I want to preface this thread by saying I've been pretty bullish since the great recession.  People would point out the market trading at historically high P/E and Shiller P/E ratios and I'd justify it by saying that interest rates were running substantially lower than the historical average so it made sense.  I've also been adamantly against market timing and haven't engaged in it meaningfully since the I started investing in the 1990s but the Fed has also been working in favor of multiple expansion for the last 40 years.

So I'm seeing a few things right now:

1)  The broader US equity indexes (S&P 500, DJIA, Nasdaq Composite) are all within striking distance of all times highs.
2)  Shiller P/E is at 31.21 with a historical mean of 17
3)  Home price to income ratio exceeds 2007 levels
4)  The Fed Funds rate is back to levels not seen since before the 2008 Recession and the Fed is pretty clear on their intentions
5)  The yield curve is heavily inverted beyond levels seen before the dotcom and a great recession crashes. (Credit: VegasEggus)
5)  You can get paid 5%+ at the moment just to sit in cash and wait it out.

In my mind, it seems like the market is in either extreme denial setting us up for a pretty stiff crash OR there's a big bull case out there that I'm not aware of which I'd like to ferret out in this thread.  For the first time in my life, I think I can actually make a rational argument for pulling some percentage out of equities and sitting in cash at 5% in order to time the market.  Being in cash no longer puts your money to sleep like it did a decade ago and you are no longer fighting the Fed like you would have been for the prior 15 years.

Now I'm a big pussy when it comes to my traditional investments so I'll probably just ride it down and up like always have.  No matter what comes next I still feel good about where things will be 10 years from now so just staying the course isn't so bad.  That said, I feel like I'm taking crazy pills that the rest of the market isn't seeing what I'm seeing.  9 times out of 10 that usually means there's something that I'm missing and the market is rational but that 1 time out of 10 we have things like the Dotcom Bust and the Great Recession where in hindsight it seems so obvious yet few see it coming.

So what do you think?  Tell me what I'm missing.  I'm not here to be right, I'm here to be wrong and pick up a few additional thoughts that I didn't think of.  

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More money lost preparing for corrections than simply staying the course! remember bob the world's worst investor.

buy every paycheck and draw down in retirement


The stock market spends the VAST MAJORITY of its time, for the last 800 years of data on publically traded companies, at or near all time highs. That's why people invest in it.

A real return over cash is expected. Cash paying 5% just means the nominal returns on stocks will be higher still.

To the first bold point, I'm certain that's true over the next 100 years.  What I'm questioning is if that still holds true in a shorter term era of rising interest rates and asset prices that seemingly refuse to reflect that.  I'm also possibly asserting that cash is no longer a position on the sidelines but rather a legitimate investment.  It's not the same as putting money to sleep at <1% waiting on a correction as would have been the case only a few years ago.  The last time we were in a situation where could get reasonably paid to sit in cash in the face of high equity valuations was 2007.  

To the second bold point, I think you are missing my point.  Of course it's true that the market routinely spends most of it's time near all time highs but the market doesn't routinely spend it's time near all time high multiples of earnings such as measured by the Shiller P/E method.  Our current situation is substantially anomalous and I'd dismiss it if the Fed was still holding rates near zero but they aren't anymore.

To the third bold point, I don't believe that is necessarily true at all or at least not in the time frame I'm thinking about.  I would expect there's somewhat of an inverse relationship between interest rates and stock market returns.  The whole "Don't Fed The Fed" maxim is based on that.  Rising interest rates preceded market crashes in 2000, 2008, and 2020.  It'd be interesting to take the data of Fed Funds rate and S&P 500 returns over the following 1, 3 or 5 years and see what that looks like.  Maybe I'll try that later today.  If your point is that real returns over the long run should necessarily beat cash then of course I would agree.  I'm only looking at the current snapshot in time.

Thanks for your comments.  Going through the process of thinking about them and trying to answer them is helping me to think about them so I think it's constructive in any case.  You are making the case that I would have made for the last 15 years but now I'm wondering if the fundamentals are mounting against it in the short term.

Well, that's exactly what I'm trying to ferret out.

I know one of the whole points of restrictive monetary policy is to get people out of overheated assets so doesn't pulling money out of equities and taking them up on those higher risk free rates equate to going along with exactly what the Fed is trying to incentivize.  "Don't fight the FED" works both ways doesn't it?

Perhaps, but it wouldn't change the fact that all of those things are linked.  Consumers spending less, businesses borrowing and spending less, and unemployment going up should all result in pain in the stock market and housing market.

The big hammer of interest rates is not a surgical instrument.  

That's why I'm just baffled that housing and equities keep going up as rates go higher and higher.  Like I said, either there's something I don't understand OR the market is in denial like in 1999 or 2007 and it's just a matter of time.  I'm open to either possibility right now.

I am doing 3 things which will help me if the market crashes.  I bought TLT, a long term Treasury ETF.  If there is a recession, the stock market and interest rates will drop.  TLT will move up.  Doesn't take as much to hedge stock market exposure as cash, and pays almost as much as cash.  The bad part is if interest rates move higher you will lose much more than cash does.

I also like to keep 1 or 2 short positions open.  Hopefully, a market crash will pull them down even faster.  

In my IRA I am selling calls on positions that appear to be over priced.  This would help cushion any crash, but of course you do occasionally get called.  This hurts my feelings more than anything else.

I look around and can find nothing positive in the financial markets at this time except a very short lived pull-back in the 10-year T-bill rate.

One thing I hear too few people talking about are the problems many banks are having, and the real estate failure in China. These are in addition to so many other problems in the economy.

With that said, I am still dripping dividends, and continue to convert small amounts of stock profits to t-bills/CD's.

I am just going to wait for the eventual rebound that will come IF a major stock downturn occurs. It's a boring plan, but it is mine.

Real estate sales and vacation travel are both dead!

People are broke

Sounds like you are well diversified and that is about all any of us non-psychic individuals can do right now. Keep in mind inflation affects stock prices the same way it does the price of a Big Mac. Also a few high flying tech stocks are propping up the indexes that include them while the other 80% in those indexes are down or side trading.

The inverted bond curve tells us a gradual slowdown in the economy and lowered rates to combat it are expected starting in the next year or so assuming inflation is back in the Fed's targeted range (numbers can and will be fudged especially in a critical election year where the debate will be all about the economy stupid).

Any wavering from this forecasted trajectory will cause pullbacks in the market but if it goes as planned and rates are gradually lowered in tandem with moderate economic growth a lot of the cash sitting in the safety of fixed income with decreasing rates (bonds and brokered CDs at current yields will get dumped for a nice profit) will move back into the stock market for the growth potential.

Stock investors have been ignoring the current scary background noise and placing or just holding their bets on a future bull market run now before the FOMO crowd (myself included ) finally shuffles their portfolio around and jumps in after the big initial runup, a day late and a dollar short as usual.

The probability of a rate hike in the Nov, Dec and Jan FOMC meetings has fallen over the past week.  The big stocks like AAPL, GOOGL, AMZN and NVDA have been strong this past week on the expectation of no more hikes, and they've carried the market higher.  But volatility is pitifully low.  And any weakness in those big stocks could give everyone a surprise to the downside.

Not true. Just went on a cruise,  100% capacity...

What tax bracket are you in?   Do you think the market is going to retract by that percentage?  

Every time I think about realizing gains and moving that money to something different, I realize it’ll take a long time to make up the 20% fed (if long term gains)  and 4.5% state taxes I’ll have to pay on the gains.

Makes more sense to let it ride long term and use new money to invest in something different, regardless of what I think the market is going to do in the next 2 years.  Trapped by the cap gains tax.

I can second this

Yes. Everyone is still going hog wild on travel after the antisocial covid years and real estate may be down slightly but that is only after the Fed did a huge runup on rates on top of demand and real inflation effectively doubling the cost of mortgages in most areas in a few years time. Everything and everyone has a breaking point but houses are still selling for outrageous amounts but admittedly are on the market a little longer than a year or two ago when there were sight unseen bidding wars going on the day they were listed.

Traffic in my town is still INSANE with restaurants and retail parking lots full of late model vehicles with all the bells and whistles.  People may say they are broke but they have no problem wasting money on frivolities like drunken sailors on shore leave and half-ass working jobs only when they feel like it. Are they all running up credit, sponging off mom and dad, or a little of both?  I needs to know the secret of their success.

Yeah, so that was my theory over the past year.  I figured 2022 was the market pricing higher interest rates in before they actually happened and even towards the beginning of this year I figured equities going back up was the market responding to future lower rates.  What's bothering me right now is that I don't see as much resetting of the fundamentals as I would have expected in the interim.  That's what makes me think it has to get worse before it gets better even if everyone is banking on lower rates next year.

I went to an all cash position 6 months before the 2008 crash and then again in early Jan 2020.

I am also in a cash position now, but have been for a year.

So that is my answer

Only 87 other threads on this in here….  I’d say it depends.  If you’re 25 and working at your first real job then don’t worry about it.  If you’re within 5 years of retiring I would think seriously about getting into 5-6% cash positions.  

My goal is to have the option to not work in 4.5 years.  Most of my money is in my roth and it’s 15% cash right now and slowly moving more into cash.  

I wouldn’t call strategic moves like this “timing the market”, if it is then everybody does it.  The biggest factor that you noted is that cash has been suicide for so long most don’t remember that it was ever an option.  5% or more on cash makes it not suicide now and maybe even the best option for many people.  

Show me.  

There's only two pages of threads in the B&I forums and none of them are discussing this particular topic in this particular context.  

All of my new 401k contributions have been going to a small cap index for about 18 months. Most of my 401/IRA money is in cash or laddered T bills though. I timed the market correctly in 2020 and made a lot so I don't believe you can't time the market. This market has been on a bull run since the 2008 crash. I don't consider the sell off after covid to be a real bear market. It was over too fast. I figure we are due for a prolonged bear market. Rates probably need to get a little higher but I remember how rate increases killed the market in 2000. Lots of people were saying they wouldn't affect the market then but when CDs got around 7% that was it.

Yeah, it is a different animal because it was precipitated by either a "natural disaster" or a "rash act of government" depending on how you want to look at it.  It wasn't a natural conclusion of an economic cycle or anything like that.  There wasn't some defect in the economy that bubbled to the surface like the housing bubble in 2008.

Stuff like that can happen at any time without warning.

All of my adult life the Fed has gotten away with loose monetary policy because productivity was increasing faster than the money supply, but they screwed up after covid. Productivity went way way down due to government mandated shutdowns, but they expanded the money supply to record levels. There's no way inflation wasn't going to rise after that. Now they are stuck with either high inflation if they pause or cut rates, or eventually a serious recession and market sell off. I don't see any other outcomes. Both are bad but it looks like they are going with the recession and market crash. If longer term treasuries get to around 6% there's going to be a sell off in stocks. I'd move a lot of my money to 10 and 30 year treasuries if that happens and I won't be alone. It happened in 2000 and I was too stupid then to understand what a deal treasuries were then. I was used to seeing 50%+ returns from tech stocks and thought who cares about 6.5%? I'd be retired now if I had moved everything to long duration treasuries or strips then.

NW Florida and Gatlinburg are both ghost towns on the last big holiday of the year.

June jobs revised to 50% of the first report.

The meltdown is here

Currently pretty much in cash holdings like CD's.  May have missed it as I scanned the responses but we also have an inverted yield curve which I view as a significant issue.

Alright, so there's a good point to bring up in this thread.  I looked up yield curve inversion vs. S&P 500 and came up with this.  The yellow highlighted portions are when the yield curve was inverted as defined by the spread between 2 year and 10 year treasuries and the black line is the S&P 500.  It doesn't go out to the current date but it definitely predicted the 2000 and 2008 crashes pretty spot on.  We had a recession and market pullback in the early 1990s as well but the linear scale of the chart de-emphasizes it so it's not really easy to see.

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I can't plot the S&P 500 against this data using FRED's tool but here is that same yield spread chart from above but up to the current date.  It looks like we are even more heavily inverted than in the the prior three recessions.

I'll add this to my original post and thanks for the additional point.

I went to 80% cash on April 6th 2022. The Dow was almost exactly the same then as at the close last Thursday. I made over 5% on what we took out of the market, avoided 18 months of risk and have a big pile of dry powder. I don't trust Janet Yellen or any of the assholes in charge.

People have been posting the yield inversion in here for a while, it’s just more evidence to support.  

Somebody also posted about the jobs number report revision…. All economic numbers the government puts out are preliminary and get revised later and every single one I have looked at this year has been revised towards the bad direction.  I’m not sure if that’s normal, but it does not inspire confidence.  

Between things like that, china flu in the news again, election season, student loan payments coming due, and trump’s circus trials I just don’t see significant upside through next year.  If a few of those stars align I feel like it could be a big hit to the markets.  My concern is that I’m in the middle of timeframes - want to stop working in a few years but am way below normal retirement age.  If I was going to stop working in the next year or two I’d be all out.  If I was going to stop working in 5+ years I’d be all in.  I’m in the middle at hopefully 4 years out.  

Then again all it takes is politicians to spin the numbers to the bad direction to get the fed to lower rates and the markets could take off.  

I guess I’m just living the arfcom dream and getting both.  CDs are pushing 5.5% for 6-24 months.  If the rates go up 1/4 at the meeting this month I’ll increase my CD buying rate and move towards those longer terms.  

I wonder if a sociology or economics graduate student could do their thesis on how economic data is revised compared to the political party of the president/senate/house or compared to the general economy.  

Just read this in the news while eating lunch:

https://www.foxbusiness.com/economy/latest-economic-data-shows-fed-not-making-any-progress-on-inflation-its-a-real-mess-expert-warns


Then a few headlines down was this:
https://www.foxbusiness.com/economy/us-economy-added-fewer-jobs-year-previously-believed-past-year

So I made my big move.  I went from 6% cash to 14% cash.  Sold off half of my position in QQQ a couple days ago and left my core holdings (like VTI or similar) alone.

Perhaps not a huge move, but I don't make huge moves.  I still have the buy and hold mentality but I think the evidence suggests a stronger than usual cash position is warranted for the next 6 months give or take.  My plan is to basically just follow the Fed on this one.  When the Fed decides to start making cash a less viable position by lowering rates, I'll follow suit back into the market.  

I'm considering moving some as well. I don't like how high Shiller P/E is.

It didn't bother me as much when interest rates were near zero.  The Shiller P/E has been above mean and median for almost the entire period since 1990 but we've also been in a declining interest rate environment for that entire period up until now.

I don't see how these high valuations can exist for long in the current environment unless the market is looking so far forward that it's already trading a year or two into the future on the promise of lower rates.  Certainly not impossible, but I'm skeptical that this is the case.

I have, for a few months now, been reading articles quoting people talking about the lowering of interest rates in 2024.  
Maybe now is the time to lock in those 2-3 year CDs?

Top 3 results from google, all from August 2023:

Those who predict the future do so at their own peril.

At this time I see no trend starting that I would consider positive, but see many signs a recession may start. Most recessions in the last few decades lasted about 10 months. So IF a recession does occur, and I think it will, first quarter of 2024 seems too soon for a recovery.

As always, this is just my opinion.

Yeah, I've been seeing that too and agree with the timing of 2024 but you've got to be careful about not putting the horse before the cart.  Exactly what is it that is going to compel the Fed to lower interest rates in the first place in 2024?  It's going to be a softening economy, rising unemployment, and falling inflation rates.  All things that we quite often see moving in at least close proximity to a major stock market correction.  

Without those things, why would the Fed lower rates in the first place?  If the economy remains bullet proof in the face of higher rates, there's not going to be any reason to lower them.  The expectation of lower rates in 2024 is predicated on the notion that economic conditions will deteriorate to the point that the Fed pivots by that point.

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I guess you could look at locking in CD rates but you'd have to make sure they aren't callable.  I expect the market is going to be out in front of it though and not allow you a loophole on that one.  The people issuing CDs know about the expectation of lower rates in 2024 just like you do.  I'm briefly looking right now and it appears that 2 year CD rates are already lower than 1 year CD rates.

Well there is no position in the financial markets that doesn't require you to predict the future to some degree.

To your point, I don't think it's the recovery that the above post's quotes are predicting for early 2024 but rather the moment in time when the Fed starts to pivot on interest rates.  At least in the case of the last few recessions, that's been an action that they took at the start of the recession, not the conclusion of it.

The natural conclusion would be that they are prediction a recession to START in 2024 with the only alternative to be that mythical soft landing that the Fed always wants but is seemingly never able to achieve.

That is why I have been buying long term treasuries lately.  I use TLT, it has a duration of 17 years.  As usual, I was too early, but I still have a little powder left.

My prediction....

A republican will be installed as the next president.  The market and economy will crash, blame will be placed on Rs.  A vast majority of the politicians (D&R) and those connected will profit, the middle class will come closer to being non-existent.

I hope I'm wrong.  It really seems like we are all just along for the ride and have no say in when we stop to eat, or sleep, or...anything.  Those decision have already been made and planned for us.

I'm not sure the democrats have that much time until the economy cracks.  They'd have to hold it together for another 14 months.

Interesting prediction though.  There's definitely going to be an interesting intersection of politics and economics next year in any case.

Given what I have seen of your analytical nature, this thread has bothered me a bit.  

But then I reminded myself of all the "wise" people here (or so I thought) that surely knew more than I did back in 2003 and 2010, preaching how much lower it would go and how worse things would get.  They convinced me that a flight to safety was the right call and they were terribly wrong both times.

Then I realized... I can't imagine only having 14% in cash.    As much as I believe in the long term investing strategy, I always keep dry powder.

It is so very interesting when you read someone's perspectives and analysis, and then compare how I might act on that perspective, to how you might act on the same information.

“Markets can remain irrational longer than you can remain solvent”

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What about the thread bothers you?

I don't think solvency is really on the table in the context of this thread.  I'm certainly not going to short the market.

When people lay out a compelling case for downside risk, that always makes me listen.  I have a propensity toward a scarcity mindset, and I have to fight that.  So it bothers me when I see someone lay out a case for defensiveness, because of my own proclivities.

Berkshire Hathaway has increased their cash holdings lately. I only looked back 5 years, but it's a 5 year high for them. About 147 billion now. If there's any investor that has successfully timed the market, it's Buffet and Munger. Their track record is amazing to me. They've been wrong but that's rare.

Either that or they claim they hit their inflation goal of 2% the first time the preliminary number is 2.9%.  

I'm 100% out of the market in my taxable accounts now.  About 1/2 of my taxable money is in CDs and treasury bills(since I just discovered the no state taxes benefit).  

Still 85% in the market in my retirement accounts with everything up 10-100% though.  Taking some of those profits to put into 1-2 year call protected CDs at 5-5.5% is looking better and better every day.



"You can't apply logic to illogical situations"

I have people that do the rethinking for me.  That makes my internal thinker more relaxed.

I highly recommend it.

Bumping this thread for re-evaluation.

Bond routs taking root.

I moved about 30% of my retirement portfolio to short term bonds recently.

I just don't like where Shiller P/E is.