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22 hours ago, Paxter said:

It all depends on the unemployment rate. If it does climb significantly, I think recession/earnings is still the main market risk, followed by geopolitical as you mention. But that unemployment feels a loooong way off right now.

The US treasury market is an interesting one. In theory it’s one of the world’s most liquid markets, but in practice we’re not sure how it play out given that two of the biggest purchasers (the Fed and the banks) will likely be on the sidelines.

I think unemployment will stay relatively manageable, with the bulk of rate-rising done and likely a more pedestrian path for the next year. 

The geopolitical stuff is what worries me the most, and there's no way to anticipate it - and some of it will happen quickly. There are four main ones now that I think of it:

1. US government shutdown and default in Treasuries - I think this is almost certain to happen, unless moderate Republicans and Democrats join together to force something past. This may be a cataclysmic financial event.

2. Japanese bond market - the first interest rate rises in the Japanese market may be coming. This is going to be chaotic for the government. Not only do they have massive amounts of debt (260% of GDP) which will be much harder to service with higher rates, which will almost certainly cause a massive austerity budget and economic pain, but Japan is a huge creditor as the highest holder of US Treasuries, not to mention large holdings of other government bonds (such as Euros). If, say, the Japanese bonds start becoming competitive to the ECB bonds and some repatriation of money occurs, that could spell trouble.

3. European debt crisis - in a world of rising rates, the ECB is going to have trouble managing the differences between north and south. Italy in particular is always watched as the country most likely to blow up and the ECB are headed for a fair few rate rises still. I wouldn't be surprised if there's some crisis there.

4. Chinese uneven recovery - the property market may still crash or be unresponsive to stimulus, which will affect the global resources and commodities boom.

I'm sounding like a Nouriel Roubini or some other doom and gloomer, so to be sure, I'm still reasonably invested in markets - I'm just being hyper vigilant if something happens and keeping a war chest of cash (now about 25%) on the side.

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Hey, that’s harsh on my beloved Italy when the (Northern European) UK has actually been much closer to financial peril of late! :P

The spread between Italian and German bonds has been pretty stable in the last few years. And there is no indication that Meloni will govern as badly as Truss. If Salvini was PM, it might be a different story, but we avoided that trap.

I’m not as pessimistic as @Jeor on geopolitics - I think the US will walk back from the brink and there won’t be a default event. 

On unemployment - you’re assuming that inflation can fall to 2% or about without a meaningful rise. It’s possible but perhaps unlikely from a historical perspective.

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  • 3 weeks later...

The CNN Fear & Greed Index now reflects extreme greed. A year ago, it was approaching extreme fear. Data points seem positive, and the position of Bank of America / Merrill Lynch is a likelihood of a mild and short recession. Yet, the market's reaction doesn't feel appropriate (e.g., missed earnings). It should be signaling anxiety.

And there should be a reasonably predictable action / reaction / counter-reaction cycle, but consequences in this game seem to be hit or miss. On the other hand, I know it's not all luck. Given that (at most) 3% of professional traders are successful, year after year, maybe it's 97% luck, hahaha. Since I'm not part of the professional 3%, I suppose the most reasonable approach is to posture for success regardless of market direction.

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  • 3 weeks later...

Yes, this rally seems to be short-lived but I'm not ruling out a last gasp rally upwards before everyone starts heading for the hills.

My portfolio has held up reasonably well but that's only due to a couple of company-specific bright spots. One of them had a flagging takeover offer reaffirmed and the other had a good earnings season. I've taken a bit of money off the table and now up to 30% cash. I had considered sticking my idle money in a market ETF just so that it was doing something useful, but as I suspect for most other investors, keeping cash isn't as bad an option as it used to be, my interest-bearing account is now earning something like 4.50% p.a., and that's likely set to rise.

Most stocks look a bit too expensive or overvalued at this stage given the earnings risks and the likelihood of something breaking somewhere. I have a wish list of stocks ready to go if the market plunge occurs but for now I'm okay with missing out on a bit more of a rally.

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So, embarrassing question...

Do you like get... paid for your stock? 

Like, I've wondered this since I rented Wall Street from the library, I think. 

Do you... get dollars for it? Like every year or something I mean? Isn't that what owning part of something is supposed to be? Getting part of the profit or something? 

It always felt to me like you could buy monopoly money from a company. And sometimes you could sell it later for a little more America money. - I get that part 

But the part I don't understand is what these people think they're buying besides monopoly money? 

Elon didn't buy monopoly money. As far as I'm concerned (not a money person) he did not buy "stock" 

As far as I understand he bought Twitter

I do not understand "Stock" 

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13 hours ago, Secretary of Eumenes said:

Do you like get... paid for your stock? 

Like, I've wondered this since I rented Wall Street from the library, I think. 

Do you... get dollars for it? Like every year or something I mean? Isn't that what owning part of something is supposed to be? Getting part of the profit or something? 

It always felt to me like you could buy monopoly money from a company. And sometimes you could sell it later for a little more America money. - I get that part 

But the part I don't understand is what these people think they're buying besides monopoly money?

Many (but not all!) corporations pay dividends which are indeed part of the profits that are being returned to the shareholders. So if you invest in those companies, you will indeed get paid either every year or half year or quarter depending on how their dividend is structured. There is a school of investing (the "value" investors) wherein this stream of future payments should be considered the main reason to buy a stock and they avoid the companies that don't pay anything. Note that in the US (and possibly some other countries; I do not know international tax law) the dividends for stock that you've held for longer than a year are taxed at a lower rate so it's better than getting interest from a savings account (which is taxed as regular income).

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14 hours ago, Secretary of Eumenes said:

So, embarrassing question...

Do you like get... paid for your stock? 

Like, I've wondered this since I rented Wall Street from the library, I think. 

Do you... get dollars for it? Like every year or something I mean? Isn't that what owning part of something is supposed to be? Getting part of the profit or something? 

It always felt to me like you could buy monopoly money from a company. And sometimes you could sell it later for a little more America money. - I get that part 

But the part I don't understand is what these people think they're buying besides monopoly money? 

Elon didn't buy monopoly money. As far as I'm concerned (not a money person) he did not buy "stock" 

As far as I understand he bought Twitter

I do not understand "Stock" 

I definitely get paid for owning stocks. I tend to put my retirement savings, here in Canada, in dividend paying stocks. My favourite stocks are Canadian banks because they tend to be boring and reliable payers. A couple of them that I own have not missed a dividend payment for the last 150 years or more. When you look at a stock, divide the price of the stock by the dividend payable each year. This gives you your price/earnings ratio. A ratio of ~10 to 15 is really good as in 10 to 15 years the dividends will pay back your purchase price. Any lower than this is a sign the company may be in trouble. Much over 20 for the ratio means the stock is overvalued and I would hold off on buying it.

  If buying a stock, buy after bad news has affected the price. The dividends remain the same even as the price drops. Unless the bad news is a dividend cut.  I hopes this helps

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I understood clearly 

4 hours ago, Altherion said:

Many (but not all!) corporations pay dividends which are indeed part of the profits that are being returned to the shareholders. So if you invest in those companies, you will indeed get paid either every year or half year or quarter depending on how their dividend is structured. 

This and thank you for it

2 hours ago, maarsen said:

I definitely get paid for owning stocks.

And this. I also thank you for it. 

Regarding the rest... it's all barbarian to me :P 

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  • 3 weeks later...

Here we go with some market volatility and potential crisis moments. Not that I take delight in others' misery, but this is the time when it can get exciting (or at least action-packed) for an investor. 

Sure, my portfolio took a bit of a hit the past week, but it's mostly large-caps and I exited one position this week (Origin Energy) completely unrelated to the market volatility - their price just crept too close to the current takeover offer for me to resist cashing in.

So there is a little warchest ready (35% cash) and the real issue now will be trying to find the right time and place to deploy. I know you're not supposed to time the market or try to pick the bottom, but some stocks in my wishlist probably quite aren't at attractive prices yet so we'll see. 

The dilemma that's probably hitting most people right now is that my cash is sitting there earning a safe 4.5% as well, so the bar is a little higher for finding the right investment.

Edited by Jeor
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As Dimon said: there’s a storm coming. The SVB collapse is likely to cause a large flight to safety next week as material questions are raised about the tech sector and regional banks.

And we are still nowhere near a full-blown recession…

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It's interesting to me that arguably this is entirely caused by the Fed raising interest rates. Between the tech sector acting as if it is in a recession due to the higher interest rates and the bond values dropping due to the higher interest rates SVB was hosed. 

Which may cause panic and people to act like a worse recession despite there being no actual problem with the other banks.

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21 hours ago, Jeor said:

The dilemma that's probably hitting most people right now is that my cash is sitting there earning a safe 4.5% as well, so the bar is a little higher for finding the right investment.

I just moved $100k in life insurance money from a no-interest checking account into a 13-month bank CD at 4% APR yesterday. Which puts that money to work & also gets it out of a (theoretically) hackable checking account. But yeah, +4% with FDIC insurance versus -8% on all the various mutual fund, money market, and IRAs investments over the past year :o with possibly worse to come.... Whoever is managing the Pershing account forked me for -18% in 2022.:stillsick: Where'd you get your MBA -- Trump University? The minute I get legal control of that puppy ...  I'm gonna ... uh ... should I wait til it recovers value (don't need those funds in the foreseeable) or just take my beating now & roll it into a more retirement-shaped IRA?

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4 hours ago, timmett said:

But yeah, +4% with FDIC insurance versus -8% on all the various mutual fund, money market, and IRAs investments over the past year :o with possibly worse to come.... 

Yep. I'm getting 4.5% on a savings account with my money on call, and Australia has a 250K bank deposit guarantee as well. That's looking like a pretty safe bet at the moment.

On your growth assets, I think these always live and die by the sword. I'm no financial adviser, but I think it just depends really on your peace of mind. There's every chance a high growth asset will recover in a few years' time, but if you need that money sooner rather than later then a safer option makes sense.

Assuming there is a lot of behind the scenes negotiations at the FDIC and Federal Reserve to find a buyer for SVB with some government support. Every regional bank is going to have a truckload of outflows this coming week and I suspect quite a few of them will be in the same boat as SVB with impaired bonds backing the deposits. Regional banks with more retail customers (as opposed to SVB's concentrated business base) might be okay though, as a higher percentage of their deposits would be insured so people theoretically shouldn't bother moving them.

Either way, I think consumer sentiment is really going to tank and that's not going to be a good look for equities markets. Not to mention the riskless deposit rates on order look even more attractive in a market that's weighted towards the downside now.

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34 minutes ago, Jeor said:

Assuming there is a lot of behind the scenes negotiations at the FDIC and Federal Reserve to find a buyer for SVB with some government support. Every regional bank is going to have a truckload of outflows this coming week and I suspect quite a few of them will be in the same boat as SVB with impaired bonds backing the deposits. Regional banks with more retail customers (as opposed to SVB's concentrated business base) might be okay though, as a higher percentage of their deposits would be insured so people theoretically shouldn't bother moving them.

 A few points:

  • I'd expect the other regionals not to be hit anywhere near as badly as SVB. As you mention, their deposits will be stickier, smaller and below the insured limit. But next week will undoubtedly be tense for the regionals, given how fast the run was on SVB. 
  • I'd be shocked if the other regionals are anywhere near as exposed to higher interest rate as SVB. Diversification is the name of the game on the asset side - SVB unfortunately missed this memo. And even if they were exposed, they won't have to book any losses on these portfolios unless the drawdowns from depositors are significant.
  • I wouldn't assume government support is on the table. I think we are looking here at a (hopefully) orderly wind-down or a private recapitalization/sale of parts of the business. This bank is not TBTF and the government shouldn't be using taxpayer funds to bail out SVB, its creditors or customers. 
Edited by Paxter
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6 minutes ago, Paxter said:
  • I wouldn't assume government support is on the table. I think we are looking here at a (hopefully) orderly wind-down or a private recapitalization/sale of parts of the business. This bank is not TBTF and the government shouldn't be using taxpayer funds to bail out SVB, its creditors or customers. 

A wind-down means all these tech startups won't be able to access their money for a while, which is not ideal. I'm assuming no systemic bank is going to buy out SBV unless there is some government support, so it depends on how far the feds want to let it run its course or step in.

In most crises I think government tends to err on the side of non-bailouts (politically toxic) so it will be interesting to see the market reaction next week.

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1 hour ago, Jeor said:

A wind-down means all these tech startups won't be able to access their money for a while, which is not ideal. I'm assuming no systemic bank is going to buy out SBV unless there is some government support, so it depends on how far the feds want to let it run its course or step in.

Congress can barely fund the government, let alone a private bank!

The regulators will be trying hard to find a marriage partner over the weekend but these types of takeovers aren’t easy to pull off. SVB is such a unique bank that it probably wouldn’t be a logical acquisition for a lot of the big players. 

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4 hours ago, Paxter said:

Congress can barely fund the government, let alone a private bank!

The regulators will be trying hard to find a marriage partner over the weekend but these types of takeovers aren’t easy to pull off. SVB is such a unique bank that it probably wouldn’t be a logical acquisition for a lot of the big players. 

Yes, with only 24 hours to go they don't have much time to stitch up a deal. Market conditions are sure to deteriorate over the next few weeks. I think the Fed now has to only raise by 25 basis points.

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Credit Suisse under serious pressure again, with some of its major shareholders ruling out further increases in funding. This one is a G-SIB (although at the lower end) and will be a fairly serious failure if it occurs. Swiss authorities may well do some sort of local bailout.

I would say that losing Credit Suisse wouldn't be a mortal wound for the wider global financial system, though no doubt it is a much more significant event globally than the failure of SVB. 

Edited by Paxter
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