Appetizer: Berkshire Hathaway is issuing €1 Billion worth of bonds with a stated rate of 0%. They’re being issued at a yield to maturity of 0.041%. They’re literally borrowing money for 5 years for free. (This is probably just Buffett goofing around, since they’ve got so much cash already. He did something similarly goofy many years ago when he issued a negative rate bond, which was only negative due to an attached warrant. But maybe it’s a signal that he’s interested in a euro-denominated acqusition.)
Main course:
As for the 10-year bond yield, here’s some information to put things in context:
Following the recent financial crisis (hence to be known as Financial Crisis I), the Federal Reserve has run hypothetical scenarios to evaluate whether banks would likely to be able to survive difficult financial times. The idea is that, by applying these hypothetical scenarios to banks current positions, the Fed would be able to monitor banks’ financial health and, importantly, identify any banks whose financial positions were too weak.
These “stress tests” are done on an annual basis and include both a baseline scenario and a “severely adverse” scenario. As the Fed notes:
The severely adverse scenario is characterized by a severe global recession accompanied by a period of
heightened stress in commercial real estate and corporate debt markets. This is a hypothetical scenario
designed to assess the strength of banking organizations and their resilience to unfavorable economic
conditions and does not represent a forecast of the Federal Reserve.
The 2020 “severely adverse” scenario includes the following assumption:
In line with the severe decline in real activity, the interest rate for 3-month Treasury bills immediately
falls near zero and remains at that level through the end of the scenario. The 10-year Treasury yield > immediately falls to ¾ percent during the first quarter of 2020 and rises gradually thereafter to 2¼ percent by the end of the stress-test period.
As of right now, the 10-year Treasury yield is under 1/2 percent, lower than what the Fed is using as its severely adverse benchmark. I know this doesn’t necessarily affect many people’s lives in a direct way, but it’s a sign of how absolutely nuts things are.
And, and oil just falling 30% to $30 a barrel? Also completely f’n nuts.
Is starting a new job while also moving to a really expensive part of the country to live in a good idea at this point? A crash makes job cutting much more likely, and the newbs are always the first to go.
Im kinda scared about making this move for the first time.
US hospitals will reach capacity with CV cases. Large segments of every day life and economic production will simply shut down. Companies with high debt will default. Companies in sectors most directly hit (travel/entertainment) will shut down for good. Stocks will decline another 20% or more. This is the best case scenario assuming warmer weather and immunity allows us to contain the virus. Hth.
JT,
If you’re that concerned, just sell all of your equities. It won’t trigger any taxes or penalties, because you’re not removing it from the 401k structure. Obviously I don’t know your particular 401k plan, but what should happen is that the proceeds from your sale are just parked in a cash-equivalent asset until you decide what to do with those proceeds. And it sounds like you just want to let them sit there.
You should be able to move it to a short term bond fund. It might be called a money market fund. That’s just a fund that invests in short term treasuries, it’s more or less as safe as your bank account. You will be able to totally get out of the stock market while not taking the money out of the 401k. Just tell us what the different options are in your 401k, one of them should be what I’m talking about. It should be called something like a stable value fund, money market account, short term treasury fund, etc.
You might be able to move it to a money market fund within the 401k. You can certainly move it to some kind of bond funds, but not knowing your choices in the plan it’s hard to say which bond funds would be best. (I would find the list of your choices and ask @anon10396289 for advice on the funds, he seems to know.) Doing one of those two things (MM or bonds) would get it out of equities at least while you can take some time and do better research on tax consequences and other considerations.
Just make sure you are absolutely out of here damn the torpedoes or you may regret doing any of this.
So for me it’s clear that if I choose that 3rd option, I’ll rebalance the existing positions (which is what you would want). If I were you, I’d call/online chat with your provider - what you want to do is trivially easy and it’s not worth doing it yourself if there’s a possibility of mistake. Also, what do those other tabs (“Do it for me” and “Help me do it”) do?
In my view, the risk is not that you miss some immediate bounce back, but instead that you’re never quite sure when to put the cash back in. If you find yourself, 10 years from now, still saying, “I think I’m just about ready to put it back in.”, that could be an incredibly costly action. It’s hardest to invest psychologically at exactly those points where it’s most profitable.
I mean who knows. I’m not the best to ask. I expect the market to continue tanking and I plan to buy right into it until it stops tanking or I run out of powder (i.e. - get to 100% equities). But nothing it does over the next couple of weeks would completely surprise me.
That’s empower, right? If it’s like my company there’s a link on the right side of that page that says “whatever company Retirement & Savings Plan”. Click on that, then on the left side of the screen you’ll see a list of categories you can click. On mine the relevant one is “investment lineup”. It lists the plan’s options. Once you decide what you want to switch to, you go go “View/manage my investments”, then it will show you how you’re currently invested. You can click “Change My Investments” and you can change your current allocation to the fund you decide.
The one silver lining I’m feeling right now is the smug satisfaction that bitcoin does not, in fact, appear to be a safe and effective portfolio hedge in times of stress.
Jesus, I just read the thing about the CDC, State department, and California governor put out statements about reducing travel. Is going into a travel based industry a ticking time bomb? Am I fucking stupid?
I don’t know if I agree all of this is a certainty. I agree the overwhelming likelihood is that hospitals reach capacity in areas with coronavirus outbreaks, which means a spike in mortality rate. Seattle, NYC and Boston appear to be up first. At some point, we’re either going to have mandatory quarantines in big cities or large segments of the population just being like “Fuck this, I’m staying home,” and businesses will direct anyone/everyone possible to work from home. Look what’s happening in Italy - we’re likely 1-2 weeks behind them, unless you can come up with some reason why the US won’t go through the same painful process they are. I can’t, I haven’t seen anyone come up with one.
The data on this virus and the examples elsewhere are pretty clear. That’s what we know to a very high level of confidence.
The question marks from there are what happens to supply chains, how much of an economic impact do these shutdowns and event cancellations have, how many companies go under, etc. I’m not going to pretend to know these answers to a narrow range, but I’m very confident it’s going to be bad and thus very confident we’re headed for a global recession.
Small example: Stanford cancelled the rest of their semester in-person. I’m going to go out on a limb and say that a lot of small businesses around their campus are toast, facing around six months with little/no revenue? Employees will be furloughed or laid off, and it snowballs from there.
Now, maybe you say well lots of those employees are students and it won’t impact the economy so much, even if this happens at dozens/hundreds of universities. Maybe. But you’ve got SXSW cancelled, there’s $300M from the Austin economy. I assume that’s going to put some businesses under or in a lot of pain. You’re going to see this happen in place after place. Big companies send people to work from home, small businesses that cater to those employees lose revenue for a month or two, those without enough cash on hand are going to be in trouble.
China is virtually guaranteed a recession at this point, that’s going to have a ripple effect on the global economy. I mean, shit, Wuhan is 6.5 weeks into the lockdown and still going. That’s a city of 11 million people!
This new job is in a travel-related industry??? We’d need more details, but if it’s a cruise line or anything significantly correlated to the cruise industry, GTFO now. If your job goes away if airlines need bailouts in the next 12 months, proceed with awareness and caution.
JT, are you talking about cashing out of the markets and keeping your personal assets in US dollars as a precaution as you figure out what you want to do? If so the advice you’re getting seems good.
Or are you talking about hedging against the collapse of the US and the dollar? Because if that’s what you’re talking about, converting it to cash in your 401k account isn’t doing you any good. It’ll still be in dollars. You’d need to take steps to move it into another currency/asset, and I don’t know enough about that.
If you take it out of your 401k account all together, I think you’re looking at a 10% penalty, but I’m pretty sure you can leave it in there and someone can tell you how to get it into euros or something if that’s your goal.
FWIW I get where you’re coming from and why you feel this way, and I think we’re in for a massive amount of pain, but I don’t think this is the time to flee the US over like coronavirus and the stock market. I know you want out for other reasons, but it’s probably best if you wait for this to settle down before you get out - even if it’s the impetus for your final decision.
