Xmas is cancelled

The U.S. stock markets saw a 3% drop in each of the past two trading days and everyone is of course going nuts. After hovering at all-time highs for the past few weeks, the ever expanding threat of the coronavirus has finally spooked the markets into a mild drawdown. As I written about it briefly last week, the economic impact of the coronavirus is a huge lagging indicator, and we’re just starting the see the beginning signs that everything is not going to business as usual.

Being a relatively young person, I am immensely long on the stock market, so the past few day’s drops don’t materially affect me at all. I can’t even pull money out or put more money into my ROTH IRA: the former is restricted by definition, and the latter is restricted under the federal guidelines of $5,500 per year maximum. But it’s fun to watch, isn’t it? I certainly had a good laugh commiserating with workmates about how much money we pseudo hypothetically lost in the past 48 hours. That is, unless you have individual positions in Zoom or Campbell Soup: you’re actually up!

It’ll be interesting to see how President Trump reacts to this slump in the market, especially if it continues on (as of writing we are on pace for a third consecutive day of red). Trump sees the stock market as a de-facto referendum on his presidency, so any significant decline - like the ones we saw in the 4th quarter of 2018 - triggers him into irrational action. I’m sure Federal Reserve chair Jerome Powell is already hearing from our President to do something about this latest contraction; to continue lowering the borrowing rate and increase the Fed’s balance sheet.

Meanwhile, more so than fears of losses in the market, the coronavirus issue seems to still be proliferating, with bad news continuing to come out day after day. A friend of a friend has cancelled his wedding in South Korea because of the travel issues for attendees, and surely they’re just one of many couples in Asia that had their wedding dates affected, through no fault of their own. Yesterday, San Francisco Mayor declared a local emergency so the city can allocate resources in preparation should the virus spreads to our area. It appears we - the United States - are steeling ourselves for that eventuality, and not for a matter of if.

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At the bike barn.

Is the correction coming?

Of course it is. It’s just that none of us know when that is going to be. I’m actually looking forward to the upcoming correction because it means things (stocks or otherwise) can be bought at huge undervalue.

That’s assuming I keep my job through the next recession.

Yesterday the stock markets took a huge dump on us investors: both the Dow and S&P plunged over 3%. Nothing to really panic over (yet) seeing as the S&P merely returned to August (of this year) levels, and the index is still up 9% year-to-date. Smart people advises one shouldn’t pay attention to the daily fluctuations of the stock market anyways; given a long enough time horizon, all the ups and downs aggregate out to constant growth over decades.

Should your time horizon be short, then that money shouldn’t be in the equities market. The yield on savings accounts have finally crept back into respectable levels (my Ally account just got bumped up to 1.9%), so it’s a wonderful time to store funds there risk free (up to the $250,000 FDIC limit anyways). Readers of this blog know I’m planning to buy a car soon, so that allocation of capital is safely in my savings. The precipitous drop of yesterday’s stock market didn’t register there at all.

Where it did register was on the recent deposits into my investment accounts. The money I put in these past few months have completely taken a bath due to yesterday’s shenanigans, and as I’m typing these words it isn’t looking too spectacular today, either. Yes it’ll all even out eventually, but it still hurts on a surface level. I’m optimistic the remainder of this year will round out positively, and ultimately none of this matters much as my time horizon is quite long indeed.

So I shouldn’t be looking at the market’s daily machinations, but my human nature prevents me; stocks are simply too intriguing to not follow. It’s super fun when it’s up, and utterly dreadful when it’s down massively like yesterday.

I found Santa Cruz street in Santa Cruz. Oh and a supremely clean NA Miata as well.

S&P hits all time high

The S&P 500 index hit all time highs yesterday, and we’re officially in the longest bull market in history. This should be great news for those of us with skin in the equities game, but it seems everybody is busy steeling themselves for the eventual correction to come. This bull run indeed won’t last forever but suffice it to say none of us can predict when the downturn will occur. Chances are equally good that if you take money out of stocks now, you’ll forgo any gains that may still come. 

Of course, everyone wants the gains and can't bear to lose a penny. Perhaps I was taught differently: the money I’ve got in the stock market is money that if it completely disappears tomorrow, I’d be completely okay. Capital I’d otherwise fret losing is secured in my savings account, insured by the government. When the bear market does arrive I will not be selling any of my funds: my investment horizon is measured in decades, not years. The market will eventually climb back up just like it did from the 'Great Recession'. 

I’m relatively young so obviously I can risk the cyclical whims of the equities market, unlike the soon-to-be retiree counting on his nest-egg to live out the rest of his life (like my parents). But that person shouldn’t have any money in the stock market anyways, given the supremely low risk tolerance at his stage in life. The impending correction shouldn’t affect him at all. 

There’s some rumblings regarding the yield-curve and how an inversion of it is a solid indicator of a looming recession. It’s mainly food for investors trying to time the market, but for regular folks like me, I think it’s largely noise. Even if the yield-curve were to invert, the bull market can still go on for many more months before correction happens. Again, none of us can predict the fall. 

My investments are quite sound (if I do say so myself) so I’m ready to ride out whatever is to come. Money that I'd absolutely need within the next few years is either in savings or have been moved to it already. Have to say, I’m thoroughly liking the recent increases of the interest rate: after many years of sub 1% returns it's nice to be at least competitive with inflation. 

The colors here are just fantastic.