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This would be expected in a recession. First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much wor

This would be expected in a recession. First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone. You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again, only this time we've already played the QE card. So it will be interesting to see. My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound?

bobthepanda 4y ago
The issue is generally that people are bad at timing the bottom, and often times it actually pays off to invest the same amount in dollars into the stock market, since you will buy as its going low and have more room for going back up.
- kube-system 4y ago
  Yep, I've bought the bottom a few times since March 2020 and I haven't found it yet.
ejvincent 4y ago
> My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound? You are trying to time the market. That is notoriously difficult. You are almost for sure going to miss the ideal timing. That's why there's the saying, "time in the market beats timing the market". There's many write-ups on this topic, but https://www.schwab.com/learn/story/does-market-timing-work https://www.schwab.com/learn/story/does-market-timing-work shows a decent breakdown of different strategies and how they would have worked out. > You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again A few things here: 1. We have less building now than during the lead up to 08: https://tradingeconomics.com/united-states/housing-starts https://tradingeconomics.com/united-states/housing-starts 2. Subprime mortgages are dramatically lower in volume 3. ARM loans are dramatically lower in volume Just because there might be an increase in defaults doesn't mean we're going to see anything like 08.
- officialjunk 4y ago
  subprime residential mortgages are lower, but commercial is way up.
- kmonsen 4y ago
  First agree with timing the market. But I am a bit skeptical about your overall point. Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?
  - dghlsakjg 4y ago
    Good luck, timing the market, and ‘this time is different’ are subcategories of predicting the future. Ask yourself: if you could predict the future, wouldn’t you already have the trading results to prove it?
  - bob1029 4y ago
    The US markets are the most aggressively optimized game theory engines on the face of the planet. The biggest mistake you could ever make is thinking that the prices in the market reflect perceived value of things today. Everyone is playing in 2nd or 3rd order terms, at minimum. Anyone playing first-order is going to get steamrolled unless they have a latency advantage.
  - stouset 4y ago
    > Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe? During the Great Recession we were told that the time of outsized market returns were over. We should expect to no longer see 10% YoY increases and plan around a more modest 3%–4% return for the foreseeable future. Between Jan 1, 2009 and Jan 1, 2023, the market went up like 450%. Including the recent market "bloodbath", we've had a 11%+ annualized return on investment in the stock market since the GR. The moral of the story? Stop listening to people who claim to know what the market is going to do. Even if one of them does, the odds that you'll be able to pick that specific soothsayer out of a lineup is near zero.
spacemadness 4y ago
There’s a very small chance you are going to time the bottom. The only way to time the bottom is to keep buying by dollar cost averaging. For most of us, that’s probably the wisest course vs. actively moving money around and trying to time the market.
- Wistar 4y ago
  I do dollar cost averaging and have since the early 90s when I first heard the term mentioned on a radio investment advice show (mutual funds, then). It has served me well. Recently, I started to do this into a couple index funds of my own creation using Fidelity’s Solo FidFolio and Stocks By the Slice (fractional share) features.
SteveNuts 4y ago
Trying to time the bottom of the market is basically gambling. You might get lucky or you might miss out on huge gains while the market continues to run. I’ve adopted a dollar cost averaging strategy and just direct deposit a set amount to be invested every month into diversified ETFs. Since I can swing it, I’m also putting money into CDs since the rates are pretty decent, instead of keeping cash in my checking.
- _huayra_ 4y ago
  Can you get a better rate with CDs than just parking cash in VMRXX [0]? The fund just ladders bills and gets 4.32% 7-day yield with T+1 liquidity. [0] https://investor.vanguard.com/investment-products/mutual-funds/profile/vmrxx https://investor.vanguard.com/investment-products/mutual-fun...
dougmwne 4y ago
I woke up this morning realizing I hadn’t seen any press talking about foreclosures in awhile so looked up the US stats. They are at incredibly low levels. Banks have clearly become very conservative about the loan products they are offering and seem to be sticking to very safe fixed rate mortgages. I honestly don’t see a foreclosure spike happening any time soon. These things take a while to build and we are starting at the floor. Unemployment is at incredible lows. The economy is running hot, but no recession or housing bust seems to be in view. Maybe later. Likely eventually.
- soperj 4y ago
  That's how all recessions start.
  - ceejayoz 4y ago
    It's also how non-recessions continue.
    - soperj 4y ago
      So basically useless data then for determining whether a recession is coming.
  - dragonwriter 4y ago
    > That's how all recessions start. Most recessions are preceded by several months in which unemployment is rising significantly from the relative low. Its probably the most reliable recession predictor (visually, looking at a graph, the oscillations between the closely-spaced 1980 & 1981 recessions seems to be the only case of a recession not having that signal, and there are very few cases of a clear multimonth rise after the (usually shortly post-recession) recession-associated peak that do not signal another recession.
tmpz22 4y ago
> First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone. Consumers have more financing options then ever, like when you buy a mac book over 18 months interest free versus paying straight up. Car loan preference has gotten longer: 5-6 years for example. Its not necessarily good that more financing options leads to more debt, but its not apocalyptic either. This really depends on how they're measuring, and if they count balances that are being paid off in a timely manner or if these are minimum payments incurring interest.
whywhywhydude 4y ago
First, it’s not even clear that a recession will happen. And unless you are retiring and need the money in the next few years, it’s not wise to convert stocks into cash. You are trying to time the market which is pretty much impossible.
wongarsu 4y ago
Optimistic view: inflation has risen by about 8 percentage points over the last two years, but average credit card interest rates have climbed only about 4 percentage points. So relative to inflation borrowing money got cheaper, leading to a rise in debt. This view is likely overly optimistic.
- desertrider12 4y ago
  But the goods being bought with the credit cards went up 8%. Consider before: Bob bought thing X for $100 before and then paid Y% interest on that debt. Now he buys it for $108 and pays (Y+4)% interest. It’s more expensive all around, even if his wages went up by the same 8%.
  - wongarsu 4y ago
    Sure, but when he as to pay (Y+4)% interest in a year, the money he uses is only 1/1.08=92.5% as valuable as it would be today because today that money buys 8% more than in a year. Thus his effective interest payment is lower (assuming inflation continues, and for simpler numbers pretending like interest payments are yearly and not monthly)
kccqzy 4y ago
If you want safety and are buying bonds, make sure you actually understand bonds. For example U.S. long term treasury dropped by 30% in 2022, even more than the drop in S&P500; if you don't understand how the Fed raising the rate could affect your bonds portfolio, don't buy bonds.
SantalBlush 4y ago
>This would be expected in a recession. I may be misunderstanding, but are you saying we're currently in a recession?
subsubzero 4y ago
What I have been doing is buying 1 month CD's. They are at great rates now and don't have the long time commitments other CDs have(you can get them via a brokerage like Morgan Stanley or Schwab). I have been seeing rates of 4.2-4.3%, the rest of my money is in high interest savings which is yielding in the high 3's. I think we will see a sharp correction and have alot of money on the sidelines once things start to fall apart.
- slaw 4y ago
  There are better high yield savings, Lending Club 4%,UFB Direct 4.21%, Primis Bank 5.03%.
  - _huayra_ 4y ago
    Wealthfront cash has a 4% checking+savings account (the distinction is no longer necessary, as iirc the monthly withdrawal limit has been done away with a few years ago). Have you tried Primus? A bank offering a better percentage than RRP seems a bit sketchy and temporary, but maybe I'm missing something.
    - slaw 4y ago
      I didn't try Primus, only the other two.
- quickthrowman 4y ago
  Wealthfront is paying 4.05%, and if you can convince someone to open an account and use your referral, you get an extra 50 bps for 3 months, up to 4 times, for 12 months of 0.50% bonus. You could get 4.55% for up to 12 months with 100% liquidity, much better than a CD.
- sdn90 4y ago
  You can get 1 month Treasury Bills for 4.55% at the moment which are state/local tax exempt and you can sell at any time.
pragmar 4y ago
Bonds are a good place to hang out in turbulent markets if your goal is to preserve what you have, but be careful with municipal and high-yield ("junk") bonds. These can and do go to zero sometimes. Bond etfs can sting unsuspecting investors, as their value can shift dramatically when rates change. Government treasuries are considered safest.
UncleOxidant 4y ago
I'd agree that moving into bonds for a while is a good idea here. I'm especially putting money into T-Bills as we're getting around 4.7% for a 26 week T-bill right now. The more bullish will say that we have bottomed out and the Fed is going to stop raising rates and start dropping soon, but given today's strong jobs report I don't see them dropping rates any time soon. And this credit card debt info (and auto loans defaults are up as well) makes me want to continue to be cautious about stocks.
dcolkitt 4y ago
The people accumulating large credit debt have very little overlap with homeowners. The reason for this is very simple. The vast majority of homeowners purchased their house before 2021, and therefore are sitting on gigantic amounts of home equity. They have access to HELOC at much more favorable interest rates than credit card debt. (And no, we've seen barely any increase in HELOCs[1]). In addition the average recent homebuyer has a FICO score of 768[2]. These are not the type of people who are running up credit card debt and living beyond their means. So while credit card delinquencies may go up, it's primarily concentrated among the poor, the young and renters whose budgets are squeezed by rising lease costs. In this group there are barely any homes to foreclose on. [1]https://fred.stlouisfed.org/series/RHEACBW027SBOG https://fred.stlouisfed.org/series/RHEACBW027SBOG [2]https://www.bankrate.com/real-estate/average-credit-score-to-buy-a-house/ https://www.bankrate.com/real-estate/average-credit-score-to...
- robocat 4y ago
  > The people accumulating large credit debt have very little overlap with homeowners > HELOC That sounds sensible, however I didn’t find any data to back up that assertion. I did find “Higher-income people have more credit card debt, as do people who own their own homes.” which hints that you might be stating something incorrectly, or our definitions differ. Source text seems credible: https://www.moneycrashers.com/average-credit-card-debt-america/#where-did-we-get-this-data https://www.moneycrashers.com/average-credit-card-debt-ameri...
  - dcolkitt 4y ago
    Higher income people have higher credit card debt because they spend more money. The issue is whether they're paying their bill at the end of the month or using it to finance their consumption and letting the balance grow. Guess to be more accurate I should say "accumulating large credit card debt relative to their ability to pay the monthly balance". Which to be honest there's not much evidence is growing in any segment of the population. Wages have risen faster than credit card debt, so it's likely the "record debt levels" are simply people getting wealthier (in nominal terms).
stouset 4y ago
Stop trying to time the market. Virtually every piece of data available shows that on an individualized basis, you can't. Put your money in index funds (or a Target Date fund for true hands-off investing) and go do something interesting and useful with your time instead of playing a losing game of trying to eke out more gains from a market teeming with sharks.

bobthepanda 4y ago

The issue is generally that people are bad at timing the bottom, and often times it actually pays off to invest the same amount in dollars into the stock market, since you will buy as its going low and have more room for going back up.

kube-system 4y ago
Yep, I've bought the bottom a few times since March 2020 and I haven't found it yet.

ejvincent 4y ago

> My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound? You are trying to time the market. That is notoriously difficult. You are almost for sure going to miss the ideal timing. That's why there's the saying, "time in the market beats timing the market". There's many write-ups on this topic, but https://www.schwab.com/learn/story/does-market-timing-work https://www.schwab.com/learn/story/does-market-timing-work shows a decent breakdown of different strategies and how they would have worked out. > You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again A few things here: 1. We have less building now than during the lead up to 08: https://tradingeconomics.com/united-states/housing-starts https://tradingeconomics.com/united-states/housing-starts 2. Subprime mortgages are dramatically lower in volume 3. ARM loans are dramatically lower in volume Just because there might be an increase in defaults doesn't mean we're going to see anything like 08.

officialjunk 4y ago
subprime residential mortgages are lower, but commercial is way up.
kmonsen 4y ago
First agree with timing the market. But I am a bit skeptical about your overall point. Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?
- dghlsakjg 4y ago
  Good luck, timing the market, and ‘this time is different’ are subcategories of predicting the future. Ask yourself: if you could predict the future, wouldn’t you already have the trading results to prove it?
- bob1029 4y ago
  The US markets are the most aggressively optimized game theory engines on the face of the planet. The biggest mistake you could ever make is thinking that the prices in the market reflect perceived value of things today. Everyone is playing in 2nd or 3rd order terms, at minimum. Anyone playing first-order is going to get steamrolled unless they have a latency advantage.
- stouset 4y ago
  > Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe? During the Great Recession we were told that the time of outsized market returns were over. We should expect to no longer see 10% YoY increases and plan around a more modest 3%–4% return for the foreseeable future. Between Jan 1, 2009 and Jan 1, 2023, the market went up like 450%. Including the recent market "bloodbath", we've had a 11%+ annualized return on investment in the stock market since the GR. The moral of the story? Stop listening to people who claim to know what the market is going to do. Even if one of them does, the odds that you'll be able to pick that specific soothsayer out of a lineup is near zero.

spacemadness 4y ago

There’s a very small chance you are going to time the bottom. The only way to time the bottom is to keep buying by dollar cost averaging. For most of us, that’s probably the wisest course vs. actively moving money around and trying to time the market.

Wistar 4y ago
I do dollar cost averaging and have since the early 90s when I first heard the term mentioned on a radio investment advice show (mutual funds, then). It has served me well. Recently, I started to do this into a couple index funds of my own creation using Fidelity’s Solo FidFolio and Stocks By the Slice (fractional share) features.

SteveNuts 4y ago

Trying to time the bottom of the market is basically gambling. You might get lucky or you might miss out on huge gains while the market continues to run. I’ve adopted a dollar cost averaging strategy and just direct deposit a set amount to be invested every month into diversified ETFs. Since I can swing it, I’m also putting money into CDs since the rates are pretty decent, instead of keeping cash in my checking.

_huayra_ 4y ago
Can you get a better rate with CDs than just parking cash in VMRXX [0]? The fund just ladders bills and gets 4.32% 7-day yield with T+1 liquidity. [0] https://investor.vanguard.com/investment-products/mutual-funds/profile/vmrxx https://investor.vanguard.com/investment-products/mutual-fun...

dougmwne 4y ago

I woke up this morning realizing I hadn’t seen any press talking about foreclosures in awhile so looked up the US stats. They are at incredibly low levels. Banks have clearly become very conservative about the loan products they are offering and seem to be sticking to very safe fixed rate mortgages. I honestly don’t see a foreclosure spike happening any time soon. These things take a while to build and we are starting at the floor. Unemployment is at incredible lows. The economy is running hot, but no recession or housing bust seems to be in view. Maybe later. Likely eventually.

soperj 4y ago
That's how all recessions start.
- ceejayoz 4y ago
  It's also how non-recessions continue.
  - soperj 4y ago
    So basically useless data then for determining whether a recession is coming.
- dragonwriter 4y ago
  > That's how all recessions start. Most recessions are preceded by several months in which unemployment is rising significantly from the relative low. Its probably the most reliable recession predictor (visually, looking at a graph, the oscillations between the closely-spaced 1980 & 1981 recessions seems to be the only case of a recession not having that signal, and there are very few cases of a clear multimonth rise after the (usually shortly post-recession) recession-associated peak that do not signal another recession.

tmpz22 4y ago

> First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone. Consumers have more financing options then ever, like when you buy a mac book over 18 months interest free versus paying straight up. Car loan preference has gotten longer: 5-6 years for example. Its not necessarily good that more financing options leads to more debt, but its not apocalyptic either. This really depends on how they're measuring, and if they count balances that are being paid off in a timely manner or if these are minimum payments incurring interest.

whywhywhydude 4y ago

First, it’s not even clear that a recession will happen. And unless you are retiring and need the money in the next few years, it’s not wise to convert stocks into cash. You are trying to time the market which is pretty much impossible.

wongarsu 4y ago

Optimistic view: inflation has risen by about 8 percentage points over the last two years, but average credit card interest rates have climbed only about 4 percentage points. So relative to inflation borrowing money got cheaper, leading to a rise in debt. This view is likely overly optimistic.

desertrider12 4y ago
But the goods being bought with the credit cards went up 8%. Consider before: Bob bought thing X for $100 before and then paid Y% interest on that debt. Now he buys it for $108 and pays (Y+4)% interest. It’s more expensive all around, even if his wages went up by the same 8%.
- wongarsu 4y ago
  Sure, but when he as to pay (Y+4)% interest in a year, the money he uses is only 1/1.08=92.5% as valuable as it would be today because today that money buys 8% more than in a year. Thus his effective interest payment is lower (assuming inflation continues, and for simpler numbers pretending like interest payments are yearly and not monthly)

kccqzy 4y ago

If you want safety and are buying bonds, make sure you actually understand bonds. For example U.S. long term treasury dropped by 30% in 2022, even more than the drop in S&P500; if you don't understand how the Fed raising the rate could affect your bonds portfolio, don't buy bonds.

SantalBlush 4y ago

>This would be expected in a recession. I may be misunderstanding, but are you saying we're currently in a recession?

subsubzero 4y ago

What I have been doing is buying 1 month CD's. They are at great rates now and don't have the long time commitments other CDs have(you can get them via a brokerage like Morgan Stanley or Schwab). I have been seeing rates of 4.2-4.3%, the rest of my money is in high interest savings which is yielding in the high 3's. I think we will see a sharp correction and have alot of money on the sidelines once things start to fall apart.

slaw 4y ago
There are better high yield savings, Lending Club 4%,UFB Direct 4.21%, Primis Bank 5.03%.
- _huayra_ 4y ago
  Wealthfront cash has a 4% checking+savings account (the distinction is no longer necessary, as iirc the monthly withdrawal limit has been done away with a few years ago). Have you tried Primus? A bank offering a better percentage than RRP seems a bit sketchy and temporary, but maybe I'm missing something.
  - slaw 4y ago
    I didn't try Primus, only the other two.
quickthrowman 4y ago
Wealthfront is paying 4.05%, and if you can convince someone to open an account and use your referral, you get an extra 50 bps for 3 months, up to 4 times, for 12 months of 0.50% bonus. You could get 4.55% for up to 12 months with 100% liquidity, much better than a CD.
sdn90 4y ago
You can get 1 month Treasury Bills for 4.55% at the moment which are state/local tax exempt and you can sell at any time.

pragmar 4y ago

Bonds are a good place to hang out in turbulent markets if your goal is to preserve what you have, but be careful with municipal and high-yield ("junk") bonds. These can and do go to zero sometimes. Bond etfs can sting unsuspecting investors, as their value can shift dramatically when rates change. Government treasuries are considered safest.

UncleOxidant 4y ago

I'd agree that moving into bonds for a while is a good idea here. I'm especially putting money into T-Bills as we're getting around 4.7% for a 26 week T-bill right now. The more bullish will say that we have bottomed out and the Fed is going to stop raising rates and start dropping soon, but given today's strong jobs report I don't see them dropping rates any time soon. And this credit card debt info (and auto loans defaults are up as well) makes me want to continue to be cautious about stocks.

dcolkitt 4y ago

The people accumulating large credit debt have very little overlap with homeowners. The reason for this is very simple. The vast majority of homeowners purchased their house before 2021, and therefore are sitting on gigantic amounts of home equity. They have access to HELOC at much more favorable interest rates than credit card debt. (And no, we've seen barely any increase in HELOCs[1]). In addition the average recent homebuyer has a FICO score of 768[2]. These are not the type of people who are running up credit card debt and living beyond their means. So while credit card delinquencies may go up, it's primarily concentrated among the poor, the young and renters whose budgets are squeezed by rising lease costs. In this group there are barely any homes to foreclose on. [1]https://fred.stlouisfed.org/series/RHEACBW027SBOG https://fred.stlouisfed.org/series/RHEACBW027SBOG [2]https://www.bankrate.com/real-estate/average-credit-score-to-buy-a-house/ https://www.bankrate.com/real-estate/average-credit-score-to...

robocat 4y ago
> The people accumulating large credit debt have very little overlap with homeowners > HELOC That sounds sensible, however I didn’t find any data to back up that assertion. I did find “Higher-income people have more credit card debt, as do people who own their own homes.” which hints that you might be stating something incorrectly, or our definitions differ. Source text seems credible: https://www.moneycrashers.com/average-credit-card-debt-america/#where-did-we-get-this-data https://www.moneycrashers.com/average-credit-card-debt-ameri...
- dcolkitt 4y ago
  Higher income people have higher credit card debt because they spend more money. The issue is whether they're paying their bill at the end of the month or using it to finance their consumption and letting the balance grow. Guess to be more accurate I should say "accumulating large credit card debt relative to their ability to pay the monthly balance". Which to be honest there's not much evidence is growing in any segment of the population. Wages have risen faster than credit card debt, so it's likely the "record debt levels" are simply people getting wealthier (in nominal terms).

stouset 4y ago

Stop trying to time the market. Virtually every piece of data available shows that on an individualized basis, you can't. Put your money in index funds (or a Target Date fund for true hands-off investing) and go do something interesting and useful with your time instead of playing a losing game of trying to eke out more gains from a market teeming with sharks.