Sep 17 2008
Screwed beyond what you can possibly imagine
The yield on 3 month treasury bills is now effectively NOTHING. Here’s a chart of the yield on the 3 month treasury bill. 10 on the chart = 1% yield. 0.20 = 0.02%.
Do you understand what this means? This is sheer panic. People are putting their money in treasury bills for zero interest because they believe that its the ONLY place they can put their money and be able to get it back. This isn’t funny, folks.
If you have long term investments, figure out how much risk you are willing to take, and based on that come up with a percentage of stocks, bonds, cash, and other stuff you want to hold. DO NOT do a panic sell. You will end up selling at the worst possible time.
Here’s my long term account breakdown. Change in this account happens very slowly other than cash coming into the first fund every now and then. The default action for this account is inaction. You will notice that this portfolio is overly conservative and downright pessimistic.
14.1% Vanguard Treasury Money Market Fund (VMPXX): Cash is king in a deflationary credit collapse. You also never know when the market will throw a sale. Keep the cash ready to take advantage of the dips.
26.0% Vanguard Inflation Protected Securities (VIPSX): I want a long bond fund with high yield, but without the inflation risk of long bond funds. I also want something like cash that yields more than cash and high credit quality is extremely important.
42.1% Merk Hard Currency Fund (MERKX): I can’t believe I pay this fund 1.30% per year to get me foreign currency exposure. This fund is my hedge against our government doing something stupid and screwing over the US dollar. Expect this 42.1% allocation to fall quickly as fresh money comes in.
17.5% Prudent Bear Fund (BEARX): I also can’t believe I pay through the nose for this fund. Expense ratio is a disgustingly high 2.33%. For comparison, VMPXX and VIPSX have expense ratios of 0.24% and 0.20% respectively. But what is there to say? I am a Prudent Bear.
For my age, my portfolio should be 90% stocks and 10% bonds. Heck no I ain’t doing that. Notice that even though I am a bear, no more than 20% of my long term account is actually on the short side. Would I change it overnight? Heck no. I’ve been burned hard TWICE by trading in my long term account. The best course of action really is inaction. I am not selling any fund. Anything that is bought in my long term account will stay bought. If I want to muck around with allocation, it will be through the use of new funds coming in.
As more cash comes in, these are the funds I will go after…
Vanguard Long-Term Treasury Fund (VUSTX): I will pick this up on a significant dip.
Vanguard Short-Term Treasury Fund (VFISX): I also want this on a dip.
Vanguard REIT Index Fund (VGSIX): I think REITS will die and they will die hard. However, to be truly diversified, you have to own something you absolutely hate. If you are comfortable with everything in your portfolio, then you are not diversified. This fund has been beaten up badly, and I will wait for a huge drop before buying.
Vanguard Small-Cap Growth Index Fund (VISGX): When the market bottoms a few years from now, the first stocks to go up will be the small-cap growth companies. There’s no way I’m touching this until after it loses 75% of its value.
You see me blogging about trading with my trading account. It’s really all a waste of time because my trading account is small compared to my long term account. If my trading account were much larger, I have no idea how I would be able to sleep at night.
Is it hard to build a long term account quickly? No, it’s a piece of cake. Seriously, being a grad student right now is awesome. Not only do I get to be lazy and work less than 40 hours per week and laugh at my friends who have jobs, I get paid enough to fully fund my Roth IRA in 2006, 2007, and 2008 with plenty to spare. I save almost the same amount per month as some people my age who have a job and get paid more than twice what I make as a grad student. It just takes some fiscal discipline. Do I eat out? Yeah I eat out, you saw how many times I ate at Chipotle. But even so, just don’t buy random stupid stuff and it is easy to save.
This country needs to quickly realize that it can’t spend money like drunken sailors. No more stupid $200 iPods, $70/month cell phone plans, random $40 exercise equipment, $30k cars, $2000 notebooks, $500 outfits, and other stupid stuff. A deflationary credit collapse is coming and if you have loads of debt, you’re screwed, you are just flat out screwed because there won’t be enough money out there for everyone to pay off their debt. If China starts dumping our bonds, we will have the ultimate economic nightmare. We will have ramping interest rates going into a deflationary credit collapse.
Now if you say that you do not have any debt and still want to splurge on retarded crap, consider this…money becomes increasingly valuable in a deflationary credit collapse. Save your money for now. Everything you could possibly want to buy will be at a deep discount in a few years. It will be sale of the century. Want to buy a house? Give the housing market another two to three years to bottom out. Not only will you save a couple hundred thousand dollars on the house, you’ll also save money on the interest on the additional amount you did not have to pay, and you’ll also pay lower property taxes because what you paid for the house will be lower.
By the way, the deflationary credit collapse is coming, and it is coming quickly. The MZM and M2 measures of money supply have flatlined. It’s only a matter of time before they head south.
