TwoCitiesCapital

Which ones indices are you looking at? I have access to Barclays which has the info on all of their indices. I'm looking to see if it could be worth it for me to move from some equity to corporate or muni bonds. I will especially be looking for companies with high financial leverage that might wipe out the equity but survive after chapter 11. I was thinking spreads for: Muni VS Treasury High Yield VS Treasury Investment Grade VS Treasury BeerBaron Muni index is 3+% YTW on a post-tax basis - but callables unlikely to be called in this environment so you may do a fair bit better. HY is @ 10% OAS IG was @ 3.5ish last I checked.

We didn't start at 21x P/Es on 2008 either. Also, cash flows more than 10+ years out make up very little of the valuation of the company. The contraction you're seeing now is from the expected impact over the 2-3 years. There will be no V shaped recovery.

If there's enough political will, we should honestly put an infrastructure bill to work. We missed our chance in the last crisis and the state of our infrastructure is pretty pathetic. Honestly - this would be the only deficit spending I would be supportive of as it is a true investment in the long-term productive capacity of the country.

Not sure if we'll ever get to the bottom of this, but I largely believe the Fed's behavior is procyclical and exacerbated booms and busts if not a direct cause of many of them. I wish they'd lose the employment objective and simply focus on a stable money supply and being a lender of last resort

Which ones indices are you looking at? I have access to Barclays which has the info on all of their indices.

Just remember that the March 2009 bottom was very brief. The "buyable" bottom was -45%. If you were a couple weeks early or a couple weeks late, you'd be buying at 40-45% discount. Everybody counts the rally from March 9, but almost nobody bought then. I was buying in April 2009 at much higher prices. This seems most like 1929, but remember the FDIC, employment insurance, monetary policy, stimulus make this scenario unlikely. Absolutely - I'm not banking on a 90% correction, but I think 30% is a bit shallow with those comparables - particularly given how expensive we started and how this could potentially develop. Not trying to fear monger but anyone buying now should know this probably gets worse before it gets better so don't blow the load all at once.

Sounds like an ounce of prevention was worth pounds and pounds of cure. Sure but this is an investing board not a political board. From an investing perspective, I see a disconnect between what the market is expecting from the virus and what will actually happen. If I am right and we shift to a slew of preventative measures that allow the economy to start up in say 6-8 weeks, the markets will have to rally. Right now you have indexes that are down 40% (VB, VO) and where you are looking at 60%+ upside. Isn't this the opportunity of a decade?[\b] No, I don't think it is. If this were being compared to 2015 or 2018 drawdowns, sure. 30% drawdown where everything returns to normal in a few months would be an excellent opportunity to buy. But this isn't 2015 or 2018. Reasons below: 1) Unlike 2015, where the oil bust and subsequent tightening of credit resulted in all sorts of coordinated CB action to prevent it from getting worse, CBs were ALREADY easing before this event occurred. 2) Why were the CBs easing? Because the global economy was already stalling BEFORE any of this happened. PMIs were generally in contraction most everywhere and inverted yield curves were signaling recession BEFORE covid-19 was even heard of. Default rates on credit cards were already rising and industrial sector was already in a recession for months. 3) On top of the short-term economic impacts if massive business closures, unemployment, and death - this doesn't all just magically disappear when restrictions are lifted. People won't flock to be on planes or cruises the very next day. Businesses may realize work from home arrangements are more efficient and shrink they corporate foot print. elevated spreads will prevent companies from rolling debt and there will be bankruptcies with jobs that don't come back. It will take 2+ years for things to get back to normal if this all stops in the next month or two. Which brings me to my next point: 4) Unless if we get a vaccine by next fall, there will likely be a second wave of this in 2020 as we probably won't reach herd-immunity first time around with the prevention measures we've put in place. Hopefully round 2 is slower and less painful though. 5) Also, we're not just dealing with the viral uncertainty, but also an oil bust and a reduction of credit in the system. After the last oil bust, less than half the high paying shale jobs came back. After this one, it will be even fewer even if COVID-19 was never heard of. 6) currently estimates out of Bridewater are for 4 trillion in corporate losses. Current stimulus is expected at 2 trillion. That's a massive gap between the two and also assumes the stimulus is targeted effectively. What does a 20 trillion economy look like when you blow a 2+ trillion hole in it all at once? The impacts are way more than $2 trillion. Just look at 2008 - IIRC, losses were estimated to be ~$1.8 trillion when all was said and done. 7) on top of all of this, we were at the god awful heights of 21x trailing earnings at the start of this thing. A 30% drawdown just takes you back to average assuming earnings aren't sustainably impacted - and my friends, were going below average with a sustainable impact to earnings for a global pandemic, global oil bust, and global recession all at the same time. 8) what has been shocking for most people, myself included, is the speed in which the market has reacted. We had a draw-down in 1/3 of the time as most other drawdowns of similar size. What if that's not signaling opportunity, but rather signaling we're only 1/3 of the way through this? Maybe the most reasonable comparison isn't 2015/2018, but 1929 and 2008 with 50-60% decline being base case because we weren't @ 21x earnings in 2008. I've been nibbling because I'd previously set 2300 as my spot to begin accumulating again to get back to a 65/35 mix from 50/50 and I want to remain loyal to a systematic approach. That being said, I'm cheating some by slowing it WAY down and accumulating HY bond allocation first before moving any serious money into equities. Goal is to still be 100% equities by the end of this, but I don't wanna blow the load before it's over. I want some certainty before putting the last 25% or so to work. I still have a large hedge on the equity side and fully expect us to see lows of 1700-2000 before this is over. Maybe even lower if policy makers bungle the response or I am STILL underestimating this thing.

It doesn't require lower rates - it requires a positive sloping yield curve. Lower rates just accelerate it. The biggest risk is an inflationary environment - and you'll get creamed. But probably not as much as you'd get creamed by owning stocks at 21x earnings in such an environment. I still prefer the barbell or ladder approach to bonds, but having a slug in long-dated zero coupons that you roll in addition to that probably provides some excitement to the trade.

We've had falling interest rates essentially that entire period. Can that happen again over the next 30-40 years? That would imply, what, -10% yield on the 30-year? Agreed. If anything, it shows how expensive bonds are at this point and not how poorly equities have returned relative to them. I generally agree with Dalio's assessment that we're probably entering a new paradigm in the 2020s. Aging population will become less of a drag in a few years, millennials are moving into the stages of their careers where they're more highly compensated and student loans are less of a drag, commodities have been in and out of bear markets since 2011 disrupting investment and future supply, etc. Not to mention the level of debt will NEED to be inflated away. I'm not saying hyper-inflation. Just that a number for things that have been constraining inflation impulses are likely to disappear over the next few years and it won't be kind to bonds @ 1-2%.

Quite honestly, what's happened to their equities YTD is what gives me the confidence that they can do 3-4% on their investments. A simple 50% reversion back to what they were likely provides that. Given the blow out in spreads, the drop in equities, and the drop in FFH, it's the first time it's been attractive to me with a clear path to 15% annualized since my lapse in judgement in 2018 thinking interest rates might actually be sustainably rising. The drop in equities and the rebound won’t help with their 7% investment return goal. The rebound would just undo what the drop did. Unless I am misunderstanding your point Agreed, and I won’t be selling here. But 3-4% positive might be quite an ask given what their equities have done ytd. My apologies if it wasn't clear. I sold out of FFH when I realized that my 3-6 month flop on rising yields being sustainable was wrong and went back into the "there's no way in hell FFH gets 15% ROE @ these yields and stock prices" camp So for me, buying back 25% of my original position today @ $290 USD means I actually have a decent chance at 15%/yr returns just from the reversion in current investments back to something closer to where they were. Agreed. My point was about book value for 2020 given where the equities were on 1/1, not where they are now. Agreed.

I think typically the 401k has to be at your employer and can only be rolled into a different plan/IRA if you depart the company, but might be wrong. You can absolutely have a separate HSA from the one offered through your employer and should be able to transfer funds from your employer's account into your own HSA at any time.

Quite honestly, what's happened to their equities YTD is what gives me the confidence that they can do 3-4% on their investments. A simple 50% reversion back to what they were likely provides that. Given the blow out in spreads, the drop in equities, and the drop in FFH, it's the first time it's been attractive to me with a clear path to 15% annualized since my lapse in judgement in 2018 thinking interest rates might actually be sustainably rising. The drop in equities and the rebound won’t help with their 7% investment return goal. The rebound would just undo what the drop did. Unless I am misunderstanding your point Agreed, and I won’t be selling here. But 3-4% positive might be quite an ask given what their equities have done ytd. My apologies if it wasn't clear. I sold out of FFH when I realized that my 3-6 month flop on rising yields being sustainable was wrong and went back into the "there's no way in hell FFH gets 15% ROE @ these yields and stock prices" camp So for me, buying back 25% of my original position today @ $290 USD means I actually have a decent chance at 15%/yr returns just from the reversion in current investments back to something closer to where they were.

Or, more likely imo, another hedge fund is selling out. I believe this happened on Wednesday also, if this post is correct. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=154435948 That's also quite possible. This recent market sharp drop is forced liquidation on everything. Even Bitcoin, Gold and Silver got sold off. Seriously - muni bonds are down 8% this month!

I can tell you that NYC is definitely NOT ready. Their hospitals are already overwhelmed and we're only like 2-3 days into it. A week my, the nurse I knew in NYC was still comparing this to the flu.... I heard second hand from another friend saying her contacts were confirming that hospitals were already running out of everything that people were concerned hospitals would run out of. NYC, at the very least, will be just as bad as Italy IMO :/

There are two things that have happened over the past few weeks. The spreads have gapped out, but the risk-free has fallen like a stone: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us Short-term governments have dropped from ~2.4% interest in 2019 to ~0.4% interest today, and it has occurred across all short maturities from 3 months to 2 years. Any governments that need to be rolled in 2020 will face a drastically lower rate. FFH has $8B of bonds that mature during 2020 and probably about $10b or $11b of cash equivalents. Assuming that is 75% governments, that might be a total of about $13B in governments that will take a 2% interest rate haircut during 2020, which might reduce interest income by ~$260m for the government portion of the portfolio. Assuming that there is $5B of corporates that will be rolled, you'd need to gain an extra 500 bps on the corporates you roll to just offset the lower interest rates on the governments. The math is not particularly nice for FFH on this front. SJ I don't disagree with the math, but IG spreads on corporates for the Agg are currently @ 3.3%. Munis can be had for 3% YTMs. HY spreads are @ 9.3%. Even agency MBS are @ 1.3%. There's plenty of yield to be picked up even without reaching on credit. I'm not demanding they get $1B in income/dividends. But making that income more solidified and secured long-term would be great so we didn't have to worry about rolling @ low rates in the future.

Not sure I understand this. A month ago, no one was dead in Italy. Now 3000+ plus are dead with an additional 400-500 coming in daily despite the fact the entire country has been shut down for 9 days. Similar numbers in the US would be 15,000 dead in 2 weeks time with a full shutdown - but we haven't done that yet. LA just announced it. Nowhere else has and we have over 100k confirmed cases w/o testing. This is already on course to be way worse than the 30k annually from the flu even w/ the shutdown which hasn't been implemented yet. I'm not trying to fear monger - just extrapolating the data that's available What I find mind-boggling is that the first confirmed case in Italy was on Jan 31. The first confirmed case in the USA (WA state) was on Jan 21. Obviously the two areas are different, but to date there are 74 coronavirus deaths in WA, versus 3,400 in Italy. On the flip side, let's compare Italy vs NYC: Italy first case: Jan 31 NYC first case: March 1 NYC has about 4500 cases and about 30 deaths. When Italy had about 4600 cases, deaths were around 175. I mean NYC went from 2k to 4k overnight after only testing 8k people....it's only just become an issue for them and I started heard stories of some hospitals being overwhelmed just a day or two ago. Generally the demographic is younger than Italy, but the real risk is overwhelming the healthcare system which is only just now happening in NYC.

Not sure I understand this. A month ago, no one was dead in Italy. Now 3000+ plus are dead with an additional 400-500 coming in daily despite the fact the entire country has been shut down for 9 days. Similar numbers in the US would be 15,000 dead in 2 weeks time with a full shutdown - but we haven't done that yet. LA just announced it. Nowhere else has and we have over 100k confirmed cases w/o testing. This is already on course to be way worse than the 30k annually from the flu even w/ the shutdown which hasn't been implemented yet. I'm not trying to fear monger - just extrapolating the data that's available

Agreed, and I won’t be selling here. But 3-4% positive might be quite an ask given what their equities have done ytd. Quite honestly, what's happened to their equities YTD is what gives me the confidence that they can do 3-4% on their investments. A simple 50% reversion back to what they were likely provides that. Given the blow out in spreads, the drop in equities, and the drop in FFH, it's the first time it's been attractive to me with a clear path to 15% annualized since my lapse in judgement in 2018 thinking interest rates might actually be sustainably rising.

Not a bad idea at all. some of those premiums are pretty high looking Honestly not for the names I've been buying. I've been getting most of them @ 3-5% premiums over current spot (not annualized - absolute premium) being patient w/ limit orders on volatile days. Now, of course I'll be missing out on dividends so add that to your premium and it might be something closer to 15-20% total or 7-10% annualized. All of that being said, a few of these limit orders filled and the underlying price ROSE before I could sell the underlying meaning my implied options basis is lower than what I sold the shares for implying negative premium on the transaction. Volatility = opportunity. All in all its a fair price to keep my notional exposure while freeing up 40-60% of my cash which gives me incredible optionality both rising and falling scenarios. Real time example - $3.00 Call exp 1/21/2022 on NLY was just purchased for $2.75 implying an underlying price of $5.75 in 2-years. Current price is $5.50. >5% premium for 2 years exposure. NLY has a 15% dividend I'm missing out on too, so this is on the more expensive end of the trades I've been doing in the name - yesterday's was basically getting them right @ spot price. But it's also an up-day and not a panic driven down day. Also, I don't imagine it'll take 2-years for govt guaranteed mortgages to trade back to NAV from 50% of NAV so I'm not likely not missing out on the full 2-years of dividends either as I'll exit the position close to NaV

IMO, the market is still expecting the government to step in with cash. If the headline today were "Trump and McConnell are listening to the Austrian economists and won't do a fucking thing", then I think the market would drop by a lot. They're going to. But just like the first two bailouts didn't stop the banks from going down, the cash isn't going to stop earnings from plummeting. Will just provide some liquidity to help with the insolvency issue many individuals and small businesses will be facing.

Not a bad idea at all. some of those premiums are pretty high looking Honestly not for the names I've been buying. I've been getting most of them @ 3-5% premiums over current spot (not annualized - absolute premium) being patient w/ limit orders on volatile days. Now, of course I'll be missing out on dividends so add that to your premium and it might be something closer to 15-20% total or 7-10% annualized. All of that being said, a few of these limit orders filled and the underlying price ROSE before I could sell the underlying meaning my implied options basis is lower than what I sold the shares for implying negative premium on the transaction. Volatility = opportunity. All in all its a fair price to keep my notional exposure while freeing up 40-60% of my cash which gives me incredible optionality both rising and falling scenarios.

+1 I still think 2000 on SPY is base case, but am slowly leaning more towards 1700 as being a more probable outcome.

It looks to me like airlines, hotels, restaurants, cruise industry, travel industry, Boeing are all essentially bankrupt as of today. Most will not survive with no revenue if we do a soft lockdown that next 2-3 months. We know the government is going to try and bail some out. That is a tough thing for an investor to figure out (who the winners and losers are going to be). Didn’t work great for bank investors in 2008 (BAC and C); the companies survived but shareholders had their head handed to themselves. Shadow banking system might be the next shoe to fall... overleveraged companies. Oil and gas industry... Looks to me like their might be a real bifurcation in the market. A stock pickers market. 30% of companies weather the storm and 70% get shit kicked. Not great for ETF holders. Private equity would be my guess as a casualty. Another thing I noticed - treasuries were very weak today and interest rates have shot up. That rarely happens in such a down market. Is the financial system getting squeaky? If treasuries yields would explode upwards it would be game over, imo. Noticed that too - people have been saying even Treasury liquidity is off so people dumping what they can at what prices they can to get cash. Could it be the inflation scare of the House floating 2k/month payouts to every adult citizen and 1k/month for every child? If it passes, That's lots of f*cking money about to flood the system to a lot of people who don't really need it at a time when you dont have to spend it on the essentials (same bill allows deferral of ALL consumer and small business debt service like mortgages and credit cards and student loans w/ no penalties). I'm all for getting money into the hands of people who need it - but 4-8k/month for a household is A LOT and it sounds like it would be going to everyone regardless of immediate need. Meh. The bottom 90% of people have been screwed for 3 decades plus. $5k/mo is peanuts compared to decline in wealth over time. Unlikely to be for more than few mo after it runs thru the Senate. Then again, Trumpy might push for it because it helps him in November to have given checks out to every citizen. Those at the top have benefitted disproportionately from Monetary Policy past decade. Time to give some fiscal pump to those down below. We wonder why inflation has been persistently low for so long...putting money in the bottom 90% may push that inflation number up and that is not a bad thing during a crisis like this. I'm ok with those in need getting it. But those in need are part time workers who aren't working. Small business owners that have been forced to close for societal well being. Full time workers about to get reamed by industries like travel and hospitality. For those, some level of support makes a lot of sense. 2k/adult and 1k/ child each month seems like a lot, but I'd still support it if it were targeted in this manner. Giving handouts to the entire lower and middle classes regardless of needs seems insane. If its such a great idea, why don't we just give everyone 8k/month into perpetuity until we're the most prosperous and wealthiest nation ever!

I hope the news remains positive. But median time for symptoms is 5-days with some being as long as 14. I wouldn't expect most of your guests to have noticed any symptoms yet even if most were affected.

A lot of that is in NY which, largely thanks to Cuomo, is due to the state having achieved first world level of medical testing. And the fact that they waited until this week to shut everything down despite knowing there were probably thousands of cases already the area.... These numbers are about to get much worse over the next 5 days as asymptomatic becomes symptomatic