Pretty awesome work to just throw together like that!
I would say healthcare products and support services should be way down. Just anecdotal evidence, my father owns a couple physical therapy clinics in a not particularly hard hit area of the US and his patient visits are down 60% of the pre-virus total because of people or hospitals delaying elective surgery (maybe also a decline in sports injuries and auto accidents due to shelter in place).
Obviously aerospace will be impacted as well
Yeah basically I’ve been liquid since building a bankroll because until I got to higher stakes it didn’t make much sense to lose my liquidity, so an absurd percentage of my net worth is in cash, and it seems like a hilariously bad time to dump all of that into stocks. I moved a huge chunk into a SEP-IRA and began working it into the market broadly, but the rest is still sitting.
A lot of it is working bankroll if/when casinos reopen, as well as 12 months of living expenses, so my main goal with that portion is to be as certain as possible I have as much buying power and earning power off the bankroll in 12-18 months as I do now. Seems like I should move a lot into a brokerage account, and maybe spread it between gold, cash, TIPS, and an inflation hedge etf. Should be hard for all of those to go down at once so movements should balance out if I do some research right?
Cash is probably going to be ok over 12 months. If inflation comes around I think there will be warning signs and a gradual buildup. I would suggest pick one or two hedges for your own sanity, but you don’t need to go crazy doing research on the best way to risk balance.
TIPS are bonds where the payments from the bonds are indexed to inflation. So they provide some protection against inflation. However, like all bonds they are susceptible to rising interest rates. Rising interest rates drive bond prices down. So over a period of time if inflation goes up but interest rates rise, it’s possible the value of a TIPS portfolio will actually decline.
Oil 101 by Morgan Downey is an incredible book if you want to read about oil logistics.
I don’t think this is an effect. By definition, if you buy and hold, you don’t have an impact on the trading price of a security.
How many days until the June oil futures contract goes negative?
Assume that 15% of the population contributes an average of 5% of monthly income into the market, mainly through pensions and 401k. The 401k money will mainly go to pre-selected assets based on their classes, and the pension funds will go to the pension fund managers for investment, probably brokerages most often. (Money will also be removed from the market to pay pension obligations and retirees (and others) cashing out IRAs/401k’s). Assuming more money is going in than coming out, this is money on the “buy” side, which will meet sellers and prop of prices. I’m just wondering how much this is relative to the market as a whole.
To take a more extreme example, when the republicans were talking about privatizing social security I was concerned that this would “force” a ton of money into stocks and artificially inflate values beyond any historical measure or standard basis of value (say, present value of their future cash flows).
Again, I wouldn’t be surprised if “forced investors” were a relatively small part of market (under, say, 10%), but I would be interested in knowing, because it seems like anyone buying the Dow at 22k or S&P 500 at 2700 when oil futures are at $0 is being more than a little cavalier.
A couple of concerns, the loss of 20% of revenue from various sections could potentially leave many businesses “non-viable” and they will either have to make layoffs, borrow at high rates (if they can), or go bankrupt or be acquired, with a significant hit to wages/employment and broader investment. These effects at the firm and employee level could cascade through the market, such that other sectors like software and semiconductors and other players “down the line” are also hit hard when firms cut capital expenditures, travel, marketing, etc. If this happens, then I’d suspect the sectoral analysis would underestimate the broader effects.
I think it’s a touch higher than that. Global equity market cap was ball park $US 80 trillion at the beginning of this year. US pension plans (including 401k and IRAs) was probably $20 billion to $25 billion of that.
Also, a ton of other money is relatively “forced” to invest. Other institutional investors like endowments have investment policy statements and can’t freely deviate from them. Companies like insurers that hold assets to back insurance policies can’t just move to cash position. Even in the retail space, an investment advisor with discretion over client portfolios generally has to manage to the client’s stated investment objectives and risk tolerances, and can’t just move the money out of the market.
Yes, this is interesting. The little I know about the law of fiduciaries is that they are required to buy and hold “safe” investments at solid returns. Much of this law was developed in the 50s-90s, where you would have been negligent to be in cash in an environment characterized by growth and inflation. In fact, things like real estate or private company investments require judicial approval (probably more of of concern for self-dealing than ROI).
Also, I believe most pension fund and state/municipal budget projections assume 7% annual return on investments, which is likely entirely unrealistic in the present short term. If you are a fund manager that needs to be “safe”, what’s your call in the present circumstances? I suspect that you stay with “safe” investments and eat a 10-15% loss, because trying to play fancy and exploit potential opportunities (while it may work out) is more likely to get you fired.
Yep, lot of people know everything is fucked. They are just hanging on while making the minimum cut backs because the alternative is unthinkable. The smart ones are putting out a brave face publicly while slowly unwinding their leverage/positions behind the scenes. They’d prefer to unleverage ASAP but they don’t want to cause a rush to the exits or cause the folks above them in the food chain that they owe money to to be alarmed.
Fiduciaries don’t have to invest in safe assets, they have to invest in the interest of the beneficial owner of the account. If I open an account and tell my assets manager I want high expected returns and I have a high risk tolerance, the fiduciary is bound to pick risky assets for me. If they picked cash that would be a violation of their fiduciary obligations.
There are some (many!) true believers. A ton of people in the market are trained / conditioned to view a market downturn as a buying opportunity, period.
I keep wondering how much of the oil market has been pumped up by investors with no actual interest in physically buying oil. Like USO holds 25% of June futures contracts right now. How much higher have oil prices been the last several years because of this?
Ready for the fun part? Oil futures can go negative as we’ve all learned. ETFs cannot. Who’s going to be stuck holding the bag if USO goes to zero and all its contracts are negative? John Taxpayer?
This feels like a Big Short moment. We just looked under the hood of the oil market and a huge percentage of it was bullshit speculative demand. As long as we kept rolling it over smoothly each month, it was fine. Now it’s a big fucking problem.
USO is already worth less than 0.
Today, the exchange is forbidding short-selling crude oil.
Well you can short it at 2.88…
