’t really matter. Could be. Dunno. The article isn’t going to affect what investments I make in the very least. Sure to become a hot-button issue as the election nears. A better subject for the off topic board.
OJ
In my case I was unable to close it initially. But I use various web browsers & ad blockers, etc. But - . Yeah - after trying later with Firefox I can read it now. Maybe others will comment on the author’s argument. If it has a bearing on what they plan to sell or buy as investments please share those ideas. That was the crux of the OP.
Personally, not going to make any changes in holdings. Back in May my portfolio had a “speculative” sleeve and I might have tried to “game” the situation more. Not the case today. As far as the political disfunction in D.C, it has escalated from a “3-alarm” situation back in May to a “5-alarm” today.
https://www.bostonglobe.com/2023/10/30/opinion/budget-deficit-federal-debt-mark-blyth-brown-university/
open yet another browser and use its private / incognito session to read entire thing, if necessary
then there is this:
https://mythfighter.com/2023/11/07/ignorance-or-lies-the-single-worst-economic-scare-mongering-bullshit-ever-encountered/
Appears to be a well laid out and articulate argument (re - the national budget deficit) put forth by Brown University’s political economist Mark Blyth. Certainly open to further discussion for those so inclined. Thanks for sharing.
TRUE, re: the M.O. and the strategic Repugnant hypocrisy. Nevertheless, the numbers do not lie. An alternative? RAISE taxes. But the very idea is conceived of as kissing the 3rd rail on the subway. The 11th Commandment: "Thou shalt be petty and unreasonably stingy. Care about yourself, only."