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The Fixation on Interest Rates

There has never been a time in history that investors and the general public have been so in tune with interest rate levels—at least that is my opinion. Of course the amount of data and continual news flow has never been greater. I remember back in the late 1970’s and early 1980’s that I waited anxiously every day for the Wall Street Journal to be delivered so I could look at share prices from the day before–wow have times changed. By 1984 I was online with a direct modem connection to the Wall Street Journal–at $1/minute. Every night I would burn up 10 dollars looking at news and quotes—that was when $10 was real money. I can still hear the modem trying to ‘connect’.

Now you see interest rates 24/7 and everybody knows details of interest rates–they can watch business news anytime to get rates. Rates are covered on the nightly news–at least when they shoot higher–you can’t get away from knowing interest rates. And of course with the 24 hour news cycle we have news channels that have to fill air time talking about something.

Of course as income investors our wealth goes up and down everyday (every minute) based on the level of interest rates–does this matter? I can look at portfolios at 9 a.m. in the morning and be up thousands of dollars—and then look again at 1 p.m. and be down a thousand dollars. Does it matter? All this news just creates fear, greed and angst. So much data creating too much worry–BUT I love it–I’m 70 and am not going to change now–always looking for a new way to earn a few more coins.

Speaking of interest rates–the 10 year treasury is trading right near 4.7% and in 15 minutes with release of the personal consumption expenditures (PCE) number it could crater and shoot up by 10 basis points. I’m hoping for a number on forecast and personally don’t want rates over 5%–but it could happen–soon.

17 thoughts on “The Fixation on Interest Rates”

  1. In 1978, I worked at a major bracket investment bank, underwriting securities. There were thirty investment bankers and one Quotron machine in a senior partner’s office. To use the machine we have to knock on his open door and secure permission to enter and use the machine. (These were the days when employees at Kidder Peabody were forbidden from drinking coffee at their desks!) Financial data was available in the ‘books’ or from the file room. Texas Instruments calculators were the Cray computers in those days. Information access has improved but has financial judgment gotten any better? The big difference between now and then is that then we took risk with the founders’ money and they watched us like hawks, begrudging every dime of loss. For me, that was the big lesson of the Big Short: the corruption of risking OPM, other peoples’ money.

    1. “OPM”, That is why PFF is so poor and I would never own. Their basic setup ensures underperforming, and its OPM anyways so it doesnt matter to them….1978, Potter? We were still a colony then werent we? How much in taxes did you have to send to The Crown back then?

    2. Ha! I did a stint at Kidder Peabody too, in the muni trading area, but I think it was in an even earlier timeframe than yours…. And if I remember correctly I think we had a dress code as well that precluded any color shirt other than white and you had to keep your suit jacket on at the desk…. What apparently didn’t change was that mentality of being watched over like hawks… I was warned about that before deciding to join KP but was told things were going to be different when I asked in my interview… Ha! Lesson learned…. As this was in my very early, extremely naive days in the business, another lesson learned from KP was to never give 2 weeks notice as you would ethically think you should, 2 weeks before the bonus payout date… Expensive lesson learned.

      1. I recall getting a bonus from a company (that I did not even realize gave bonuses) on the day before I was going to announce my departure. My boss said something about how happy I looked when he gave it to me. It was not the amount that I was grinning about.
        I appreciated my good luck that day.

  2. Reading the weekly closed end funds report in Barron’s print edition on Saturday morning over frozen yogurt after a 10K in the park is a fond memory of times gone by. If you scored enough to dream, there was a Triple A next door with free state maps (paper), travel brochures (paper) and Trip-Tiks, an early form of GPS made from paper and Magic Markers.

    My first high tech was a telephone dial in service. They sent you a little spy code book that converted stock tickers to their numbers which you then plugged into your landline. There was a charge for every ticker and of course for the call.

    The best method for coping with volatility is “look once a week.” I don’t do that myself except after vacation when I discover how much and how little changed both at the same time. A variation on the theme back in the paper era was “don’t open your quarterly 401K statement during a down market.” There is a solid empirical basis for this. They say on the message boards, “You don’t lose any money until you sell,” so no point in looking right?

    1. I spent most of my working days at various brokerage firms, and I remember back in the 70’s and 80’s the big thing was the weekly money supply numbers. Trading commodities at the time and we would huddle around the Dow Jones newswire for the release of M1, M2, M3, it printed on a big roll of paper. Nobody pays attention to that now.

      1. Yup – the main reason for huddling around the newswire for those numbers was to find out who won the office’s pool for coming closest to the numbers…

  3. Good stuff, Tim! It’s a great time to be a saver. Rates are high and retail investors have access to so many options.

    1. I agree with this sentiment. It’s also enjoyable to have so much information and avoid fees where applicable. I’m going to see what kind of price I can get on the state street 5 year reset and have learned enough from all of you and SA to have an informed opinion of the merits / possible pitfalls.

      1. jbosh, What is the ticker for the State Street 5-year reset your looking at? I only found STT-G which has been fixed at the cessation of LIBOR, and STT-D which was recently called.

            1. James, just to clarify what Main said. This means its on the bond desk and are these are basically never on their bond screener. So you will be best served by finding cusip and calling Schwab fixed income desk for a quote. TD will be useless here, unless you get lucky with a rep who understands what 3rd party desk means.

  4. Tim, wouldn’t you know I tuned out reality last night and watched the old movie “The Big Short” my wife couldn’t get into it, I watched to the end.
    Just read Wanda’s comment on the bond page that CC grade paid out better than IG if you were holding this past year.

    1. While the movie might be more entertaining, it’s ‘dumbed down’. The book is a good read and for a lay person like me, it helped me to understand the GFC better. ‘House of Cards” by Cohan goes into more detail but some of it was over my head.

      1. Tim-
        I went online in 1987 and I remember all too well the modem’s squelch, listening carefully for the telltale sign of connection. I was using a program called Metastock and at that time, you paid for historical data. It was 5 cents per quote (one day of H-L-C-V) during the day and 1 cent after 11 PM EST. So a year of data would cost about $2.50 during after hours. Many of us would swap data files to reduce the cost, often by mail. Yes, times have really changed.

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