So what are your plans to protect investments if the government defaults?

I'm waiting for Monday or Tuesday to do much but do have a plan to move a good part of my domestic midcaps into Europe and China, stay with the large domestics. Europe has been bouncing back nicely and it makes sense to move some cash to that area in any case.

I did use about 50k for a short time move into precious metals (as I expect the alarmists to buy heavily into that market). I'm thinking maybe a week or two then sell off. That's a pure gamble but it is a reasonable exposure with minimal risk.

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stay the course.

(do nothing)

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We went all cash a couple of months ago when all of this discussion began. We're down a bit from where I would have been if we'd stayed the course, but it has been comforting to not have to even think about it. This is the first time in 32 years of work that we've moved out of the market. The trick, of course, is when to get back in. I think we'll wait until the budget/debt ceilings are resolved in the weeks to come.

We've also started investing/loaning (or whatever it legally is) in LendingClub.com. We'll do that for a while and see how it plays out. Our criteria is pretty easy--the loans only go to people with FICO scores of 750+, we do $25 loans, and we only do A and B level loan. It will be interesting to see just how many of those loans go into default.

Stay the course:



mattress cash

You don't already have it all in bitcoin?

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There's not going to be a default, at least not in the short term.

Now, when interest rates go up, and paying what's owed on all that accumulated debt becomes unaffordable... that's another story. But that won't happen this month.

Stay the course for the most part. I rebalanced a bit more into Total Intl a few days ago.

Today's news has the markets rebounding. I don't expect any long term effect from the political theatrics.

mkaing moves due to government noise is gambling.

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Michael

We've also started investing/loaning (or whatever it legally is) in LendingClub.com. We'll do that for a while and see how it plays out. Our criteria is pretty easy--the loans only go to people with FICO scores of 750+, we do $25 loans, and we only do A and B level loan. It will be interesting to see just how many of those loans go into default.

I must be missing something here, but why would someone with a FICO score of 750+ need a $25 loan? Unless it's a bunch of you pitching in to loan a bigger amount.

more concerned with interest rates going up as well

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Default seems quite unlikely. Here is Moody's view.
[www.cnbc.com]

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rz

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Michael

We've also started investing/loaning (or whatever it legally is) in LendingClub.com. We'll do that for a while and see how it plays out. Our criteria is pretty easy--the loans only go to people with FICO scores of 750+, we do $25 loans, and we only do A and B level loan. It will be interesting to see just how many of those loans go into default.

I must be missing something here, but why would someone with a FICO score of 750+ need a $25 loan? Unless it's a bunch of you pitching in to loan a bigger amount.

That's exactly what it is. The loans range from several thousand to 30 thousand or so. LendingClub suggests that loans be made at $25 so that your investment is spread over many borrowers to reduce the impact of any given default. Right now we have 305 loans of $25 with an average return of 8.38%. As people default on the loans, that effective return will be reduced. The LendingClub algorithm predicts that we'll have a default rate that reduces our actual 3 year return to 6.8%. We use our FICO cutoffs and A/B level borrowers in an attempt to beat that predicted default rate. We'll see if it works...

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Michael
Right now we have 305 loans of $25 with an average return of 8.38%. As people default on the loans, that effective return will be reduced. The LendingClub algorithm predicts that we'll have a default rate that reduces our actual 3 year return to 6.8%.

How is tax reporting handled by Lending Club? Both for Interest and for defaults?

I can see this being worthwhile if it can scale and isn't a pain accounting wise.

I put about a grand into Lending Club. Wish I hadn't. Might work for some people but i don't have the time to play small time banker. My defaults ate up my profits and broke even after three years. (aka lost money compared to other options and vs inflation)

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LendingClub is working OK for me...
Got a bit of a rough start (defaults), but have learned to pick 'em better now, and have been averaging 4.5% for more than 6 months now.
It's not for everyone... it does take some time to "shop" for loans to fund, but it's another investment tool to use.

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Paul F.
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Eureka, CA

If the US defaults, China won't be far behind. They own an enormous amount of our debt and Europe isn't in much better shape. A US default can end up initiating a world-wide collapse of financial markets.

Having said that, I'm staying the course. I don't have a crystal ball that will tell me when it's safe to jump back into the market. I stayed the course last time and fully recovered and then some when the market bounced back...

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richorlin

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bhaveshp

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Michael
Right now we have 305 loans of $25 with an average return of 8.38%. As people default on the loans, that effective return will be reduced. The LendingClub algorithm predicts that we'll have a default rate that reduces our actual 3 year return to 6.8%.

How is tax reporting handled by Lending Club? Both for Interest and for defaults?

I can see this being worthwhile if it can scale and isn't a pain accounting wise.

They are supposed to send a 1099 with the net income indicated. That should account for defaults and interest all rolled into one.

The US Government will not default. There are plenty of cash revenues coming in every month (maybe $250 billion), and the interest on our debt is c. $20 billion per month. So as long as the interest is paid, there will be no default.

Not raising the debt ceiling will of course make it impossible to borrow more, which will curtail deficit spending. This IMO would be a positive benefit.

Of course the President could divert the interest payments elsewhere, causing a default, but that would be against the law. And no President would violate the law—right?

/Mr Lynn

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Edited 1 time(s). Last edit at 10/10/2013 01:54PM by mrlynn.

Stay the course, there will be no default. And Mr. Lynn is right, wrong and wrong.

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Michael
We went all cash a couple of months ago when all of this discussion began. We're down a bit from where I would have been if we'd stayed the course, but it has been comforting to not have to even think about it. This is the first time in 32 years of work that we've moved out of the market. The trick, of course, is when to get back in. I think we'll wait until the budget/debt ceilings are resolved in the weeks to come.

That's the problem with moving everything to cash. Hw do you know when to jump back in? When the 2007/2008 recession finally started it's recovery, the market moved so fast that most small investors who had jumped to cash, missed a lot of potential gains by moving too slowly/hesitantly.

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richorlin

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richorlin
That's the problem with moving everything to cash. Hw do you know when to jump back in? When the 2007/2008 recession finally started it's recovery, the market moved so fast that most small investors who had jumped to cash, missed a lot of potential gains by moving too slowly/hesitantly.

I figured that so long as I still had a job I'd dump everything I could into stocks during the recession. That has served me well. As the marked healed my investments have paid off nicely in several areas.

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Trying to time the market is a fools errand. Those who claim that it's a good idea simply got lucky.

One huge problem is that the market has already discounted the possible threat of a government default. In other words, by the time that peons like us start to think about timing the market, it's too late.

Years ago, I remember reading a stunning statistic about missing out on the best days of the market. The stat was basically that if you missed out on the top 10-15 days with the largest percentage gains, that the typical portfolio would perform something like half as well over the long term as someone who simply bought and held.

We're all Bozos on this bus.

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mrlynn
The US Government will not default. There are plenty of cash revenues coming in every month (maybe $250 billion), and the interest on our debt is c. $20 billion per month. So as long as the interest is paid, there will be no default.

Not raising the debt ceiling will of course make it impossible to borrow more, which will curtail deficit spending. This IMO would be a positive benefit.

Of course the President could divert the interest payments elsewhere, causing a default, but that would be against the law. And no President would violate the law—right?

/Mr Lynn

+1

The worst is the QE3 and just plain printing money. Anyone who took Econ 101 knows that will lead to inflation and rising interest rates. The only reason it hasn't is because we are the United States of America, although that may not work for much longer.
Lawrence Summers withdrew his name to replace Bernanke after such a backlash-he knows the danger of continued QE's and he said he would start raising interest rates which is the smart thing to do even with the threat of recession.
But guess what? We're still in a recession and don't let anyone kid you. So what does our government do? Hires a Bernanke clone who will just stay the course...

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DP
Anyone who took Econ 101 knows that will lead to inflation and rising interest rates.

True. It will even depress GDP in a few years. But in the meantime, many more people are working who otherwise wouldn't be. And another Great Depression has been avoided.

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Ah...the dismal science...