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Todem said:
I am fully expecting a moderate correction. My definition is anywhere from 10-20%. Typically it snowballs and with a lot of new young inexperienced money that has entered the market here recently I expect some panic and uneasiness when a moderate 7-10% sell off happens that snowballs to 12-15% sometimes 20% and it happens really fast. This has been a buy the dips market for going on 12 years and I expect that to continue. I, like you remain a long term bull. 

There is nothing wrong with a healthy correction and you typically see 1-2 10% corrections in bulls markets during good years. It is nothing new. 

People forget about 2018......when the Fed did do a couple of raises from 0 and the market had a fit. Everyone forgot about that.

I did not. And I expect the same type of reaction. 

The market will speak at some point. No matter what all these talking heads on CNBC and Fox Business, Bloomberg etc say.....”oh it’s priced in” “the market is expecting it already so no need to worry” yeah.....no need to worry long term but short term the volatility will happen and again we are so high that the speed and violence of algorithmic trading can send a jolt thru the market. 

Long term investors should have 95% quality in the portfolio.....then you never have to worry about this stuff long term. 

But people approaching (close or very close to retirement) or in retirement need to have a different approach. Rebalancing and reallocating out of a lot of growth and really getting a lot more defensive and dividend and income orientated is critical for those going into 2022 looking to retire soon.

If you are in retirement this is a great time to really analyze your income portfolio and making sure you move out of more interest rate sensitive stuff (cough cough high yield and corporate bond funds and high yield leveraged equites) into more staples, utilities and munis. Make sure your income can be stable and predictable but also making sure your capital won’t get jolted too much either. If the market corrects 20% you don’t need that kind of volatility anymore. You should want a standard deviation (a measure of implied volatility) of at least 35-40% than that of he S&P 500.

So some food for thought for anyone in that position. 

It has been a great run.....and shaving off some growth here is prudent if you are very close or in retirement. In fact building cash for one years worth of expense’s is nice rule of thumb when you are expecting a lot more volatility because you can then re-deploy that into some great value dividend paying stocks that will be on sale or add to ones you already own (you are living off your dividends anyway). If it presents itself then that can be a great yield to cost situation and enhance the yield of your portfolio long term. 
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I approve this post. 

 
Hot damn that was a big change. Trailing the indexes to now beating them. Glad I added some more DOCN yesterday as I’d been wanting to do and having it go pretty low.

@McBokonon I added 200 of MQ in the $16s when it was still down a chunk earlier.

 
stbugs said:
Hot damn that was a big change. Trailing the indexes to now beating them. Glad I added some more DOCN yesterday as I’d been wanting to do and having it go pretty low.

@McBokonon I added 200 of MQ in the $16s when it was still down a chunk earlier.
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:hifive:  That thing trades like a penny stock so be wary of whiplash.

 
FreeBaGeL said:
As someone that hasn't been doing this that long how different is this with the massive, resilient companies we currently have that prop up indexes like AAPL and MSFT?

As still a relative noobie it feels like those companies (and FAANG in general) have really hidden some massive corrections we've already had.  SPY is down like 1.5% since mid-November but that is with AAPL up 20% in that time.  If AAPL and other FAANG was down something modest like 2% over that time, SPY would probably already be sitting on a 15% pullback.  Lord knows a lot of the other stocks in the index are down that much or more.

There are a lot of companies, even a lot of good ones, that are already way down off their highs.  Boeing 36% off it's 52 week high, CRM 22%, Disney 31%, Paypal 40%, etc.

Then you get into the mid-cap and small cap stuff and some of them are 50%+ off their highs already.

QQQ has had two 8% corrections and a 13% correction so far this year, and that's with AAPL/MSFT in there.  Take those two out and it's probably more like 15-20% each time.

I guess my question would be, with so much of market health being dictated by the SP500 which is largely driven by a small handful of uber massive and resilient companies, if we actually do see the S&P pull back 15-20% where is that going to leave all the mid/smallcap stuff?  How much more can they pull back from the 40-60% they already have?  Are we talking 90% here, because that seems more like a crash than a correction.
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Have you looked at BA, DIS, CRM and PPYL current and forward multiples? 

Look.....I am telling you that while there are stocks that have been crushed from all time highs.....they are plenty that are still trading way above fair value. 

I think a modest broad based correction is still in order and maybe it only goes as deep as 10%. But big tech has been very good. What has been hit hard are stocks that were insanely overvalued, reopening trades that came back down to earth. 

I loved BA at 100.....and think long term it will get back to the mid 300’s. But it is trading where it should right now based on their current balance sheet. They hav a lot of work to do to get back to he mid to high 300’s again. even back when I was screaming buy it at 100....I knew 3-4 years this thing will need to get back to the glory years. 

I love DIS. Love it. But....it has a lot of work to do over the next 2-3 years to justify the massive multiple expansion it saw.  I think long term....this is a $300 stock in the next 3-4 years. I am very bullish on it. Can it still drop from here? Of course it can. The multiples are very very rich.

Again......I am not predicting a crash. But bluechips have been resilient. I am not getting crushed like all these small and midsize have been......but at some point the recalibration of monetary policy will makes it’s way into the large blue chips too. It always.....always happens. 

When it does we will have some powder ready to buy stuff on sale. Because many stocks are not on sale.....when I nibbled into NVDA, CRM, SHOP, PYPL, V, MA....tey were 10-15% lower than where they are in just under 2 weeks. Again buying the dips. And the index’s finally saw some sell off in the Dow (was down almost 8% from the highs) S&P 500 was down just about 5% from the high and the Nasdaq got hit harder. Russell 2000 already has seen true correction territory. But that is not my playground. I let the mutual funds handle that area for me.

Large Cap/Mega Cap have not seen a true correction yet. I am talking the stocks I love and add too when I see blood. 

If I am wrong.....then I am wrong. It’s not like I am not almost fully invested. Nothing wrong with some cash heading into 2022. I expect volatility for myriad of reasons. Which I have stated before. 

My IRA’s and 401K only have 20% cash.....that's nothing. My taxable account has 20%ish now too after making some nibbles at high growth tech that sold off as well as V and MA. I feel very comfortable with that allocation. I rather be 20% cash than 20% fixed income.....no doubt. So 80/20 for me right now stocks to cash. Nothing wrong with that.

 
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Todem said:
I am fully expecting a moderate correction. My definition is anywhere from 10-20%. Typically it snowballs and with a lot of new young inexperienced money that has entered the market here recently I expect some panic and uneasiness when a moderate 7-10% sell off happens that snowballs to 12-15% sometimes 20% and it happens really fast. This has been a buy the dips market for going on 12 years and I expect that to continue. I, like you remain a long term bull. 

There is nothing wrong with a healthy correction and you typically see 1-2 10% corrections in bulls markets during good years. It is nothing new. 

People forget about 2018......when the Fed did do a couple of raises from 0 and the market had a fit. Everyone forgot about that.

I did not. And I expect the same type of reaction. 

The market will speak at some point. No matter what all these talking heads on CNBC and Fox Business, Bloomberg etc say.....”oh it’s priced in” “the market is expecting it already so no need to worry” yeah.....no need to worry long term but short term the volatility will happen and again we are so high that the speed and violence of algorithmic trading can send a jolt thru the market. 

Long term investors should have 95% quality in the portfolio.....then you never have to worry about this stuff long term. 

But people approaching (close or very close to retirement) or in retirement need to have a different approach. Rebalancing and reallocating out of a lot of growth and really getting a lot more defensive and dividend and income orientated is critical for those going into 2022 looking to retire soon.

If you are in retirement this is a great time to really analyze your income portfolio and making sure you move out of more interest rate sensitive stuff (cough cough high yield and corporate bond funds and high yield leveraged equites) into more staples, utilities and munis. Make sure your income can be stable and predictable but also making sure your capital won’t get jolted too much either. If the market corrects 20% you don’t need that kind of volatility anymore. You should want a standard deviation (a measure of implied volatility) of at least 35-40% than that of he S&P 500.

So some food for thought for anyone in that position. 

It has been a great run.....and shaving off some growth here is prudent if you are very close or in retirement. In fact building cash for one years worth of expense’s is nice rule of thumb when you are expecting a lot more volatility because you can then re-deploy that into some great value dividend paying stocks that will be on sale or add to ones you already own (you are living off your dividends anyway). If it presents itself then that can be a great yield to cost situation and enhance the yield of your portfolio long term. 
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Just a wild guess but did you ever read or subscribe to Richard Russell's "Dow Theory Letters"?  

Your writing styles and market observations aren't all that dissimilar.

 
@Todem

Love and appreciate all your stuff. Largely agree with all your posts.

Im trying to get more clarity on your anti bond, anti fixed income rhetoric.

please elaborate on why you don’t like junk/high yield bonds going into anticipated fed rate increases. Is it that the prices will get hammered, or the dividends, or both?

same with the boring vanguard tax exempt bond funds for short term, medium term, long term - will prices get whacked and/or the dividends?

pleaae let me know your thoughts on these assuming 1, 5, or 10 years from retirement 

thanks!

 
NajehHejan said:
@Todem

Love and appreciate all your stuff. Largely agree with all your posts.

Im trying to get more clarity on your anti bond, anti fixed income rhetoric.

please elaborate on why you don’t like junk/high yield bonds going into anticipated fed rate increases. Is it that the prices will get hammered, or the dividends, or both?

same with the boring vanguard tax exempt bond funds for short term, medium term, long term - will prices get whacked and/or the dividends?

pleaae let me know your thoughts on these assuming 1, 5, or 10 years from retirement 

thanks!
Click to expand...


I'll put words in his mouth.  Pricing on the bonds is surely to deteriorate if the fed is both not buying bonds and rates of of new notes are under a higher basis.  So that forces you to buy and hold to maturity, which is an option for some but not ideal.  

I would expect this is all mostly priced in though, BND for example is down like 4% YTD and yawned at this news.  

 
NajehHejan said:
@Todemplease elaborate on why you don’t like junk/high yield bonds going into anticipated fed rate increases. Is it that the prices will get hammered, or the dividends, or both?
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As a quick comment junk bonds, in particular, have seen their premium dive dramatically.  People are stretching for yield and driving these rates down.  That makes them very fragile.  I see an asymmetric downside risk with those.

 
NajehHejan said:
@Todem

Love and appreciate all your stuff. Largely agree with all your posts.

Im trying to get more clarity on your anti bond, anti fixed income rhetoric.

please elaborate on why you don’t like junk/high yield bonds going into anticipated fed rate increases. Is it that the prices will get hammered, or the dividends, or both?

same with the boring vanguard tax exempt bond funds for short term, medium term, long term - will prices get whacked and/or the dividends?

pleaae let me know your thoughts on these assuming 1, 5, or 10 years from retirement 

thanks!
Click to expand...
I have lightened up on fixed income heading into what looks like at least 3 hikes next year and more as we move forward on our way to a more normalized interest rate environment. 

When interest rates rise....bond prices fall. It is an inverted relationship. The longer the maturity and lower the quality the worse the price will fall on the actual cost of the bonds. 

I am not totally anti fixed income.....I am just saying I would be tactically shifting out of longer term lower quality (as well as some intermediate lower quality) and wait. 

Think about how low bond rates are right now and how they were being bid up by fixed income investors because there was nothing really else to buy.....those bond prices are going to fall as rates go higher and issuers can attract new bond holders with higher rates. Who is going to want a 1.5% bond when in the next year or so those coupons will be able to be issued at higher rates. 

So for example a person who had a 60/40 portfolio (which is a rock BTW and while underperforms high flying markets, it will typically average 6-8% avg annual returns with a lot less volatility over the long term) I rebalanced down to 50/25 heading into 2022 with 25% now in cash. I just want to stay out of the way of my anticipated bond sell off and look to tactically take advantage of a potential equity selloff in 2022 at some point...or as this market typically does 5% down....then 5% up....7% down then 10% up and buy the dips in the equity side......and buy mostly high quality dividend paying stocks. In a few years when interest rates stabilize and recalibrate we will start moving back into high yield bonds and shed some stocks at higher prices.

These are simply active management tactical moves. 

If I am 1 year away from retirement I would even go as far as getting really defensive heading into 2022. If a client has a 70/30 mix right now......I am taking it down to 50/10/40 (stocks/fixed income/cash). I want to be able to rebalance them after interest rates stabilize into a nice high yield mix of stocks and bonds. I simply do not want to buy bonds going into rising rates as the price volatility will be elevated on traditional bond funds. There are a lot of moving parts. 

5 years away from retirement....let’s say you are 80/20 or 70/30 I would be shifting to 60/10/30

10 years away from retirement? The only thing I would do heading into 2022 is build 20% cash. If you are 100% stocks go 80/20.....have some cash here as we head into a changing monetary policy, high inflation, high high national debt (this is not being talked about enough.....it is out of control) a mid term election. I say build 20% cash to take advantage of volatility to buy great stocks for the long term. 

Again.....I am not bearish. I am long term bullish. But I am cautious heading into 2022 because of my 2.5 decades experience with this exact scenario of rising rates. The market will eventually speak on the easy money, zero interest rates going away. Make no mistake. So just don’t be surprised when markets have some violent days, weeks next year. Instead just be ready to pounce and take advantage. 

Fixed income.....I still like munis. Even though their prices will also fluctuate on the long side...I still like them. Floating Rate will be a great trade again as rates rise. Bank Preferred will do well. And Convertibles will do well after the recalibration. I have exited global bonds and emerging market debt and also really lightened up emerging market equity. There will be value there after rates rise and those asset classes fall. 

I like REITS as a nice inflation hedge.

Anyway.....hope that helps. 

 
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Any recommendations in the utilities or materials space? Looks like EXC is still popular (should have jumped there when Todem mentioned to roll out of PPL) and I already have BEP. Just been doing a review and noticed my weightings there are among the lowest.

 
Desert_Power said:
Any recommendations in the utilities or materials space? Looks like EXC is still popular (should have jumped there when Todem mentioned to roll out of PPL) and I already have BEP. Just been doing a review and noticed my weightings there are among the lowest.
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Big OKE fan...

Not sure if that's what you're after though

 
Man I really thought yesterday's reaction to the fed meeting was a shift in sentiment and bought some TQQQ to trade that.  Could not have been more wrong.  Ouch.

 
Todem said:
Fixed income.....I still like munis. Even though their prices will also fluctuate on the long side...I still like them. Floating Rate will be a great trade again as rates rise. Bank Preferred will do well. And Convertibles will do well after the recalibration. I have exited global bonds and emerging market debt and also really lightened up emerging market equity. There will be value there after rates rise and those asset classes fall. 

I like REITS as a nice inflation hedge.
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Seen this article?  Not surprisingly REITs seem have the best chance to weather inflation well.

On munis, I was in MUB for a while this year and it didn't go well.  Closed it out and mostly held cash (which was superior to MUB).  What vehicles do you like in this area and why?  In fixed income I'm at pretty darn short duration and am trying to stretch for safe yield (i-bonds) outside the normal bond choices.

 
culdeus said:
Never have two statements been so untrue than whatever hype you've laid on us about Oregon football.
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This from the unquestionable king of ridiculous takes?  That's rich.

Name one college football program from the state of Texas that has out performed Oregon over the last 10 years.  I can wait.

No teams from Texas in the playoffs since we went to four teams.  That's almost unbelievable considering the amount of talent in that state.  Not to mention the money.  

What's been the best program down there?  Baylor?  No wonder you're such a bitter little man.  The best team in your state is from Waco where dancing and drinking is forbidden but rape is fine so long as Art delivered a winner!  

 
Capella said:
I disagree. Those… (deleted mean comment) would just be littering this forum if the PSF didn’t exist. Now they’re in their little crazy island taking turns talking to each other’s alias. It’s great. 
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If it were contained just there, fine.  But it's not.  We can't use the greatest emoji this board has produced because the booger eaters in there can't behave.  It's been a dismal disaster.  It's robbed this forum of creative talent, drive a wedge into posters who used to coexist and has caused massive headaches for the mods here.  It needs to go away yesterday.  

 
Did I miss something? Why was the laughing emoji removed? I always used that when someone made me….you know laugh?

Does anybody remember laughter? 

 
The silly part is the PSF trolls usually troll with the :lmao:  emoji, not with the laugh react.

But yea, not sure why they didn't just ban the trolls, instead of banning the trolls' tools.

 
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identikit said:
About time, T
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Of course I finally gave up on it a couple weeks ago. 😂

Debating lightening up a few % of equities for some of Vanguard’s TIPS ETF. Does that fall into the fixed income to stay away from ? Also have some high yield tax exempt and high yield corporate Vanguard that I thought was safer but maybe not as discussed above? 

 
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