Double Dip and Crash of Non-Multinational Companies....
Although a double dip may seem unlikely, investors have become increasingly pessimistic as of late. What do you guys think of a drastic drop in equity pricing and the possibility of under 2% on the 10 year? Today was a testament to how scared traders are deep down, No body wants to be a kill joy, but Japan circa 90's does not sound as ludicrous as it once did(not exactly thanks to hindsight/Fed, but close enough).
-If we were to see another market crash (Dow 6000...), the little net worth safety net that consumers once had would be eliminated, causing a possible contraction.
-A widening of spreads between stable/defensive companies(even lower than the recent IBM offering) and "growth"/high yield companies, who will have a much harder time accessing capital not only because of very high interest payments, but also because of significantly lower valuation of equity offerings
-A movement of the young and talented to EM markets where growth/lower taxes/less saturation will become increasingly attractive
-When faced with a growing budget deficit and shrinking tax revenue(due to contraction/migration), the necessity to prolong the time until social security kicks in will force older people back into the economy (remember they just lost their nest eggs in the hypothetical crash), which will not only drive unemployment, but will promote a more risk averse economy and stifle innovation.
So what do you do in this type of hypothetical environment?
A)Buy gold?
B)Buy defensive stocks?
C)Long high grade Bonds and Short High Yields?
D)Move to an EM?
E)Short Cyclicals/Discretionary?
F)Call Marc Faber and beg for a job?
Gold. Seems to go up when everything else goes down
...actually my GLD actually dropped today so far, but SKF is up 7% ....too bad I'm still way on the long side...
don't freak me out.
Thanks, Patrick
No intrinsic value though...... definitely an option
Lol don't worry Patrick this site is soon gonna be far more lucrative than gold.....can i interest you in spearheading the IPO?
I'd be long long-dated investment grade credit for big companies. Buying 30 year bonds issued by GE for example. Personally, I think we are going to see a deflationary environment with zero/flat growth for the next three years. This is a great environment for long-term debt because all that matters is that the cash payments are made. Companies have record amounts of cash on there books so they will be able to survive any tough storms that may brew. Even some high yields that have a large amount of cash might be able to whether the environment we are facing.
I don't think we will see GDP growth larger than 3% for a few years. How will equities increase if their is no growth here (except for multi-nationals). However, if we do get a deflationary environment its possible the dollar will strengthen against other currencies (unless they see deflation as well) thus reducing demand for American exports, so your multi-nationals based in US selling abroad might have a hard time if that is the case.
Right now I am long gold and long term debt (in my head, not in a portfolio, I don't invest but I follow markets very closely). If you want to get fancy use interest payments from the credit you hold to purchase put options on the S&P, and stagger them with some not too far from out of the money to some that are really far out of the money. Just a suggestion, obviously you should do more research and think of other ideas but if I had money to invest this is what I would be doing.
I completely agree (although staggering puts will probably start getting expensive pretty soon....). I am wondering if we will see a rift between companies who have comparative advantage, who it makes sense to go global, versus companies who would not succeed outside domestic borders, who will be forced to cut expenses drastically in order to maintain a "growing" bottom line. If we see a continuing shift away from the U.S. consumer by domestic companies, it may be enough to maintain decent demand for capital (going multi national is more capital intensive) and lower spreads. The issue with being long long term debt, is that after QE2 (it will happen), people will begin to realize that this recession is not a disease, but rather a symptom of an economy whose fundamentals have drastically changed. This will cause increasingly larger out flows of capital to EM's, who are slowly developing the infrastructure necessary to keep investors from worrying about a repeat of Russia in the 90's. Therefor, longterm debt may be attractive now because of market risk, but is significantly less valuable in a couple years from now, when people realize that just because the U.S. sneezed, does not mean the rest of the world caught a cold.
It could be far too late if you don’t already learn about the social security do-over. An obscure loophole also known as the Social Security payback option, or Social Security double-dip, lets retirees pay back the government cash they received at an earlier age. This allows them to resume collecting bigger Social Security checks by starting over when they're older.
I found this here: Social Security double dip is now too popular for its own goodWhen using the Social Security do-over, more money is made than if you were to put that cash into an annuity from an insurance business. This is becoming something everybody wants to do. The Social Security Administration hopes to be able to end this.
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