Okay, you said bond not bond fund.
Bond funds can crash but, like any fund, you’re generally auto-diversified by investing in a fund so the risk that Singapore might get nuked and invaded by India isn’t quite as big of a concern as a fund holder, compared to someone who directly held Singaporean bonds. Any bond defaults are going to have limited impact on you.
If the feds choose to default on US debt, or the government mostly falls apart so there is no “feds”, any debt instrument denominated in US dollars pretty much evaporates.
If we get chaos in the banking system, with no FDIC / Fed / treasury dept management or oversight, blue chip company bonds may well start defaulting. If SWIFT falls apart, everything, both government and commercial starts defaulting.
Whole lotta bond funds sold in the US contain only US-issued USD-denominated bonds. Yes, for sure international bond funds do exist. Good bet they are not large parts of the American public’s 401k plan offerings. Nor holdings.
Sorry for imprecision. That said BND reflects what is happening across the total US bond market. Including an elevated risk that your individual bonds will default.
Defaults can easily be a series of dominos. Diversification across individual bonds doesn’t help in the this time is different existential threat circumstance.
Personally my best positioning against those sort of scenarios is that I am still working and enjoy my job. At least I’ll have an income.
I’ve never owned gold before but the threat of collapse is looming. I’m thinking I shouldn’t be doing this in an ETF because who knows what will happen if everything collapses but I should hold actual physical gold. What do you guys think of that? What fraction of savings should that be?
I can, obviously, offer no guarantee. I’m not a fortune teller and don’t know the future.
To be sure, the current administration could do a lot of harm to the economy. My general expectation is that they’ll attempt to do many negative things and mostly whiff it on each attempt. There will be large negative results but those initiatives will be implemented in unintentionally self-defeating ways, rolled back as soon as there’s any negative pushback by industry, shrunk by the courts where things weren’t rolled back, and Trump will just blame others or ignore the debacle, before moving to the next harmful initiative.
I’ve personally opted for keeping my money in the US on US exchanges, but invested largely in foreign stocks and commodities.
I think that there are a lot of backstops in place and that Trump, effectively, only has two years to try and accomplish some major economic win for everyone, while targeting an impossible goal. You can’t, physically, create a manufacturing powerhouse in 2 years. You need large scale unemployment, vacant factories, and dissatisfied customers.
The only part of all of that which Trump can accomplish is the unemployment. But minus the empty factories, that’s useless. Factories take years to build. You can’t build them, hire up, train, and create a better set of products than the other guy, at a lower cost, in 2 years.
So backstop 1 is that any amount of unemployment is going to bring Democrats into power in Congress in 2 years. Trump knows that if he totally screws it between now and the midterms, his ass is toast. For as much as he loves to take a risk and throw the dice, he’s still quite likely to listen to anyone offering a chance to water down any big moves that could destroy everything. As is, we already see him hedging on his tariffs and trying to undo them as quickly as he’s making them.
Backstop 2 is the current Congress. For as much as they may love a dumb MAGA voter, Congress isn’t populated with dumb hicks. Maybe there’s a couple but the average Congressman is a self-made multimillionaire. When they start seeing their own stocks going down, they’re quite likely to act to block Trump. (Note: I can envision a solution to this, for Trump, to keep them onboard. This backstop isn’t reliable - but it’s not nothing and, in a panic, there might be enough division of opinion that just a few breakaways is enough to let the Democrats take charge early.)
Backstop 3 is the division of power. Ultimately, we’ve allowed the Federal government to be the central power in everything but, functionally, the states have the right to hold most of the power and the current amount of centralization is largely antithetical to the text of the Constitution. Anything the Federal government undoes, the state can jump on and redo as a local, State-lead alternative. It’s like when the UK left the EU, they passed a law that defaulted all laws and regulations to EU laws and regulations, to prevent sudden confusion and chaos.
And past the States are the judiciary - who can and will enact injunctions and then slow walk a lot of this stuff that looks likely to impact the investments of all the justices. There are a lot of think tanks, unions, political groups, and individuals who all believe in the American reality that we’re all free to sue the shit out of anything that annoys us, and block anything from ever actually getting done.
I certainly hope you’re right.
My own take is more like trumpmusk are wildly & gleefully swinging their sledge hammers inside the house, hoping to break all the bric a brac and some furniture. But they may well take down a load bearing wall or two. And if, by luck, they’ve sufficiently weakened the bureacracies that could respond to the resulting crisis, the needed response will not occur and the crisis will spin out of everyone’s control. And the building, or major sections of it, will simply collapse. Then the looting starts.
Metaphorically, they’re setting controllable-enough fires here and there. That might eventually coalesce into a firestorm. The more spread out, overwhelmed, and tired the fire department(s) become, the greater the likelihood events spin out of control.
I’m glad you’re optimistic, but I am not. The fact is that Congress has the power to end this tariff nonsense right now. That presidential power flows through an emergency declaration, and Congress has the power to say “no, this isn’t really an emergency.”
They’ve made it clear that being primaried is more concerning to them than doing the right thing.
I wish I could point out to them that they are putting their own jobs ahead of millions of Americans’ jobs.
I suspect that even if they were given truth serum first, substantially all of the RW ones would reply “Yeah? So?”.
That’s pretty much happened, what with Trump effectively doing a Tesla ad at the White House.
Tesla stock is up over 6% today.
Certainly I don’t either. I don’t know if there will be a recession, a more major correction, or markets doing okay despite Trump and Musk idiocy. The thing about madman negotiations is that they work best when the person really is stupid enough to do it. The other sides know that no rational actor would follow through, and usually that is enough … but Trump is not a rational actor. He’s not just playing the part of madman; he really is insane.
But if a crash of major magnitude then I still am of the belief that it will recover over the next decade. And trying to position in case it doesn’t is unlikely to help much if it doesn’t but could hurt greatly if it does.
A general investment question: back when I was starting out “The Dogs of the Dow” was a popular approach. Sort of a value contrarian hybrid. Anyone still with love for it out there?
There’s an ETF named RDOG that I’ve looked at that applies the Dividend Dogs methodology to REITs, and (in what I looked at) it appeared to be one of the best REIT options out there, if you’re into REITing¹. That said, I ended up skipping over it, when looking for bond options, and landing on ANGL/FALN. Those are bond funds that invest in bonds that fell from investment grade to junk (if I recall correctly) during the previous quarter.
In general, when I’ve looked at bond funds, there’s a pretty strong inverse correlation between the payout and the price. If you’ve got a fund paying 10%, the price of the fund is going to be shrinking. You’re getting 10% off an ever-shrinking dollar value. A payout of 0.5% might give you some good price growth, but you’re not getting any dividend out of that worth sniffing at, unless you’ve plugged millions of dollars in and can afford to live cheap.
Personally, when I look at bonds, I’m thinking in terms of building up something that could support me indefinitely. If inflation is invalidating the dollar at about 2% a year then you need price growth of at least 2% on average, to ensure that your dividend isn’t shrinking relative to inflation. If you find funds with that price growth, the highest dividend payout appears to be ANGL and FALN, both using the same “Fallen Angel” strategy. They’re currently paying about 6% dividends.
(That all said, while these two funds grow faster than the Fed target inflation rate, that’s not a protection against dollar devaluation. RDOG should be more generally inflation resistant - though it doesn’t appear to have responded much when inflation was high in the last few years. I’m not sure if that’s a matter that inflation growth came and went too quickly or what.)
If we don’t care about dividends, though, then the question is what we are looking for?
If the goal of the Dogs of the Dow is to have high growth, I don’t believe that you’re going to get that relative to something more growth focused. Comparing SDOG, for example, to IMCG, I’m seeing a 10% to 12% average annual return over the last 13 years. SDOG is doing pretty good but not as good as IMCG. And if we compare to QQQ…well that’s 10% to 18%.
If, on the other hand, we’re just looking for something that simply refuses to go down, you’re probably looking for a low volatility fund. Comparing SDOG to USMV, the latter has a higher annual return of about 1% more and is more resistant to downturns (though, admittedly, both do well).
SDOG seems like a fairly safe pick but - even where it seems to be the strongest, as a consistent upwards arrow - it’s still just not quite as good as someone else.
¹ A REIT is a real estate development/management company that splits profits evenly among all owners, with limited ability to reinvest profits into growth. They’re a way for individuals to pool resources to invest in real estate, so that a large enough set of properties can be built that bad tenants aren’t an existential risk.
I haven’t looked at The Dogs for decades, but what we are looking for is total return with dividends reinvested over different time periods, and resistance against downside volatility.
How does a strategy fare for total return against the indices in a particularly bad year or period, and over a moderate to long term run?
The idea behind The Dogs and for that matter the Vanguard Equity Income Fund and others of its ilk, is that these may be undervalued stocks and that their dividends may potentially cushion a downside. The contrarian aspect is that it is specifically moving to where the ball currently is not: they are almost by definition out of current favor choices but big enough that they are likely going to come out the other side.
Normally I wouldn’t like to twitler, but since it’s making fun of Elon I’m going to make an exception.
Yeah. It’s completely irresponsible/risky to do what I’m doing with Tesla as a fraction of my portfolio so it’s pretty crazy to check a few times a day and my portfolio is up or down 2% from the last time I looked. But that’s okay, I expected a little bit of a rebound before we go crashing down again. There’s absolutely no reason for genuine growth at this point except market manipulation.
I considered maybe pulling out of TSLZ for a day because I thought it might have a false rebound and then I could buy it again today, but I didn’t end up doing that. That’s the only loss I worried about – the puts and short sells are still good.
Of course if I was really sure there’d be a short rebound, which I didn’t, I should’ve waited for it to peak so I could short sell or buy my puts at that point. Ah well.
Incidentally I don’t understand how you’re supposed to day trade with something like fidelity – they hit me with a wash sale when I sold TSLQ and bought it again the next day. Can I just not trade it day to day? I don’t fully understand the logic.
Incidentally my positions on TSLA are:
100 short shares at $267, 200 short at $230
puts:
3/21 $245
3/28 $190
5/16 $170
10/24 $150
12/19 $100
I have 25 put contracts (100 shares per contract) spread between them.
Those are a little uncoordinated but I was mostly just looking for strike prices that had a relatively good value compared to the next price/date.
It may all backfire. I may look like an idiot in a year. Or I may be massively benefitting from the fall of the Elonic empire and that makes me happy, so fuck it. YOLO.
More power to you and you know your own risk tolerance. I have long thought that by rational analysis Tesla should be selling for much less than it has. Of course the market isn’t always rational, especially in short to medium terms. I’d personally be afraid that my personal wish for Musk’s collapse would be impacting my judgement doing what you are doing. But - you are your best judge - and I wouldn’t have the temperament to speculate like that in any case!
It’s definitely risky but it’s not like I’m betting against Apple or something. Tesla has always been nonsense and it’s hard to ruin a company’s reputation faster and harder than Musk has, so if ever you could predict a bubble to burst this seems like it. You’re probably right also that my hatred of Musk is a factor here, but the last few times I’ve made a good bet I’ve thought to myself “when you’re very confident in something, just go for it, stop just putting 10 or 15% into it”
I’m absolutely willing to eat shit on this one and accept I made a mistake if it goes that way.
I believe we will see a lot of that in the next months. Powerful interests are tempted to cheat and the government is weakening all controls at all levels, surely that includes the stock exchange. And not just tesla. Interesting times ahead.
Another reason to get out of the US market. The regulators are already gutted and now we’re going to see how blatantly the market makers and politicians can scam everyone. I’m only going to sell the US market short to try to make some money off the crash, but any of my long positions will be in Europe and other international markets.
I’m really glad you said this and I kind of agree. But. I’ve come to learn the market is probably always rational. What’s irrational or not is just some specific person’s perspective. But the market is full of very different people with very different investing styles and time horizons.
Take a hypothetical GameStop type situation. At some point on it’s sky-high rise, I would say it’s completely irrational to buy that stock. Stupid actually. Everyone who is buying GameStop is stupid. But now, I would disagree with my old self. It’s only stupid if my intent was to hold it long-term. If I was a day trader, buy GameStop at $500/share which everyone would think is way overpriced, it’s perfectly rational. That day it goes up to $501 and you get out and make lots of money. That’s smart and rational thinking. No reason to think it’s not going to go up a little bit that day.
Don’t want to debate GameStop or Tesla or anything like that, but just that the market is complex and what I think is stupid, for me, doesn’t make it so. The exact same situation can be very smart for someone else.
I think bubbles are formed when stocks are mostly being bought by day traders moving the price up and the longer-term buyers are not aware of this or don’t appreciate it enough. Then you get into irrational behaviors by groups of people.