Comment by ejvincent | Hacker News Reader

Comment by ejvincent | Hacker News Reader

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> My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound?

You are trying to time the market. That is notoriously difficult. You are almost for sure going to miss the ideal timing. That's why there's the saying, "time in the market beats timing the market". There's many write-ups on this topic, but https://www.schwab.com/learn/story/does-market-timing-work shows a decent breakdown of different strategies and how they would have worked out.

> You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again

A few things here:

1. We have less building now than during the lead up to 08: https://tradingeconomics.com/united-states/housing-starts

2. Subprime mortgages are dramatically lower in volume

3. ARM loans are dramatically lower in volume

Just because there might be an increase in defaults doesn't mean we're going to see anything like 08.

I'm generally not sophisticated enough to time the market, but it seems like the largest player in the market is trying to crush it in order to save the dollar. Is it timing the market to recognize this fact and adjust one's portfolio accordingly?

In other words, I don't know what the stock market will do later today, next week, or for the next month, but it seems the general direction will be down until the fed pivots. Not straight down, there will be up days, weeks, months, but overall down. Don't fight the fed.

> but it seems like the largest player in the market is trying to crush it in order to save the dollar.

The US dollar index is now stronger than it's been at any time pre-pandemic since 2002. If anything the Fed is most likely trying to do the opposite, weaken the very strong dollar, as it did in the early 2000s and 1980s.

> it seems the general direction will be down until the fed pivots.

More likely, it will be down until market participants are sufficiently convinced the Feds will pivot enough, and then it will rebound, at unknown velocity.

And, yeah, trying to strategize around that fact is trying to time the market.

First agree with timing the market. But I am a bit skeptical about your overall point. Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?

Good luck, timing the market, and ‘this time is different’ are subcategories of predicting the future.

Ask yourself: if you could predict the future, wouldn’t you already have the trading results to prove it?

The US markets are the most aggressively optimized game theory engines on the face of the planet.

The biggest mistake you could ever make is thinking that the prices in the market reflect perceived value of things today. Everyone is playing in 2nd or 3rd order terms, at minimum. Anyone playing first-order is going to get steamrolled unless they have a latency advantage.

> Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?

During the Great Recession we were told that the time of outsized market returns were over. We should expect to no longer see 10% YoY increases and plan around a more modest 3%–4% return for the foreseeable future. Between Jan 1, 2009 and Jan 1, 2023, the market went up like 450%. Including the recent market "bloodbath", we've had a 11%+ annualized return on investment in the stock market since the GR.

The moral of the story? Stop listening to people who claim to know what the market is going to do. Even if one of them does, the odds that you'll be able to pick that specific soothsayer out of a lineup is near zero.

> we're going to see anything like 08.

Right because this time we're in a much larger asset bubble than we were back then.

At this point it wouldn't surprise me if we don't go into a recession because the larger the bubble gets the more desperately we need to keep some air in it. It would not surprise me to see cheap money return only because the alternative might, at some point, be the collapse of the entire systems.

We'll keep the bubble going so as long as we can, but the longer we punt this off the more extreme the breakdown is going to be.

This time it is much worse, and for stupid reasons.

The US government funded its huge balance sheet expansion mostly by short term obligations. When rates in long term debt were at historical lows… it chose a to go in on short term instruments (because interest rates never rise!)

As that short term debt becomes due and it needs to be rolled over, it will face a much higher interest rate, severely impacting the federal budget.

The last crisis was smoothed over because the fed stood in as buyer of last resort. It’s not clear it will be able to afford to do so this time.

> not clear [the Fed] will be able to afford to do so this time

The Fed is fine. Its limits are inflation and unemployment. The latter is proving incredibly forgiving right now. A single-mandate central bank would be tempted to plunge the economy into recession right now to cure the inflation.

> You are trying to time the market.

Maybe, but they said they're going into bonds here which seems like a pretty safe move at this point (unless you expect substantially higher interest rates from here - I think that's unlikely, more likely rates will plateau after a couple more Fed increases and stay there for a while).

I can get close to 4.8% on 26 week t-bills right now, do you think I can get that kind of return in the stock market (index funds) over the next 6 months? Maybe, but I'd rather go with the safer bet on t-bills here. (Sure, there's a non-zero possibility that the clowns in Washington will do something stupid that leads to a [likely short-term] default, but if that were to happen stocks and pretty much everything else would tank as well)

If you need the return in the next 6 months that’s not timing the market and putting it in equities would be bad even if you expected equities to out perform bonds. Having your portfolio invested in different things based on investment horizon is a normal part of portfolio design.

Timing the market is changing that distribution based on your opinion of what the markets will do.

subprime residential mortgages are lower, but commercial is way up.

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