Tempted to sell the news

[FIREshrink]

Tax bill is basically a done deal now. Tempted to sell the news. Maybe my opportunity to sell 1/3 of US stocks, which is all I can do without tax consequences anyway. Guess that would move me to 75% international stocks, up from 60% now. Or make me 53/47 stocks and bonds if I bought bonds, down from 61% stocks now.

The bull market and other factors make me have very little need for risk.

[The White Coat Investor]

If you have little need for risk, make a permanent asset allocation change. But I wouldn't do it response to economic news. That sounds like a recipe for failure.

[FIREshrink]

I think the next ten years will have very modest returns. Quite possibly negative around the five year mark.

I don't see the economic imbalances that existed in 2000 or 2007 - that is, the misallocation of capital to dot bombs and real estate respectively - but valuations are quite obscene. Trying to think of what the economic catalyst could be is hard. Perhaps absurd credit card, auto loan, and student loan debt burdens will initiate the unwinding. While mortgage debt is lower than in 2007, auto, credit card, and student loan debts are at record highs. I'm not reassured.

[Zaphod]

This is simply a melt up due to market makers and certain systematic hedge funds being very short SPX gamma. Honestly not a lot of downside to selling the news. Vol bid up in event anticpation, and if it fails, will increase dramatically and if passes the air will let out of the bid and a vol crush. Have a small straddle for that right now.

Actually got mostly out on Tuesday, rest out yesterday morning as all these crazy drivers are a bit disconnected and would rather it settle first.

Reminds me of Brexit from a risk/reward standpoint though different mechanism than whats happening today.

[Zaphod]

FIREshrink wrote:

I think the next ten years will have very modest returns. Quite possibly negative around the five year mark.

I don’t see the economic imbalances that existed in 2000 or 2007 – that is, the misallocation of capital to dot bombs and real estate respectively – but valuations are quite obscene. Trying to think of what the economic catalyst could be is hard. Perhaps absurd credit card, auto loan, and student loan debt burdens will initiate the unwinding. While mortgage debt is lower than in 2007, auto, credit card, and student loan debts are at record highs. I’m not reassured.

Click to expand...

Were still a ways away and consumers are getting confident finally, which is showing which is showing up in real retail sales, home prices, etc...that is not recessionary. This isnt to say the market isnt hot, it is, but that recession isnt imminent. This tax bill would add to strain though.

[djohnflatfeecfp]

Yield curve is less than 10% for recession 12 months from now.

 

A recession indicator I keep an eye on is low.

 

What did Morgan Housel tweet recently?  Something about a 60/40 portfolio has averaged over 12% for the last 8 years of the "new normal."  I believe he said "forecasting is hard."

 

I just remind myself the market doesn't care what any of us think.  Or, as said by Epictetus - "We don't control the world around us. We control only how we respond."

[FIREshrink]

I agree, nothing imminent. And 60/40 has done quite well thank you very much.

Yield curve is pretty flat though.

[djohnflatfeecfp]

One thing that has caught my eye is as of the middle of the month 21 stocks were responsible for half of the growth in the SP500 this year.  That is a rather low percentage.

[Donnie]

I think selling the news is a reasonable strategy when paired with simultaneous buying of the news.

[FIREshrink]

Dramatic decline in the cumulative advance decline line in the late 90s was an unambiguous sign of an impending bear market. Warren Buffett observed, "the entire global economy is now dependent on the US stock market, which is dependent on 50 stocks."

Since I no longer subscribe to Barron's or the WSJ, it's hard to find Nasdaq or NYSE a/d data.

[TheGipper]

Though “pseudotiming”, I often do my annual rebalancing a few days to weeks early or late if there is a big event.

I think the stock market had already priced in a 70% chance of tax bill passing (see betting markets for best info). After McCain voiced support chances up to 90% and market popped.

BUT.....until 2/3 of Collins/Corker/Flake are a yes with something the house freedom caucus can vote for this could still go down in flames.

As I see a >10% chance bill still fails or is significantly watered down, coupled with a long stretch of US outperformance over international stocks, I chose today to rebalance from US to international.

[Zaphod]

The thing about it is if one is to do any kind of timing, this is what could be considered an asymmetric set up. The market has basically priced in the tax bill passing in some form or another. If it does, big deal, maybe a couple points.

As I alluded to earlier, the crazy climb we're seeing in equities is not the tax bill, its the result of MM/dealers being very short gamma/delta hedging. Remember that hedge fund in March this year that nearly went bust? Same thing was happening then, very short gamma, all dips bought as its profitable to MM books from a delta hedge stand point, have to cover your gamma as market goes higher (buy ES futures).

If it doesnt pass, this isnt priced in (though given this admin/congress' track record is a good bet) you have an opportunity to profit from your setup of likely not much more upside, and possibly (anything can happen) much larger downside. Not a bad bet. I was out Tuesday for the most part 2/2 to this and a couple other reasons (weirdness in volatility, other setups/catalysts abound).

[BladeRunner]

I will never claim to be the savviest investor, especially in this forum of super smart people, but after 30 years of watching the markets, the only thing that I feel certain to say with any confidence is that "no one knows nuthin".

[djohnflatfeecfp]

Dang.  I'm getting out.  The sunspots never lie!

http://www.thinkadvisor.com/2017/11/30/biggest-crash-ever-is-probably-coming-by-2020-harr?eNL=5a20698a140ba0057e9acdf8&utm_source=TA_DailyWire&utm_medium=EMC-Email_editorial&utm_campaign=11302017&page_all=1

 

"You write that your “new secret weapon” is sunspot cycles. That sounds iffy.

I get a lot of flak about that one. We’re in a down cycle now, and it won’t bottom till around early 2020. Demographics tell you when the economy will slow, but sunspots tell you when a crash or major stock correction is going to happen. We researched sunspot cycles, recessions and major financial crises as far back [as possible], and 11 out of 11 happened in a down sunspot cycle."

 

[The White Coat Investor]

FIREshrink wrote:

Tax bill is basically a done deal now. Tempted to sell the news. Maybe my opportunity to sell 1/3 of US stocks, which is all I can do without tax consequences anyway. Guess that would move me to 75% international stocks, up from 60% now. Or make me 53/47 stocks and bonds if I bought bonds, down from 61% stocks now.

The bull market and other factors make me have very little need for risk.

Click to expand...

Does your written financial plan say to buy the rumor and sell the news, or is that some idea you got from CNBC?