- Jul 17, 2016
I believe the Fed is correct and I also believe that they are never in any position to stop seismic movements. The most that the government can do is to delay and mitigate. Nobody, not even the entire might of the Federal Reserve can stop a recession, otherwise we would never have any.Yes. Meaning the probability of a 2020 constriction, I think, is less than 50%. A downturn in the US economy is unlikely in part because 2020 is a Presidential election year. That being said, crystal balling is not a big factor in my investment decisions. Even if Buffett is not following his own advise, I am -- selecting a solid horse to ride is most important when the trail is unknowable.
You point out that the Fed is taking actions to forestall a feared downturn, but you are still anticipating a downturn. To continue to believe that there will be a 2020 constriction, you have to believe that the Fed is correct, and also that their efforts will be ineffective.
Do you think they just sat on their hands in 2008 and let many people lost half their retirement fund?
Let’s do a simple math here. Suppose I take your 50% number as fact. If I keep my stocks and nothing happens, my money would probably grow by 3% (averaging the past 3 months), but there’s half a chance that I’ll lose 50% of it. In the mean time putting it in bonds and treasuries would get me around the same 3%, but there’s half a chance that I would earn 0%, maybe a little less.
What would a reasonable person do?
Blue line: S&P 500 Index
Red line: Vanguard Total Bond Fund