A New Strategy: I was selling equities and buying bonds. But that was when they were both up.

A New Strategy: I was selling equities and buying bonds. But that was when they were both up. Now I am thinking to sell bonds and buy equities. The reasoning is this: both have fallen a lot, but the bonds have about 20% the volatility of the stocks. If stocks have dropped by 10%, then bonds have only dropped by 2%. So selling the bonds costs me 2% relative the where they were before, but buying the stocks gains me 10%, netting an 8% gain.

So the rule would be this: If you think that the market is going to drop, you should sell stocks and buy bonds, because the bonds only drop 1/5 as much as the stocks. If you feel that the market is headed back up, you should sell bonds and buy stocks, because the stocks will rise five times as fast as the bonds.

Question: And, anyone wondering now if we’re going into the double-dip recession?

Definition In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb for defining a recession, one of which was "two down quarters of GDP".[3] In time, the other rules of thumb were forgotten. Some economists prefer a definition of a 1.5% rise in unemployment within 12 months.[4] In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[5] Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end. Main article: List of recessions in the United States According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion.[5]   However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more,[37] and four periods considered recessions: ·         July 1981 – November 1982: 14 months ·         July 1990 – March 1991: 8 months ·         March 2001 – November 2001: 8 months ·         December 2007 – June 2009: 18 months

Stock Market Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months), while ten stock market declines of greater than 10% in the DJIA were not followed by a recession.[20] The real-estate market also usually weakens before a recession.[21] However real-estate declines can last much longer than recessions.[22] Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US.[23] During an economic decline, high yield stocks such as fast moving consumer goods, pharmaceuticals, and tobacco tend to hold up better.[24] However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD[25]), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover.[26] Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the U.S. may also be affected by a recession in the U.S.[27] There is a view termed the halfway rule[28] according to which investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession followed the average, the downturn in the stock market would have bottomed around November 2008. The actual US stock market bottom of the 2008 recession was in March 2009.

For the past three recessions, the NBER decision has approximately conformed with the definition involving two consecutive quarters of decline. While the 2001 recession did not involve two consecutive quarters of decline, it was preceded by two quarters of alternating decline and weak growth.^[37]

Finance Primer: When we buy a mutual fund, it is diversified and managed. So we do not have to worry about it going bankrupt. When we buy an individual stock, that company has the possibility to go bankrupt. It is especially scary if the price is dropping and we don't know what is happening. Analysts use finance to help protect their investments in individual stocks. See? That’s easy right? In finance, they look at ratios to determine the health of a company and protect against the possibility of bankruptcy. They look at the income statement and the balance sheet. From the balance sheet they look at assets and liabilities. Assets/ liabilities is often 1.0 to 3.0. It shows that the company has the ability to pay their bills form the assets that they have. The quick ratio is current assets/ liabilities. It shows the ability to pay the bills form assets that are liquid (cash) or easily (or quickly) convertible into cash/ but the balance sheet only shows one point in time. It is like a photograph of the company. it is calculated at the end of their fiscal year. The income statement tells more about the company's ability to pay their bills over a period of time. For example, net income/ liabilities shows the ability to pay the bills from income. The problem with performing ratio analysis is that you need to get the financial statements and read them. Most of the time, we don’t like to do that. But if we don’t do it, we don’t know, unless we can find an analyst who has done it, or we can get their summary. Maybe Morningstar ratings would be helpful. I have not used them that much because I am holding mostly mutual funds. But I can check into that.