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Higher and Higher They Go – Where They Stop No One Knows

We have lots of forecasters (guessers) that are forecasting Fed Funds rate hikes, pauses or cuts—of course not a one of them has a track record to prove they have a clue as to what is really going to happen.

But today we can see with our own eyes that the 10 year treasury is up another 7 basis points to be trading at 4.92% and there should be no doubt it isn’t pretty in the perpetual preferred and long dated maturity baby bonds. I feel damned fortunate to hold lots and lots of CDs and treasuries—and a much reduced (from normal) position in perpetuals and long dated bonds.

I am not tempted whatsoever to buy anything today–it may be 3 months or it may be 9 months before this whole story plays out and CDs at 5.7% are looking pretty damned good. I’m watching for higher rates in CDs as it looks like we may be relegated to that arena for a while–of course who really knows.

So we have the ‘beige book’ being released in 30 minutes or so – maybe it will boost stocks and bonds—or of course maybe it will slap them down even harder—who knows, but you can be relatively certain that we will have a market reaction.

36 thoughts on “Higher and Higher They Go – Where They Stop No One Knows”

  1. I am hoping a bond guru can offer me some advice – I am younger, in my early 40’s and let’s say I think bond yields are very close to there peak – would it make sense to buy individual strips/zero’s 25+ years out for 30 cents on the dollar or buy ZROZ etf?

    Or maybe neither make sense? I am probably going to invest 10% of my net worth incrementally….

    Thanks again

    1. Buying JAN 2025 TLT $100 call options this month. If things continue to slide will shift down to the $90 strike.

      Reason being is for the same potential exposure have to use 1/10th the amount of capital.

      1. Premium decay is non-linear (faster as expiration approaches) so consider rolling down before you’re in the last few months before expiration.

  2. Here’s something I bet some have never seen. When we bought our house in 1978, the previous owner had an assumable mortgage. We were able to just walk into the bank and inform them we were the new owners and were assuming the mortgage. It was that simple. Haven’t seen any mortgages like that in a long time.

    1. Did the same thing. The only thing the bank wanted was my name. Just gave it to them over the phone.

  3. Come tax loss harvest time these might drop even more. I’m going to put in some low ballers only not sure on which security

    1. I have already been heavily into tax loss harvesting this year. Sold a lot of oil stocks (like XOM@$120) so I have a big hole to fill. I am also doing a lot of what would be wash sales if I didn’t stay out (selling things that are way under, then looking to repurchase 31 days later).

      I am hoping to keep a lot of the proceeds for end of year bargains.

  4. US Mortgage Applications Hit 28-year Low….we know why!

    * 30yr Jumbo ~ 8.06%
    * 30yr Fixed ~ 8.0%…..just broke thru the 8% barrier!
    * 30yr VA ~ 7.42%
    * 30yr FHA ~ 7.40%
    * 15yr Fixed ~ 7.29%
    * 5/1 ARM ~ 7.25%

    1. Think mortgage brokers are going to start calling the phone company. To verify if service issues exist causing the phone to never ring.

    2. You will pry my 2.75% mortgage note from my cold dead hands! JPM wont give up though. Just past month they offered to refi my mortgage for plus 7% so I can access cash from my equity. How generous of them!

      1. Gotcha beat Grid….. 0% as in paid that sucker off about 7 years ago. No car payments or credit card debt either. No debt whatsoever.

        1. Dj, certainly a sound way and cant fault that. But…I could pay it off but why? That was part of the reason I walled off cash into CDs. Why let those SOBs get off the hook when I can use their money to pay me 5% with that 2.75% note? I have a car loan I could pay off but its 0% so that isnt getting paid off either. I love this environment. I have low debt and getting higher interest rates than my debt yield is costing me. If that isnt good for them, it must be good for me!

          1. Circa 1980, I had a 15 year 3% college loan while collecting something like 16+ pct in a money market fund. In late ’82, the 10 year treasury “plunged” to 10%, before rising again. I don’t think that the 10 year ever dropped below 3% in that 15 years. Sweet. They’ll be hell to pay if that were ever to happen again.

            1. I did that too back in early 80s. My dad paid 2 years of college and I had to pay for two. He told me he would pay first 2 years and I should load up on student loans and put them in CDs. I did that, paid out of cash for year three. And the fourth year was paid entirely by the interest of the 12%- 16% CDs that I took out for student loans. If memory serves after I graduated my interest started being charged at 5% and CDs were still 8%. So I let it ride a few more years then paid it all off as CDs were dropping and my loan wasnt 3% like yours, ha.

              1. And look what you’ve become :). Hope you thanked your Dad. Financial benefits aside, what a valuable life lesson.

                1. Not exactly Josh. He was a “you are here on earth to work until you cant”. He even worked for free at the end just to work. Work was a job and a hobby. So although he never said anything I think he thought I was foolish to retire early and do nothing that involved work. But its his fault he helped pay for the degree that allowed it to happen, ha.

                  1. My dad was the same way. He spent most of his life working outdoors, so after he retired the second time, he became a live-on-site volunteer building/rebuilding historic sites. My long-suffering mother left the big new house we had built her and they were living in a camp trailer (again). She was just happy she wasn’t back in a wikiup.

                    At age 80, he spent most of a winter out in zero degree weather with his 90 year old neighbor building buck and rail fence. I asked him why and he said “because the ground is too frozen too hard to set posts” (they did post fences in the spring). It was quite something watching those guys notching bucks with a chainsaw. They couldn’t get vehicles into a lot of the areas they needed to, so they dragged all the poles out “the old way” with horses.

          2. Took out my first car loan in 25 years last year when they offered me 0% for 4 years. That was a no brainer.

            1. My wife got her plug in hybrid exactly a year ago at 0% for 4 years also. She commutes about 35 miles (RT). Charges it off our solar system (installed 10 years ago, paid for itself about 6 years ago), and she just got her third tank of gas in a year (its a 10 gal tank). Crazy how the automobile market has become.

              1. Private, I have read a new type of battery has ability for up to 600 miles that may be in production by 2026. That type of range would incentivize me to buy an electric as I am more rural. I will have time to ponder as I bought my car less than 2 years ago with a 72 month 0%. So I have time to wait. But $370 a month isnt exactly a big bill to pay. Loved them Covid deals. Buy a new car and drive it for almost 4 years trade it in, and they give you $3k more than you paid for it.

                1. I hear you Grid. I still drive my old pickup.

                  There are some interesting things happening in battery technology. My concern with the rush to electric vehicles is that we don’t have the generation capacity and the grid isn’t ready.

                  We only got the plug-in hybrid because the wife’s round trip is less than the battery range – plus it has a gas engine if she needs to go farther. her way of creating the need for a new car was to give her last car to our youngest son who was going back to college. (“I don’t have a car any more, so I need to buy a new one”). Kinda funny though. We ordered her car in Feb.2022, and she didn’t get it until October because of all the crazy parts shortages, so she had to drive my oldest son’s old pickup for a while.

                  It got crazy during Covid. My son bought a couple year old Ford Explorer (lease return), and the dealer called him 6 months later and offered to buy it back from him for $5K more than he paid for it. I probably would have taken it, but he didn’t because they bought it to transport their new baby (couldn’t get the baby in and out of a car seat in the back seat of his Mustang).

          3. Grid, I would hold on to that mortgage too! Can’t blame you bit for that. I paid mine off the old fashioned way, just made the payments on time until the last one. I much prefer having no debt, that’s just me. Now I look at the huge asset I have just setting there, but you know, I don’t view it as an investment, just my home. It’s in a wonderful location sitting on 2 acres just outside of a university town with all the amenities you would ever want there. There are great golf course nearby too.

        2. Since we’re celebrating, I haven’t had debt of any kind since the late 80s. After an all-too-common and horribly expensive rent-to-own mis-step during my 4 year Army enlistment I said never again.

          That said, I wish I would have taken a mortgage out on my home back in the wee digit era.

      2. Dear JPM,
        Go twist on your 7%.

        With no due respect,

        I imagine the correspondence can be fun at times, or am I wrong?
        I think this past month BOA has offered me a great deal to rollover any other credit card debit for 14.99% for 6 months ! Before going to something like 23.99%
        When I have credit cards that carry balances I may get back to them, until then, they can twist on that.

        1. Ha! Pickle, one of my CC companies just sent me a 0%, 3% upfront fee for 15 months. If CDs were just a bit higher I would max draw the limit and put it in a CD. But I would need 6% to make it worth my time. It doesnt expire for a month so I still have a chance if rates climb.

          1. Well, that is a better game plan than my NY Giants have.

            So …

            fingers crossed …


            1. Been watching pre-season Knicks games too…. I’ve been out of NY for 28 years now, why do I bother? Certainly nothing to look forward to on either front. Go Vols!

            2. Pickle, that was a frustrating game the other night….One yard line…ugh. Oh well it could be worse. You could have a 6.5 season over bet on Patriots…ouch. My only hope is that Iowa Hawkeyes can muster up more 2 wins to cover the season 7.5 over to break even for me.

    3. I keep wondering if my memory is faulty or if anyone else remembers banks and other mortgage lenders trying to entice mortgagors to give up their relatively low interest rate mortgages by offering the purchase them back at a discount to the principal amount owed? As I remember, it was probably in the early 80’s. I remember mostly because I mimicked what the banks were doing to offer to buy my brother out of his half of a mortgage that we co-owned…. long story.. The way mortgages are sliced and diced these days, I wonder if that could even be possible now… I bet that would tempt your warm live hands, wouldn’t it, Grid? It would me…..

      1. 2WR, I not holding my breath. They are too interested in trying to get me too refinance. Let the wasted postage stamps eat into their profits!

        1. I have a mortgage similar to yours Grid, haven’t received any calls from the bank. I will listen to what they have to say though before I say no.

          1. Pig, if they ever call and dont give you a good deal, tell them to go sell one of their covid 30 year US bonds they bought at par for under 50 cents on the dollar. And then go mark to market the loss. Maybe they would pony up a better offer then, ha.

      2. 2WR,

        It is definitely possible to buy out mortgages at less then par that are otherwise securitized. In 2009 I worked with a company that had a significant amount of their book securitized and they offered a buyout program of 20% (on average) to what the borrower owed. That is, if you owed 100 and refied to another company, you need only pay 80 to satisfy your debt. My role was to determine how this would affect the transactions and what levers were possible to pull to make this occur.

        The loans were not 30 yr. fixed but a mix of fixed rates (above the available rates, so borrowers had an economic incentive on rate as well) with reset terms from 2 to 10 years, and full amort periods of close to 25 years. Long story short – about 30% of the offers extended were taken.

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