scared

[KTP]

I know Buffet said when people are scared, buy, but what happens when I am the one who is scared?

I recently exercised some of our microsoft options that expire in early 2011 (a bit early, I know, but I scored 31.50 and the stock is trading below 30 now). My initial plan was to dump this money (about 30k) into the vanguard intermediate term municipal bond fund bringing our non-retirement investments up to about 70k in municipal bonds, 100k in stocks and spiders, and 20k in cash.

I am really really started to worry about either a double dip or a large increase in inflation, and I don't know how to protect against that. I don't really want to buy gold, etc. but I also don't want to have 70k in bonds if inflation takes a huge jump. (I really hate the idea of losing money in a investment that only pays 3 to 4 % even if it is tax free).

Opinions? Do you think this Greece mess is going to spill over into the rest of Europe. Do you guys see any parallels with our debt situation in the USA?

I am thinking perhaps of investing more in some of the oil companies now that they have been beaten down by the spill mess. They don't get hit hard by a dip, and they make out ok in an environment of rapid inflation too. I feel overexposed though with all the oil stock I already have...

[disneysteve]

My initial plan was to dump this money (about 30k) into the vanguard intermediate term municipal bond fund

I am really really started to worry about either a double dip or a large increase in inflation, and I don't know how to protect against that.

Put the money in VIPSX instead, Vanguard Inflation-Protected Securities Fund.

[Broken Arrow]

Perfectly, perfectly legitimate questions and sentiment given the circumstances.

First and foremost, I think it's important to note that this potential second dip will be nothing like the first.

The epicenter of the first dip was due to the US Housing bubble bursting.

The epicenter of the potential second dip will be coming from the ongoing credit crises with Greece, Spain, and Portugal.

In the first dip, we stood at ground zero and we got hit hard. Very hard. And yet, as you can see, we're all still here, and hopefully, we are still moving forward financially.

Although it's blatantly clear that all of our economies are inter-connected, I believe that we will only experience the secondary aftershocks of the European debt crisis. More companies, here and abroad, may fall, but at least we are not ground zero this time. The damage, I believe, will not be as severe.

Also, please don't forget that not all of Europe is weak. Right now, we're only talking about select countries. Germany's economy, for example, has been fairly resilient in all of this so far. The EU, for its part, is doing what it can to support its members and stabilize the situation. Therefore, there is a possibility that we may not even see a second dip, or at the very least not a severe one.

Here's another crazy thing to consider. The Dollar lately has been gaining substantial relative strength, not so much because we are now on a path of solid recovery, but rather because of the weakness in the Euro (because of the debt crisis). Granted, the US market will still suffer from a second dip, but a strong domestic currency provides a good barrier against the shockwaves.

So, what does all this mean? Although I've trading stocks here and there, the truth is, I plan to be mostly in cash. Yeah, I never thought I'd actually say this, but now right, it might be best to stuff lots of cash under the proverbial mattress.

Think about it. If there is a second dip, like the first, chances are good that there will be no place to run for cover. Equities are still going to fall, treasuries will not pay anything because everybody is running for cover, and I-bonds won't do any good because of the relative strength of the dollar.

However, if you shift towards cash, it will take that much completely out of the danger, and if the dip comes, you will have plenty of strengthened dry powder to buy into another big sale, especially in Europe.... So, that's my basic strategy for handling this potential second dip. Very simply, cash is king.

And if I'm wrong? Well, you're in cash. You may not gain much, but at least you can sleep soundly at night, knowing full well that you're not going to lose anything either. Sometimes, not losing is still winning.

[feh]

Are you going to need any of this money in the next couple years? If not, and your asset allocation is how you want it, I wouldn't do anything. Don't try to time the market.

[KTP]

Thanks BrokenArrow...you always have a convincing analysis even if it turns out that we are both totally wrong about a second dip.

feh - I am sort of forced to time the market because I have to dump these microsoft options before they expire in 2011 and 2012. The money they generate has to be put somewhere (or under the matress...).

Anyway, today I saw Exxon down again to near $64 so I snapped up $15,000 more of it. That puts me REALLY overweight in energy but I plan to sell some of my $68 Exxon this week for a loss to balance things out (unless for some reason the stocks bounce back before I can sell). It is only a wash sale if you sell then buy, right? Since i bought today and then sell tommorow, it would be a true loss?

[KTP]

lol, I was watching my trade and I noticed the Dow was down 9% and I was like wtf, someone has hacked the stock ticker on fidelity...but no, it looks like the world is falling apart (again).

see you on the other side.

[Broken Arrow]

Did you just see that? The market overall? I thought my computer glitched, but the Dow literally fell 700 points just now before a hard rebound. Currently floating at -450, but I wonder what will happen next? Intraday VIX is soaring! My jaws literally dropped.

And to think I was JUST gearing up for a buy, JUST in case it was not a computer glitch. But it was too late. Lucky me, I'm already mostly cash at this point, JUST in case I turned out to be right for once....

[Broken Arrow]

lol, I was watching my trade and I noticed the Dow was down 9% and I was like wtf, someone has hacked the stock ticker on fidelity...but no, it looks like the world is falling apart (again).

see you on the other side.

LOL you posted that just as I was posting mine. The market is going haywire right now. Oh man, I'm stunned. My hands are actually shaking a little. I wonder what will happen next?

[Broken Arrow]

Oh dude man, I have to calm down and get back to work, but I was JUST about to buy AAPL for $200. It would have been a 20% gain in less than 2 minutes. Ok, I need to get back to work.

[jIM_Ohio]

What you are doing is trading one risk for another when you sell stocks and buy bonds. You add inflation into risk picture and you might want to own a different stock.

If you have a taxable account for non retirement purposes, can I ask what the purpose of those monies are?

I will mention one thing

PERMANENT PORTFOLIO PRPFX

It is the only taxable investment I have, for money I want set aside (without a particular goal in mind) and should inflation hit, I believe the fund is positioned well (fund is generally positioned to make money in most market conditions, but will not have big returns either).

There is a reason the fund is called Permanent Portfolio- its a permanent fixture in my investments until the day I die (or run out of money).

[KTP]

It is looking like this was mostly caused by a glitch in a PG trade (which scared me as I have quite a bit of PG). At somepoint in the day PG which was trading at ~$61 traded at $39, which caused some automated selling of other stocks. PG is back trading only down 2% but the markets are lower than that.

I think all of this shows that if there is ever anything *really* bad that happens, we could see a 30% or 40% drop in the dow in one day, with all of these computer programs triggering.

Man, a trip to the craps table in Vegas is really looking better all the time.

[jefffou]

And if I'm wrong? Well, you're in cash. You may not gain much, but at least you can sleep soundly at night, knowing full well that you're not going to lose anything either. Sometimes, not losing is still winning.

Good post, BA. I heard an economist once say, "I'd rather lose opportunity than principle." Amen.

[Broken Arrow]

It is looking like this was mostly caused by a glitch in a PG trade (which scared me as I have quite a bit of PG). At somepoint in the day PG which was trading at ~$61 traded at $39, which caused some automated selling of other stocks. PG is back trading only down 2% but the markets are lower than that.

I think all of this shows that if there is ever anything *really* bad that happens, we could see a 30% or 40% drop in the dow in one day, with all of these computer programs triggering.

Man, a trip to the craps table in Vegas is really looking better all the time.

Are you kidding me, this is awesome! I could really use another fire sale to do some bulk buys.

As for the Dow, I'm not sure if a single stock glitch is enough to drop kick the entire market. According to CNN Money:

"It's a knee-jerk reaction to the continued problems in Europe, Greece in particular, possibly Portugal, Spain, the U.K.,"

But I do agree that it was most likely a series of cascading triggered sells. Well whatever happened, I missed it. I was JUST entering a buy order when the dip occurred, but by the time I entered my order, it was already over. Oh well.

Oh, and what the guys have said is true too. It may be best to just stick with a passive portfolio and leave it at that. Chasing and timing the market isn't a good idea most of the time. I know I'm doing it here, but it's not like I trade with all of my money or anything. So, please consider the possibility that I may also be leading you down the wrong path, and perhaps end up making things worse.

[Scanner]

My holding in silver (SLV) somewhat offset my loss in residential real estate/healthcare real estate today (REZ).

[heidrek]

your investing strategy really has to reflect your real-world needs. It's fine for a young person with 20+ years of earning capacity ahead of them to take risky options and go for the high risk/high reward strategies, but if you're nearing retirement and can't afford to suffer a set back because you have little chance to regain any lost ground then security is the key for you.