Knocking on the Door of 1.20%

The 10 year treasury is ‘knocking on the door’ of 1.20%–the highest yield since last March 18th.

Inflation expectations continue to be front and center–hand in hand with the giant ‘stimulus’ package being put together by the clowns in congress.

Watching the ‘talking heads’ there is sure a lot of excitement about the summer and fall as they continue to talk about the economic rocket coming with the administration of vaccinations and receipt of ‘free money’–forget that most folks aren’t spending the money–just saving it.

I see that originally congress was looking to limit the distribution of stimulus money to just those that have a need for it–but now they are back to pitching it out the door of a helicopter to most everyone. Personally our income was sky high last year–maybe the highest in 20 years–so I don’t care whether I see money or not–would just go into savings I suppose.

Well it is -6 degrees right now in Minnesota (at my house)–think I will just snuggle up for a nap—it will be a long holiday weekend with temps seldom rising above 0–plenty of time for naps mixed in with work.

95 thoughts on “Knocking on the Door of 1.20%”

  1. Broken record but so be it …..

    Fine to keep an eye on rates. We all do. But rates to a large degree are set by the Fed based on policy concerns. Not so currency exchange rates.

    The US Dollar Index (DXY) values the US$ against a basket of currencies (Euro, Yen, CHF, CAD, SEK and GBP). It is down 12+% on the year. There is simply no way that you get this kind of a devaluation of the US$ without inflation coming. I don’t care if the government stats don’t show it; it’s there. Or will be. Look around you and see how much you have or consume that comes from outside the US.

    So, what you’re looking at is that sublime combination of low US interest rates, inflation and a declining dollar. You can make 1-2% on your money risk free (Treasuries, cough), pay taxes on what you make, and watch the real value of your investments decline in purchasing power.

    All courtesy of the Magic Money Tree!

    1. I was just looking for an interview on Bloomberg I wanted to show you. But couldn’t find it, this particular analyst says that other than asset price inflation which the stock market reminds us of everyday, that at least in his mind, there will be no significant inflation even with BBAP (Biden’s Bankrupt America Plan). And the reason is, that people for the most part are not spending the “stimulus” money in a conventional way, if at all, thus not straining demand during a period when supply may be constrained.
      I think the $US coming off a long period of being at at high is to some extent a reversion to the mean and secondarily, an indicator of how much better countries like Australia, New Zealand, China, Singapore, S. Korea and even Thailand have managed the challenge of dealing with the Virus and reopening their economies.

    2. Two years of strength for DXY and one year of loss. It been between 21 and 27 over a 10 year period with inflation below 3%. It’s in the middle now at 24.38. How do we know where inflation and DXY goes from here?

      1. Dan – you help me make my point. The dollar index went up ($ strengthened in relative terms) during 2018/19 during a time of relatively little “stimulus”. The key word here being relative. Other economies inflated, too, but the US was a laggard.

        You may have noticed that foreign goods were a real bargain during this period. Every time I went into Costco (where I do my economic research) the prices on the electronics kept going down.

        Which brings me to this point: Inflation, at least as it’s reported is a like the ground speed on an airplane. If a plane looks from the ground like it’s going 350 knots it may be that it has an airspeed of 450 knots and a headwind of 100 knots.

        In the same way an economy may be experiencing 5% monetary inflation and 3% currency/productivity deflation, for a net reported inflation of 2%. I believe that’s been the situation for a long time. Once you take away the currency deflation and the productivity deflation, you are left with 5% net inflation.

        Amazes me how all the talking heads of economic policy – all the Fed governors, Treasury secretary, etc. – have all been out recently telling us they have no inflation concerns. Why would they be doing that?

  2. After reading a post, and some reflection, I think I will look at local charities in addition to the ~ $80,000 in taxes/helicopter money that I give each year (what my tax software tells me to give). Remember there are only 2 things you gotta do in life: die and pay taxes.

    I am thinking of being an anonymous donor, and write a couple of checks and do it anonymously some how. Then I will announce to the local chamber of commerce and have them match my anonymous checks. Then I will keep my followers updated by periodically posting the check amounts and my anonymity status.

    1. Try creating a trust. Figure out how much you want to donate per year and fund it according to conservatively investment income it can produce. Pick your organizations and let it go.

      Take the amount of money as an immediate write down against your tax situation.

    2. As far as donating, I’m not in the income brackets of some in this group, but I am comfortably retired. Before COVID, I volunteered and donated to a local food pantry. Since COVID, I no longer volunteer but spend a good chunk of money each month buying things for a local organization which feeds, clothes, and shelters the homeless. Things like underwear, socks, long Johns, razors, soup, toothpaste, and food. Best use of helicopter money might be to contact an organization and ask them what they need. They have enough out of date Mac n cheese but their needs change every month so direct contact is vital.

    3. To continue the “off topic” a little-
      Many people on this board already know this, but one of the best ways (for a donor) to give to a U.S. charity is to donate appreciated property – like stock. When you donate, you get a deduction for the market value of the stock, but you don’t have to declare the gain in the stock.

      For example, if you bought Amazon in 2009 @ $50 and donated it today (about$3250), you would get a tax deduction for the full $3250, and never pay taxes on the $3200 in capital gain.
      There are a few rules to follow, but it is pretty straightforward. Also be careful not to donate stock on which you have a loss (you won’t be able to claim the loss). You can read about it in pub 526. https://www.irs.gov/forms-pubs/about-publication-526

      Many charities already have a brokerage account, so it is a simple stock transfer (every broker I have ever used has a process for this). They can just sell the donated stock as soon as it shows up and use the cash.

      If your local charity doesn’t have a brokerage account, you can help them set one up (I have done that many times).

      Another good donation option: If you are taking RMDs from your retirement account, you can donate your RMD to charity (directly), and the amount of the RMD is not reported as income to you. Usually better than taking the RMD yourself, then donating the money and getting a deduction, especially if you don’t itemize.

  3. I’m taking a pole, How many folks that follow posts on this site are prepared to lend Uncle Sam 10 year money @ 1.2% or 30 year money @ 2% ? That’s wear the “IT” hit the fan.

      1. Many investors have to maintain allocations to bonds. Pensions and Insurance companies will always have fixed income exposure. And I know many people with much muni bond exposure. Some consider T Bonds bomb insurance. If everything else goes to hell hopefully Treasuries will at least preserve principal.

        A Gary Shilling is still long zeros and has been for over 35 years.! He makes the case that what has driven bond prices up is still pertinent/relevant. Now is an interesting time to dissect duration.

    1. Mike asked: “How many folks that follow posts on this site are prepared to lend Uncle Sam 10 year money @ 1.2% . . .”

      Mike, it does not really make much difference if “we” will lend Uncle Sam at those rates. The only issues is whether the Federal Reserve will lend to Uncle or not. In round number, Fed holdings of US Treasuries has increased by $2.4 TRILLION since 1/1/20. As long as the fed is willing to keep buying, regardless of rates, they have the power to control the long end of the curve, III investors be darned. . .

      Link to Fed UST holdings:
      https://fred.stlouisfed.org/series/TREAST

    2. I would rather own a 30 year US Treasury at 2% than a perpetual bank preferred at 4%. The game of flipping new preferred stocks and baby bonds remains, but I cannot imagine being a long term holder due to both interest rate as well as credit risk.

      1. AF, My opinion which isnt worth much is to avoid both. Why get a 4% bank preferred when you can snag IPLDP at 25.73 again like I did yesterday and going exD end of month. That 5% yield beats the new banks and dare them to call which they wont anyways.
        And then buy solid issues like UZA at 25.41 and 100 bps over new sister issues.

        1. Gridbird — You know what you are doing, I understand very little. I only know that certain underwriters seldom bring down deals, and they can flipped during the first week at a profit. I am very fortunate that I can get fairly large allocations, and so far it has been free money.

          1. Af, That is a great way to play too. Im only sporadic in that area because I always ask myself if it drops a buck at IPO would I be happy owning the issue. Typically its no, so I pass on those and miss some of those opportunities. And sometimes I let a nickel freeze me out also. For example I wanted LANDM but stayed on $24.90 and never got it. I should have moved up a nickel but wouldnt. So trust me, I dont do everything perfectly either, that is a certainty!

                1. Gridbird–I have been buying preferred issues commencing in 1995. In fact, through the years, a couple of Schwab Pinnacle brokers have actually ‘picked my brains’ regarding same. Baby bonds & preferred issues have become my ‘forte’, HOWEVER, your depth of knowledge re these issues is extremely impressive & I have learned a number of things from your posts here & on Silicon Investor. It would be fantastic if you had the time & desire to moderate a board just dedicated to these 2 types of issues; many folks could be educated on the benefits and ‘in & outs’ of these financial instruments.
                  –I must add that there are also a number of folks on this site, (Bob-in De), comes to mind, who have a great amount of knowledge; I find Tim’s site to be, by far, the most informative & helpful re the above! PS: as of this writing I hold 86 Pref & Baby Bonds in my portfolio of 125 issues, thus I am interested in any info & enlightenment I can obtain regarding same! THANKS TO ALL!

                  1. Re “It would be fantastic if [Grid] had the time & desire to moderate a board just dedicated to these 2 types of issues” …

                    III *is* that board!

                  2. Thanks for compliment, Lurker, but since you been ‘round the block since ‘95, you know your way around the town just fine on your own. And as you well know credit quality risk changes, and interest rate movements or expected rate movements drive the market. There are ways we can tweak and mitigate the rate environment risk but eliminating it is not so simple is it.
                    Gary, As far as IPLDP goes, its not so much worry of a call as its a better risk reward than new issued 4.0%-4.5%. The 30 year just broke above 52 week high. Call protection has little value if one is assuming yields to not drop.
                    I tilt now (and have been for a while) to little capital appreciation is out there in this current environment, and focus on the down side protection is more important for me.
                    I had no interest in owning IPLDP yet again a week ago at $26.30, but when it hit near $25.70 Friday I bought. Buying there is basically just a dividend above call. IPLDP seems to have been issued as a compromise with regulators on cap stack. Regs didnt like expensive ROE common stock and company didnt like too much debt for credit rating. So slap a preferred sliver stack in and presto its all under 50/50 and everyone was happy.
                    Same thing for UZA. I have zero expectations of UZA not being called or being called. But bought below par plus next accrued interest payment and a 125 plus bps free ride over the new issued 5.5% sister, the backside is protected. Plus a couple sisters have higher yield so they should have the bullseye on their back first. There just isnt any risk of capital loss of a call at $25.41.
                    But I dont compare UZA to IPLDP as they are different investing subsectors for me. If one thinks the risk interest rates is going higher some, then one should look at any preferreds issued around 2013 or 2016 that may be still around and have call risk drifted back towards par and get the free ride extra bps of yield. If one assumes rates to go lower, then the new issues get more of a look. Call risk unless I am playing a nose bleed trade above par means nothing to me as there is always something else to buy.

                    1. Funny Grid,
                      I got the IPLDP almost a yr ago close to par and was looking at it last week and thinking I should of sold it when it was over 26.00 now that its hit this price range its a harder decision, but with the divy coming up will hold.
                      Keep you in mind if and when I do sell

                    2. Charles, Whenever I invite IPLDP into my house, he knows not to unpack the suitcase. But he doesnt take it personally because, he will be invited back again eventually, ha.

            1. I believe Kolanovic is correct. This is 1982 upside down — interest rates have begun a long term move up. If the call is on target, there are serious implications for long term income investing. I have raised cash, but the only attractive investments I see are utilities and pharmaceuticals — and those are probably not beneficiaries of a commodity supercycle.

              https://www.bloomberg.com/news/articles/2021-02-10/j-p-morgan-sees-commodity-supercycle-already-kicking-off

        2. Grid-
          Not sure if you have addressed this before- but could you give the short version of why IPLDP is unlikely to be called- and if UZA is in the same boat, why?
          thanks
          G

            1. Hey Grid

              IPLDP is at a very good price today, has some seen the risk of a call which I haven’t seen. I dont mind loading more on this baby.
              Has anything changed in your opinion?

              1. Jay, it depends on your worries of cap loss in relation to buying for the income.
                Sentiment on these lower liquid issues is bad and some are gonna spill. Market tends to get herd mentality out the door then a rebalance. The issues that are holding strong are the term dated and clearly “why the hell havent they been called issues”.
                IPLDP doesnt fit those molds, and is dropping in sympathy with the low yielders not any call risk concerns. I reentered on a couple hundred issues of IPLDP recently just as a feign interest to counter balance the recent purchases over time that dont typically suite my normal comfort zone. But its working.
                So it depends on your needs and what you want.
                As far as potential capital preservation over long term income, PPX and DTY are better backstop plays, albeit with call risk concerns which I am fine with.
                DTY was issued in a 2.2% 10 year environment and has 3 more exD until they can redeem. PPX was a 1.9% 10 yr issue and is already past call. They stated they want to reduce holding company debt most likely after Europe assets are sold. So this would likely be in the cross hairs. I personally have been buying a lot of PPX for me anyways in the 25.20s, and just toed into a small initial position of DTY at 25.58 today….These of course are debt instruments not QDI preferreds.

                1. Thanks Grid, as usual as comprehensive an answer as Gridbird would do it 🙂
                  I am a buy and hold guy for these in my retirement account. So not worried about cap loss in the short term, as long as they have not been called in the recent past I am good. I have PPX but am on a lookout below 25.25 too. Dont own DTY at all but thank you for that one, I will look at that one

  4. So when does the S#*t hit the fan? Magic money this what this all seems like to me. The government spends in more than they take in every year. They want to spend even more so they have to borrow it, right? Please correct me if I am wrong. A large amount of the electorate no longer cares how deep the government goes into debt, they just want a bigger check (a’ la Georgia) regardless of whatever pork projects are attached. Doesn’t seem to me like it can go on forever, and I don’t believe we can grow our way out of it (that rationale for deficit spending has been used for as long as I can remember and the deficits just get larger).

    1. in debt to who? we create our own money so we don’t owe it to anyone. i suppose foreigners can by treasuries but most of them we buy ourselves. it seems the only issue is if we create too many new dollars we will inflate the dollar. At that point we will have to raise interest and possibly taxes. and the stock market will reprice. i know that is simplistic but i don’t get this U?S debt thing.

      1. Actually, China holds a huge amount of US Treasuries as do other foreign countries. China’s nuclear option is to not only discontinue buying US debt but to actually sell the Treasuries they own. That by itself will drive interest rates through the roof. It’s not nearly as simplistic as you state.

        1. Randy, they could, but that would be detrimental to their well being. Plus our Fed could monetize it. And our Fed has monetized considerably less debt than Japan or Europe. And China has been playing this game too. Plus we borrow in our own currency which is an unbelivable advantage. This game could play out a long while.

          1. Grid—it certainly would be detrimental to China’s well being, because we buy their exports and they buy our debt. I’m just saying when push comes to shove, they have a nuclear option. At the same time, we don’t want to end up domestically like the depressed economies of Japan and many European countries. That’s why we currently have monetized less debt than those countries. If we have to monetize a similar percentage of debt, our economy will be as stagnant as those countries.

            All I’m saying is that, at the moment, the US is in a precarious financial position regarding the over-all long term status of our domestic standard of living. A situation with 1-2% of the population controlling 90% of the wealth is not sustainable unless we helicopter (for lack of a better word) money to the have-nots. And that’s what we’re doing.

            1. I live in China and would like to share a few thoughts with you
              1- For the last 4-5 months life has been 90% of normal because people here act and think rationally, the media speaks with one voice and as I’ve come to learn, authoritarian governments/Parties aren’t always bad.
              2- Even at the peak of the Virus here, the government wasn’t handing out $3 Trillion in Welfare checks to anyone much less a bunch of “Have Nothings” that couldn’t survive for 15 minutes without a hand out, rent relief or government aid.
              3- The idea that America’s hyper-sensitive, coddled, lazy, obese, uneducated, indebted workforce can compete with the hard working people of China…who know how to manage their lives in a crises without squealing for help or equating stupidity with the freedom not to wear masks is a joke.
              4- Time Deposit interest rates on cash in China start at about 1.35% for 3 months, 1.55% for 6 months and gradually go up to 2.75% for 60 months with no foreign withholding tax.
              5- Finally this whole totally false narrative about income inequality falls completely apart if you really look at the numbers. Same with taxes; the top 1% in America pay 32% of all taxes, the top 50% pay 94% of all taxes and the “Have Nothings” who are screaming the loudest for a hand out or about how unfairly treated they are contribute almost nothing.
              In the end, China will win the economic and geo-political competition, because China still understands that its Self-Reliance that matters. Their competitive edge is their people and America can’t even come close to competing.

              1. People stop watching CNN/BNN or whatever. In reality land interest rates, lazy people, and silly politicians do not matter.

                Interest rates have no barring on C-suite decision making process. As you have to borrow regardless to expand your means of production where through expansion of existing or acquisition. Best capital managers understand its only the servicing costs that matter.

                Who ever controls the resources controls the production of the products. If your country is resource rich. You can make many mistakes and it will not matter.

                Whoever has the largest propensity to innovate will win. Technology companies are not inventing new industries they are targeting the disruption of existing ones.

                1. Camroc,
                  Funny you should say that. Our plant in Granite City went down on Monday. Overnight the freeze burst a few pipes. I hear over 2millon without power in Texas and refineries have shut down, bet they had a few burst pipes.
                  Looking at the 60’s here on the North Coast

      2. Libero I don’t think your statement “we create our own money so we don’t owe it to anyone” is accurate. The money the U.S. government spends comes from taxes and selling bonds. Lots of different entities buy the bonds. The price is set by the market, but the Federal Reserve does play a part in manipulating the rates. However, if they manipulate them too the point where they are the only buyers of the bonds, then we will become Zimbabwe, where $1 USD = $150 Billion Zimababwe dollars.

  5. Was I ever wrong about the breather on the rise in interest rates! Was looking for a conservative 20 point retracement to then add a trailing stop. NOT!
    Moral of the story:
    – Don’t speculate and if you do, get ready to eat oatmeal stew.
    – Use a stop, which worked!
    – Don’t get antsy.
    – If you open your fat mouth, you’re probably going to have something cram them back down your throat.

    1. Joel, this doesn’t seem like much compared to what? we were talking about 1.15% a little over a week ago.
      Myself I just received notice my Variable rate mortgage which can only reset once a year at this time went down to 2.73% a whole $7.23 off what I was paying the past year. Banks have fine tuned these types of mortgages since they first came out.
      Watch out on those High Yield FF preferred’s that are being recommended by HDO over on SA. Junk preferred’s and junk bonds could be running out of runway to refinance if rates keep going up.

  6. IMHO i don’t see interest rates moving up much. I believe we do need that large stimulus to help people. While i am not full board MMT i do believe we can happily create money until we can’t. It may be that the stimulus will be the factor that causes inflation but i think the money will be spent on rent, food, stock market (reddit crowd) or be saved and likely won’t affect inflation much.

  7. The 30 year Treasury yield exceeded 2%. At retirement age, I don’t want to be a frog in boiling water. I’ve raised cash to about 60%, and eliminated virtually all exposure to technology stocks.

  8. Any helicopter money I get will be used to pay some of the additional taxes I owe this year.

    So the government gives us money to pay our taxes.

    Neat.

    1. I give my money to the government. Combining federal, state, and county taxes last year, I gave them ~ $78,000 in taxes. Someone in government then loads my cash onto a helicopter and then disperses it over people, state governments, etc. The cash also might be thrown into money booths where each person has 30 seconds to grab as much cash as they can.

      1. Mr. C, I only gave about $35k last year. So I can understand why you dont get a check. But since I dont pay as much, I feel like I deserve some free money. And besides Im a fixed income pensioner thus making me even more deserving, so fly that helicopter over my house if you dont mind. 🙂

        1. Lol. Grid. 🙂 I’ll strap a RC receiver on it, and ship you a transmitter. Then you can fly it back to/from my place and you can do your own deliveries when you want it. On the return trip, just attach some Reese’s. ( ͡~ ͜ʖ ͡° )

          It’s comments like this that keep me coming back to this site. I could never stay away.

          1. Mr. C, I will strap a fresh $50 bill with the Reese’s also to the ‘Chopper on its return voyage to help pay for the gas. Its the least I can do…The very least, ha. Im thinking about running for public office. And my campaign slogan will be.. “Dont tax you, dont tax me; tax that fella hiding behind the tree!”

            1. On that note Grid… when I worked downtown Minneapolis, there is a lot of concrete and glass, but you can find some trees. The fellas weren’t exactly hiding behind them. Usually sleeping or pissing behind them. ¯\_( ~ ͜ʖ ° )_/¯

        2. Gridbird – Totally agree, some people forget that it was our money to begin with, so getting it back only seems fair to me since I can make better use of it than those “clowns”.

        3. Mr C. and Grid need to go to the Leona Helmsley school of taxation:

          “We don’t pay taxes. Only the little people pay taxes.”

          1. Tex, Im stuck being a little person till the day I die! And I only have 4 pairs of shoes to add to the embarrassment.
            In a Near West Side auction house, racks crammed with gaudy gowns stand waiting near hundreds of matching shoes, clutch purses, jewelry — all from the estate of the late Leona Helmsley, the Manhattan socialite, real estate mogul and felon.
            QX, I accept your nomination. Those fellas hiding behind the tree better watch out, lol.

          2. I’ve been growing my IRA’s while spending down my taxable accounts for a number of years. Biden doesn’t get much of my profits for his helicopter.

            1. Yeah after years of paying through the nose confiscatory taxes, I am loving life as a “poor” retired guy just living off my taxable accounts right now. No need for RMDs from the non taxable for a dozen years or so

              Having a low “income” does wonders for minimal taxes and health care subsidies.

              And that Helicopter money – just spent my last batch on a new big screen TV when my old one died. And if they will be foolish enough to drop another helicopter load, I know the wife wants some new carpet – LOL. Just doing my part to stimulate the economy !!!

        4. Grid – I know you say that tongue in cheek. The “senior” discounts have it upside down. Back in the days when I had private school tuition x3, 4 cars to keep up, etc, THAT’S when I needed the discounts. I really don’t need to save 5 bucks on my haircuts these days. Or the small break on property taxes I get for being a “pensioner”.

      2. Cons – you say “gave” as if there were some voluntary aspect to it. Personally, I’d say “ripped from my hands” or some such.

      3. CBO reports for the first four months of 2021 fiscal year (thru 1/31/21) $1.2 T in receipts and $1.9 T in outlays. Seems we will borrow more to load the helicopter.

    2. What’s really funny is Schwab says I need to withdraw $14,100 dollars by year end to cover my RMD. I am still working, so my IRA contributions for this year will be $14,000 (7K me & 7K spousal IRA). So, I have to withdraw the money, put it in my checking account and send it back to Schwab and pay tax on $100. Makes sense to me.

      1. Bill don’t know the specific but you must be over 70 1/2 and talking about the coming year not 2020, since RMD’s didn’t apply to anyone in 2020. My only question is why would anyone make a traditional Ira contributions in there 70’s ? I’ve worked my tail off to get as much as possible “out”. What about a Roth? I thought earning limits applied to both, regardless. Again don’t know the specific but something else must be going on.

        1. Mike,
          Yes it is for tax year 2021. I am 72 and still working, wife is retired. I have a 401K at my present employer which is not subject to an RMD until I retire. I fully fund my 401K and contribute to the IRA to shelter $14,000 more of income. We are under the earnings limits (barely) so it is fully deductible. It saves me about $2500 in taxes (fed+state) and of course any money you make from it in the IRA is not taxed until you take it out. I will be retiring at the end of this year, so for now it’s ok. I have read several articles about whether it is smart to contribute to an IRA once you reach 70 1/2 (72 now under new rules for RMD”S). Came away with a feeling of you want 6 or a half dozen ? So, just staying with it until end of year.

          1. Bill S. I Knew it was something like that. I have wrestled with the Ira., Pension, Taxable SS, issues for years. no good answer. Save on taxes now pay thru the nose later, or try to limit taxes in the future. I opted to take my pensions at 55 then SS at 62, converted all I could to a Roth before 70 1/2, so far so good. One size doesn’t fit all. “Taxes can only go in one direction” and the green ink keeps flowing nonstop, all we get is inflation and worthless money. No good answer to any of these problems, the hole has been dug way to deep.

            1. Another item I figure into the analysis is that every year we live we get one year closer to the great beyond. With that in mind I try to consistently defer taxes as long as possible.

              1. ChrisW I would second that in spades. Any thoughts ever from anyone on these topics, I’m all ears. Thanks, lots of smart folks at III

          2. I am 71 and have kept working since retirement, doing consulting & tax work, and set up my own 401-k. I get to shelter the first $26,000, plus 25% of defined profits, I get a QBI deduction, and am able to offset all our health insurance costs above the line including Medicare expenses for both of us. It’s a heckuva tax break. I roll balances over into my IRA periodically, just to simplify account administration.

            1. TimW another good example that one size doesn’t fit all. Plenty of ways to skin a cat. Bravo

  9. Accounts posted our 1099’s yesterday. I plugged in the final numbers yesterday after wife and I got our virus vaccine first shots. Numbers came out $30 better than my preliminary estimates. Stacking nickles like everyone else. Best thing was my bet to buy 1 year treasury notes the end of ’19 and early in ’20 when the yield curve was inverting and kick the “can” down the road delaying the interest reporting for a year. This little trick along with last years elimination of the RMD allowed me to move $16k to my Roth tax free federal. Little better than stacking nickles. I’ll just wait and see what “that bunch” comes up with next, regarding interest rates, money printing or otherwise, and take advantage. A game of outsmarting clowns? As always avoiding political comment. Snowy and cold in Indiana

  10. I’m in the NW and we had some snow last night (maybe .5 inch or so).

    We are in a weird time for fixed income markets. While in the US we have it somewhat better than other parts of the world (without negative rates), the outcomes from here forward aren’t really so great.

    If rates go higher, that’s not so good for fixed income in the short term (or ever usually). If rates go lower, then we may end up with negative rates. If rates stay the same, that means that the economy needs these lower rates until who knows when. To me these are all lose, lose, lose situations. Okay, I’ll give you that if rates go higher because the economy is improving, that could be long term positive. But wait a minute, what about all that US Treasury debt that will require higher debt service payments which may mean higher taxes.

    What I am trying to say is be VERY careful at this stage of the game. Flexibility is key and don’t go chasing issues for that last penny in yield. It sucks keeping the powder dry, but it sucks even more to sit on a loser for years until you get to maturity or see some sort of exit or even worse DEFAULT.

    It also sucks that there is so much cash sloshing around that it is now gravitating to Reddit mania, SPACS, Cryptos, or Micro Caps. It is a minefield out there and inflation could certainly blow the lid off of everything quickly.

    Let’s not even throw in the political situation in the US, the virus, the long term economic damage from the virus, Iran’s near completion of the A-bomb, etc etc….IMHO geopolitical risk is off the charts right now as well.

    1. Agreed. Unpredictability of future rates poses increased investment risks. I started looking at so-called “balanced” fund-of-funds ETFs as a lazy-man portfolio plug in, but the “conservative” one was loaded with long term debt, which is not a risk I want to increase with a lot of my portfolio already in preferreds.

      For now, I am holding more cash than usual and – oddly – looking to add to equities. With rates this low, I am willing to accept more volatility in exchange for more upside potential over the longer term than preferreds. Preferreds let me sleep at night, but commons let me order a slice of cheesecake dessert with my eggplant parm hero.

      To your point of higher debt service meaning higher taxes – that doesn’t worry me. In high school math class, there was an esoteric debate about whether 1/0 was actually infinity, or just approached it as a limit. There was also discussion over whether 1/infinity (1/lazy 8) was zero. I don’t know.

      But, as government debt goes to infinity, I fear the value of a paper dollar goes to zero. They just print more. This is easier than raising taxes. (Or keeping up the quality of Schlitz beer.)

      I am more worried about long-term currency devaluation than higher taxes. A slow, but steady erosion, like walking the San Diego beaches and seeing how many nice cliff houses have washed out to sea since last year’s trip.

      So my recent “adds” have tended towards holding harder assets, like real estate or commodities, rather than towards holding promises, like bonds. That said, I have no idea what the best devaluation hedge is.

      Just my opinion.

      1. BNJ – Yeah, there are ways to “weasel” out of taxes legally. It seems that the proposed tax increases I have heard about are geared to social or political goals and not necessarily paying down debt or even balancing the Federal budget.

        I think it was Greenspan that said he could pay whatever the interest was on the national debt by printing money, he just couldn’t guarantee the purchasing power of the dollar. So theoretically, the US can never default on its USD debts. And there lies the conundrum between interest rates, the dollar, inflation, and the debt.

        In a “normal” market, bond investors are compensated for the risks they take by supply and demand (borrowing/lending) of money expressed through the interest rate. What we have now are the major sovereign nations all printing at the same time. Then they use the derivative markets to distort interest rates. I have a muni CEF that does this by shortening duration of the portfolio by using derivatives. At some point the lid may blow off the top of rates (Chernobyl?). Remember, within the last year the repo market froze up and they had that crazy spike in money market rates. I suspect that is what it could look like if the rates go Chernobyl.

        At what point do investors “pull away the punch bowl” and refuse to accept wacky interest rates that are set by sovereigns and their financial markets to achieve national goals…..ie cheap money. Most politicians love the cheap money because it allows them to spend spend spend. As you correctly pointed out, what does that mean for the dollar?

        Well I remember somebody from the Davos crowd on Bloomberg TV said “Cash is trash”. He may be right, but I still have to pay my bills in USD. We are seeing the market voting and weighing that USD may not be so wonderful as commodities, pm’s, and cryptos start to make their moves.

        We could be in for 70’s style stagflation. If this is true your instincts to buy the hard asset companies may certainly help. Heck, if the company can raise it’s prices without suffering demand destruction and turn a profit then that may a minimum criteria for investment this upcoming environment. Floaters will help, but you can also keep your maturities shorter and laddering the maturities.

  11. I mentioned in a previous post, we are in the window replacement business and have had a combined total of a 24% price increase from our main window supplier since last July/August. We have checked with several other manufactures and most have increased a min 10% some as high as 30% since last year. Well, at least the fed thinks inflation is under control. Maybe not a bad time to check out some fixed to floating issues.

    1. qxjm – Bought a 2×4 the other day, didn’t look at the price when I picked it up. Amount fainted when the girl at the cash register said that will be $6.89.

      1. I’m thinking they should start supplying all home improvement/box box building store cashiers with smelling salts. Come to think of it, I think I’ll have some smelling salts when I do my window estimating.

  12. Its sunny and really nice out. -7 here and was thinking of putting on a t-shirt and jeans and going for a walk. It is really warm compared to several days of -20 to -30.

    1. Cold here in Santa Barbara today, have long sleeve running shirt and jacket on, may need gloves, only 57 outside.

      1. Howdy! First neighbor that I’ve seen in any finance forum in decades. I’m in SB as well.

  13. I’d like to suggest to folks that don’t need their helicopter money that they send it off to their favorite charity to help others that are struggling or worse. That’s what we’ve done.

    1. Coaster, what helicopter money? When getting helicopter money its…
      Assets > Income. Im finding out the hard way, lol…

    2. @Coaster
      I agree with you. We also give our helicopter money to charities. We chose two that benefit both humans and animals. One is for the homeless and their pets – provides them with food and medical/veterinary care. The other is for Delinquent Juveniles that train hard to place dogs in loving homes. The socializing efforts work wonders on both species!

      We truly believe this money, if not needed, should not go to normal savings, but rather for a good cause that needs help in these very difficult times.

      Malka

      1. Malka, ours goes to charity as well. Mostly Food Bank. The cars are still lining up.. 800,000wk added to u/e.. it’s not ‘getting better.’.. I’m not hungry..don’t think I have ever been..how lucky.

        As far as tax planning.. I decided at 40 I was not going to work forever..having started working at 11 at a relatives bowling alley as a counter clerk, I was worn out. My taxable is very very low.

        I stayed at the Helmsley Palace several times in NYC.. say what people want about Leona..her hotel was amazing! The Helmsley billions went to charity and continue to do good to this day.. at least something ‘good’ came out the madness. https://helmsleytrust.org/our-grants

    3. A couple worthies: St Jude Children’s Research Hospital. We also have a Northern Nv Children’s Cancer Foundation.

      1. Yes Please Gary,
        I need the work. Been told by my customer ( distributor ) that his customer landed a cancer ctr. job in Northern NV. course by the time they dig the hole, Build the shell then get to the interior will be 1 to 1-1/2 yrs.
        By this time next yr. I told the wife I want to call it quits.

    4. @ Coaster – thanks for mentioning about donating your proceeds from the stimulus funds to charity. My first $1,200 went to my local food/clothing bank and my second check of $600 went to my local animal shelter.

      It appears that another $1,400 may be in process and I’m working with a local non-profit organization to do a fundraising campaign. Going to be the anonymous donor of my check and then will ask the local community to make a match in the same amount – so hopefully we can do $2,800 in my area. Appreciate you posting this great idea.

  14. Tim – 1.27% is next. We’re complaining here in Texas with 25 degrees, lol. I don’t miss the winters up north. Stay warm

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