As I questioned uptopic: what more disasters can he pull out of Pandora’s box?
I have no idea how to navigate this storm of idiocy.
Trying to react tactically (buying the dip) is probably futile.
For now I am just holding. I don’t know what else to do.
My wife and I have already moved out of the US, and moved a lot of assets out of US stocks (though still largely in USD-denominated instruments: I should probably look into diversifying that)…
I think the only people who aren’t unsure about how to best diversify in this specific time period are just too stupid to realize that they don’t know. I know what I’ve done; I’ve little confidence it is the best choice.
I always imaged a ski jumper getting too leaned forward. I’ve no idea if it is any less nonsense like that. I have never … intentionally… jumped. But I vaguely recall some Olympic commentary about that during jumps.
There’s no bottom to how low this thing can go. We are not even remotely priced in correctly for the current disaster, let alone future disasters. If the republican party was going to show willingness to choose their own futures – let alone anyone else in the world – over obedience to Trump, they’d have done it by now. The democrats, justice institutions, and courts are ineffectual. We’ve given control over the center of the world economy and financial markets to an aggressive moron who thinks he knows what he’s doing and does not. It’s hard to imagine a more economically dangerous situation other than nuclear war.
The current situation with China alone, ignoring all other factors, should be crashing the US market 20-30% at the very least. Likely more. Chinese goods are so integral to our supply lines that we’re going to have massive shortages, unemployment, American businesses shutting down due to sourcing necessary components from the Chinese, and an economy that’s based 65% on consumption should basically collapse. I think realistically just holding the current course, with no additional disasters, should probably crash the market something like 40%. Number pulled out of my ass, but I believe the scale of the massive fuckups (including making the world determined to make sure we have less financial and economic power) should be on par with one of the great historic economic/financial crashes like the Great Depression.
I’ve discussed this in previous posts, but we’ve decided to crash the market 10-12% and then basically put it on hold, convincing ourselves that Trump will blink, reverse course, and everything will be back to normal again. People are so desperate to believe this that they’re preventing the market from accurately reacting to what’s going on right now.
And it may happen. Maybe there’s a partial coup in the works to cut Trump’s power, but he’s quite serious about all of this. The only thing that’s going to stop it all is smokey backroom pressure from the rich in the US that don’t want to see their numbers go down.
Here are the two scenarios that are likely:
Republicans and rich people continue to defer to God-Emporer Trump because he has literal magic powers to make people obey him beyond all reason. Because he’s not competent enough to run a Saddam Hussein style security state that squashes all opposition. People are free to just stop being his cultist anytime they’d like. They’d lose privileged status but they’re (at this point) not going to end up in the Gulags. It’s absolutely insane that they still cling to him. They’re willing to crash the world, make their own lives worse and everyone they care about, just to refuse to admit they were wrong.
In this scenario, Trump implements these policies he’s wanted to do for decades, this delusionally hopeful partial crash goes into a full crash and we see the worsts financial disaster since the Great Depression.
Scenario 2: powers move in the background to neuter Trump. I suspect it would be a soft neuter. Take away his tariff powers and maybe have some powerful people talk to him, but he just moves on to the next stupid dangerous things. If that happens, the market is so eager to believe that we can restore normalcy that the market may shoot itself straight up to somewhere near where he was elected. In this scenario, “buying the dip” now will be successful, you’ll make money.
However, the long term financial situation of the US is still permanently damage. No one will ever trust us again, make trade deals that favor us again. They will try to construct a world economy that minimizes US involvement. They’ll stop buying US debt, they’ll work towards reducing the power of the USD as a reserve currency. They’ll stop investing in our markets. Things may seem to recover in the short term, but we’re looking at decades where we’re no longer, by far, the most profitable financial markets in the world. Future growth for the entire world will be curtailed, but no one will lose relatively more than the US.
So I can understand the immediate appeal of scenario two - you get a moment where things appear to return to normalcy – but the rest of your life you can probably expect about half the growth of US financial markets than you’ve become accustomed to your whole life.
Imagine the debt crisis alone that we’re facing. We pay off maturing t bills by buying new t-bills to cover the debt. Which means that our debt rolls over. If we have to start paying 7%, 10%, even 15% for t-bills because no one trusts us, that rate will eventually affect OUR ENTIRE 30T+ debt. Our level of debt is sustainable now because countries view us as the safest investment in the world and lend us money for hardly anything. If that goes away, suddenly we’re paying 3x, 5x, or even higher on our debt that we were before. Debt service alone enters the multi trillion dollar range per year. And we’re not going to be able to borrow our way out of that situation if no one wants our debt. So what now, we’ve got multiple trillions being taken out of a worsened economy just to service the debt, let alone pay it down. Are rich people going to bite the bullet and contribute their share to this crisis by being taxed? Ha. So we’re looking at massive cuts – government layoffs, austerity, things that are ultimately self defeating because the economy grinds to a halt.
We have all lived in a country that has been stable, and while leadership competence has varied, there has almost always been a democrat adult in the room to guide us to a reasonable course of action in the face of economic crisis. We’ve never seen what we see how, where the leadership is engineering the crisis themselves and make the problem worse with their “solutions”
Every single person reading this post is likely engaging in a level of “that can’t really happen here” delusion softening your predictions of how bad this can be. Even those of you who are more towards my end of the spectrum on this – it’s likely that the worst case scenario you’ve got in your mind is much softer than the actual worse case scenario.
Either way, much of the damage is done. There’s no coming back from this and being the most privileged economy in the world again. That trust is gone. Positive world sentiment towards the US is gone. They will do absolutely everything they can to isolate us while we also do everything we can to isolate ourselves. It’s a new world order, multi-polar, where the US struggles to remain one of the poles. We’ll start feeling the effects within months and will continue to feel them for the rest of our lives.
Well, nothing today, since markets are closed.
I too didn’t expect the carnage he unleashed. I’m down overall about 6% because I took some defensive measures early. I just had a feeling (I mentioned what they were in another thread). The big hit has been to my US stock index funds which are down much more, but since I sold a chunk of those the hit could have been much worse.
I’ll repeat myself, but my plan is IF my US equities can get to within 10% of where they were (I think they’re about 13% off now), then I’m moving another chunk to cash. If he successfully interferes with the Fed, I think bonds (which is where I moved most of the money I sold, but I did put some in European funds) will nosedive.
I would never tell you what to do. I’m just a nobody who follows the basic advice and its worked. But I think cash and European index funds are your best bet right now. With the latter still being rather risky, but remember that every dollar that leaves the US markets has to go somewhere. That somewhere does include cash, which won’t help you, but anyone looking for returns will try to find something.
If you’re looking to European index funds there are plenty that trade as ETFs on the US markets, so you don’t need to deal with stuff like Forex. If you have an account someplace like Fidelity you can trade on foreign exchanges, but first you have to convert what you want to trade into that currency. It’s easy to do, but it is extra steps and changes in exchange rates can hurt (or help) you. VGK is just one example of many, but there are lots of websites that help you sort through funds of a given type and identify the one you want.
For instance, my industry has a surprising locus in Australia, and I wanted to buy into a company there. When I sold a couple of years later I had made a profit, but the AUD had slipped about 7% against the dollar, so 7% of the gain evaporated.
The biggest risk to the defensive plays is this: If something happens to put an end to this, like one of the lawsuits being successful, or Congress discovering its lost gonads, I think we’ll see a big rally. And if you’re on the sidelines when that happens you’ll miss out.
As always, IMHO, I’m nobody, you should never listen to me. I’m in pharmaceuticals, fer crissake.
Well, perhaps. Read some intelligently written science fiction or alternate history.
Governments collapse, supply chains collapse… in fact pretty much the whole of recent civilization collapses. In which case the world population drops by billions because food is not available.
Could it happen? I sure hope not, but it can’t be ruled out in a complex system that nobody really understands?
Did you hear Marketplace yesterday, or the day before? They were talking to the children’s product company Munchkin, and they said they’ve halted all orders from China. Their market won’t be able to handle a massive price increase, so no point in buying anything. They have a 60-90 day supply, and after that, no more sippy cups and strollers at Target. They have no plans for what to do next, because there is nothing they can do.
One example, but reported as typical of many, many companies.
This is my best hope. Someone who knows how to play Trump shows up, and tricks him into dialing it back to normal levels of Republican un-tax and spend.
And this is when they either devalue the dollar, or just declare foreign debt void. Either way makes the 10-40% decline before seem like a little bump.
Here I optimistically disagree. If somehow Trump’s damage is limited, and there is a regime change in 4 years, even to a less insane Republican, and nothing else has appeared as the new reserve currency, people will stay with USD. Lots of ifs and maybes there, and investors will be more suspicious, but with no place else to turn…
All of this, the tariffs, the HHS, the Fed, the proposed invasions, all of it is a pattern.
A pattern of a seemingly incompetent vandal who’s actually on a well-planned demolition mission to deliberately destroy every pillar of US policy & power. Which will comprehensively undermine the entire West.
The Russians are about to win the Cold War after all. Reagan put up his figurative “Mission Accomplished” sign about 40 years early.
The only way this makes sense is if trump and the inner circle are “Muscovian Candidates” answering to Putin. Putin intends to crush the USA the way he perceives the West crushed the Soviet Union. But what’s left of the USA will be far less significant on the world stage than was Russia at its post-Soviet nadir.
I’m pretty much aligned w @SenorBeef: most peoples’ impressions of our worst case outcome are crazy optimistic compared to the actual best case outcome.
I can follow you up so far, but here you lose me. Let’s be honest: Russia at its post-Soviet nadir was just a vodka guzzling oil exporting failed state (little has improved since). The USA may come close if trump has its way, but it will not fall below that. It has at least as much oil, a more favourable climate, a better agriculture and more than double the population. It will be a hard fall, but not that bad. You drink Budweiser, not vodka. That really should help.
It’s still going to come as a rude awakening to those who thought that America was the biggest and most important country in the world.
Especially since it appears that we’re voluntarily ceding that position..
Thanks, can you provide a link to that?
Is there no way to simply invest in European index funds directly with a Fidelity account? Or if not, are there any mutual funds that invest in foreign companies? (And are they likely to be shielded from the chaos here in the U.S.?)
Yes, I hope this link works. It should go to a list of international equity index funds available at Fidelity.
For example, FZILX is their zero fee zero expense international index fund. It has about exactly the holdings you would expect if you thought about international companies: TSMC, Tencent, Nestle, Shell, and other recognizable non-US names.
ETA: This obviously isn’t a recommendation to buy (or avoid) any of these funds, just pointing you to where you can find them.
It’s probably easier to just re-post.
I took a Nasdaq 100 fund that I’d had since 2016 that was up an absolutely insane amount (about 6% of my holdings) and moved that to cash, then a total bond fund. That was the most prescient thing I did.
I took about 1/4 of my S&P 500 holdings in my non-retirement account, about 10% of my overall holdings, and moved that to VGK, a US-market European index fund. That’s down, but not near as much as my S&P 500.
I took a Mid Cap index fund, also about 6% of my holdings, and moved it to VGK (My wife and I have multiple accounts, and I manage them all; so her IRA has lots of overlap with my IRA/our investment account, so it isn’t like I have one of something; we sometimes have multiples).
Finally, I sold some S&P 500 from a mutual fund in an IRA, about 6% of my total holdings, and put that into a total bond market fund.
Don’t hold me to the percentages, since I’m writing this from memory and doing the math in my head. But I moved about 25% of my holdings from US equities into bonds and EU equities. Of course, I wish I had moved more.
Yes. As I mentioned in my post, you can buy on any (OK, probably not ANY) foreign markets directly through Fidelity. You have to first convert some cash into that exchange’s currency (ie, Euro or Yen) and that will be in your account as a holding. You’ll have $1,000,000 Yen in there, just like you do cash in USD. Then you can use that to buy the foreign asset. When you sell, it will come back as Yen. Which you can convert to dollars (or Krugerrands) as you like. But theoretically, a US based fund investing in foreign assets should be the same thing, but without the forex risk. [ETA: Re-reading, I’m not sure what you mean. Do you mean can you buy EU indices with USD? Yes, on the US exchanges; they are funds just like VOO or any other, VGK is my example. Do you mean can you buy EU assets IN THE EU from here? Yes, see the preceding paragraph]
Regarding being shielded, well, if you know that you can get very rich. I think people will seek calm in other markets, and Europe’s sudden willingness to spend will help their companies. But when the US shoots itself in the face, it’s going to hurt Europe as well. So shielded? I think not. Better off? I think so. But I could be wrong.
In order to do that Fidelity will make you read some things about forex risk and then allow you to turn on foreign markets.
Regarding foreign markets (and in part a response to @echoreply ), I like Europe. I like Japan. I don’t trust China’s market one iota. The government is far too meddlesome, and their economic data cannot be trusted. I avoid China and emerging markets, generally. Jut my opinion.
Fidelity Europe Fund (FIEUX) for one example. I’m sure there are lots more.
“Shielded” is a loaded word.
If the USA really shits the bed, most investments here will be worth approximately zero. Investments in Europe might only lose 75% before turning upwards 15 years later.
Is that “shielded”? Yes, compared to investments left in the USA. Compared to the zero effort 5+% annual real ROI we’re all used to? Not even remotely.
The record price of gold got me thinking that I have a single gold Krugerrand. Going to put my eyes on it also reminded me that I have some Series E and EE savings bonds that hit final maturity in 2000.
If I’d cashed those in on time, and rolled them into more bonds, the new ones would almost be mature now. I don’t even want to know how up I’d be if I’d used them to buy AAPL.
Moral: don’t take investment advice from a lazy person.
Heartily seconded!! If I could get a couple do-overs my life would be revolutionized.
There are often American funds that mirror foreign funds that don’t require investing in a foreign market. Often they are labelled “ADR” meaning American deposit repository (I think) - essentially they are a fund that is listed on the American stock market which mirrors the performance of the stock on the foreign exchange. It makes the process of investing simpler.
To give a specific example, I’m invested in the Spanish defense contractor Indra Systemas through ISMAY, which is listed on one of the US markets fidelity has access to. It has low liquidity because it’s a smallish company and people are buying and selling on the ADR rather than the original market, but bigger European companies and indexes would have less of that problem. Just putting that out there as an option as it’s simple and doesn’t require FOREX conversion or account settings.
I opted for funds of ADRs rather than foreign exchanges. I openly admit to not having a good image of which is better.
In general, I’d assume that a foreign exchange is more firm. If I own a British company, in British pounds, on the London Stock Exchange then, short of Britain disappearing, I’ll still have that ownership regardless of what happens in the US.
But I can also imagine losing access to that more easily and having a harder time being able to make adjustments or sell out, without having to go through more red tape or physically traveling.
Staying in ADRs preserves the ability to trade around, across countries, as thought it was all just one big happy stock market like the one I’m used to dealing with and it’s on someone else to mess with legal complications to working across the pond.
But, should one of the groups that manages the ADRs determines that they can’t feasibly continue to function amidst growing legal complications, it’s less clear how that is liable to land. Does the money go poof? Does my ownership get transferred to a foreign exchange? Does my account get cashed out in USD and transferred back to me? (It should, generally, be that last but who knows in the midst of our great new future?)
Generally, I’d be less positive about the lack of clarity on the latter option and so choose the first. But, my thinking is that 1) attacking the right to trade in foreign stocks feels like an unlikely target for the administration (not impossible, but not at the top of the list), 2) Congress isn’t going to want the President directly messing with the stock market, to protect their own investments, and 3) there would likely be enough advance warning to revise the assessment and pivot.
But, as said, I don’t have great confidence in this read.
My repositioning in late February.
Had been 69% equity, most in S&P500, some mid cap growth, and bit individual picks. 25% bond funds. 6% GLD. Some of the positions are by way of a portion in a target age fund.
I took about 10% out into cash evenly from the equity and bond funds. Left the GLD sit. A daughter is returning to grad school in the Fall and I want the cash to pay for that on hand. (Strong on the belief that paying for my kids education is the most tax efficient intergenerational wealth transfer means possible.) It is just sitting there now.
Then I split the remaining equity evenly between the S&P500, the mid cap growth, and Vanguard Equity and Income (VEIRX), new as part of my mix. (Some
The first two are down about 13% each. VEIRX is down less, a bit under 8%. My GLD is up 21%. The bond funds are pretty flat.
I have not personally moved to more international exposure.
Putting it all together it my account is running down 2.55% ytd.
I will rebalance on a schedule next February unless the equities have a more than 40% drop, in which case I’ll shift over sooner. Unlike some here I do not see a possible huge drop as an unrecoverable event.
I make no recommendations for anyone else.
All the talk of foreign investments makes me think, when is the next step, and actually moving money outside of the country?
I think we are many steps from the government seizing law abiding citizen’s bank accounts, but we’re also barely 72 hours into this administration, and have 20 years left.
I completely agree. My parents getting me to a PhD with zero debt was a massive head start in the world. Also, recessions are a good time to be in school, if you can afford it. Hopefully by the time the economy is turning around, you’ll have a valuable degree instead of just gaps in your resume.