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Old 03-01-2018, 04:56 PM
 
2,138 posts, read 1,151,720 times
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Quote:
Originally Posted by Larry Caldwell View Post
Just the opposite. If you are holding 2% bonds and the rate goes up to 3%, you have to discount your bonds to unload them. If you are buying a bond fund, the return will trail rising interest rate. Typical average turnover is around 6 years for an investment grade bond fund. Right now they are probably buying shorter term instruments anticipating interest rate rises, which shortens the amount of time they have to hold to maturity. A diversified fund may sell poor performing stocks to buy higher yielding bonds. Money will always go for the promised best return, though sometimes the managers guess wrong.
This is all true but really the change in the fed funds rate and the 10 year rate impact high quality securities more than anything else. Not to say the impact is zero on the other ends of the credit scale, I'm certainly not advocating that, but the free fall in bond prices is heavily weighted towards the high quality side of the equation. In fact lower credit quality instruments haven't changed much in comparison and tend to fair much better so long as you aren't stuck holding tons of long term paper which no sane person would be doing.

You can look at funds like SPHIX. Duration 3.1, weighted average maturity 4.1 years and a well diversified base of investments. Return around 5.4% right now based on dividends alone.

As interest rates rise, new investments will be bought at higher rates and with the fund's weighted average maturity of around 4 years you can selectively allow many of these bonds to mature without a drastic impact on returns.

I wouldn't say there is mountains of risk there if you NEED income now but this type of move requires patience as short term there will be NAV fluctuations although such fluctuations tend to not impact dividends (yield rises as NAV falls) if you look through the 30 years of history of the fund. Even the worse years since 1990 when this manager started always paid steadily and as expected despite NAV fluctuations. You buy this for the dividends and know longer term NAV will work itself out.

There is a large segment of investors that need income now that they are entering retirement. Many right now haven't saved and are using the high returns in the market to offset their decades of not saving. That isn't likely to be a smart strategy going forward. In fact if we end up with a prolonged down turn or even just a market neutral, most of these folks are going to be completely screwed with their 4% withdrawal "plan" without the corresponding 10% gains they've been enjoying. Everyone right now is an investment genius. That is going to change.

I personally feel the economy is fragile enough that we'll be discussing how there are limited means to break out of the next recession as opposed to worrying about some run away interest rates like the 70's. If anything we are going to have a major demand problem with how one dimensional our economy has become and rising interest rates combine with already very high house hold debt is going to put the halt on our 2.4% growth really fast. Lots of long term issues are going to come to a head as well. We simply can't keep running trillion dollar deficits, social security and medicare will need more money and let us not forget the crumbling infrastructure we've been hearing about for decades. Oh and taxes. They are going to have to go up. All the while outsourcing and automation continue their slow but steady march.

There are challenges long term and the can is pretty well dented up. Lots is going to have to change to move forward and if nothing else, our government is not effective at change.

Last edited by aridon; 03-01-2018 at 05:09 PM..
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Old 03-01-2018, 10:26 PM
 
Location: Myrtle Creek, Oregon
11,051 posts, read 11,460,740 times
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Quote:
Originally Posted by C2BP View Post
Nothing comes for free Aridon. That's why politicians hate economics. There's no way to cheat economics long term. Sadly they engage in short term manipulation which is usually simulation at the cost of the long term. Thus we have QE, zirp, and massive government spending with massive deficits. QE is in effect a tax on those having money because it dilutes it by making liquidity without any goods or services to go along with it. It is a socialist tool much more than a tool of capitalism. Likewise, zirp is also a form of artificially manipulating interest rates to the extreme to deny those with capital higher returns on investment in hopes of encouraging more people to go in debt to stimulate the economy. Sadly, it inflates property more than the benefit people get from going in debt or getting a break on interest rates (no surprise) making it that much more impossible for the poor and middle class to buy a house. Zirp can be snuffed out by politicians, especially the President by picking a true fundamental capitalists to run the Federal Reserve.

The next big downturn may be worse then the last one and is why the Federal Reserve is doing anything it can to keep this zombie cycle going which is making their position worse not better.
Only low level savers have much in the way of money. QE caused massive asset inflation and built dollar value. If you have assets, QE was great. If you have money, not so much. The smoke and mirrors is that inflation has been very moderate. If you go out and try to buy farm land, timber land, stocks or real estate, you will see that inflation has been extreme. As long as you are only buying consumer goods, things are fine. If you want to start building wealth, the bar has quickly been getting higher.
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Old 03-01-2018, 11:59 PM
 
731 posts, read 400,517 times
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Quote:
Originally Posted by Larry Caldwell View Post
The smoke and mirrors is that inflation has been very moderate. If you go out and try to buy farm land, timber land, stocks or real estate, you will see that inflation has been extreme.
We know our government will DO ANYTHING not to have inflation, which means they will have to raise rates and endure a depression/a series of serial recessions and will probably lose the next election and be blamed for the depression. CPI is moderated by both parties when they gain power so they won't have to govern through recessions. The CPI has been fixed to ignore all inflation but salary inflation -- housing, education, transportation, health care these have all been inflated without budging the CPI higher.
Also, DEBT INFLATION is ignored entirely. But debt inflation IS inflation.

We are urban now Larry; we don't understand Nature, or Nature's patterns. So we apply urban logic. Man's logic. In myth this is always called Man's Pride or Hubris - and it always ends in punishment of such urban logic.
We can grow the economy forever simply by....lowering interest rates for ever. That is the Urban Logic of the FED. It seems to be. Instead of facing Deflation we trick it. It is a Faustian Trick, buying us more time, but inevitably more devastation in the long run. We should have begun offloading debt in 2001. We did not. Now we have much more debt than we did then. This only ends one of two ways. Neither is very good.
1) Raise rates and destroy the economy
2) Declare a Jubilee Year and forgive all debt.
This destroy the Creditors, which also destroys the economy. So, it makes sense to follow the Laws of Nature
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Old 03-02-2018, 10:30 AM
 
230 posts, read 277,508 times
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When is the recession is going to hit? Historically speaking a economic recessions in the U.S. occur every 8 years or so on average. So we are due for one right now. Non-farm Payrolls are hovering above the zero line. Historically when this differential moves below zero it precedes an economic recession. Now lets look at the 2nd chart which has more revealing information. The pink line is the standard deviation(stdevp12) of the NFP differential(1st chart) as you can see the standard deviation is depressed and in single digits. Whenever this happens their is usually a spike higher in the standard deviation, which means that there has been a large move in the monthly nonfarm payrolls either to the positive or negative. Also note the red arrow which point to the moment the Differential (yellow line) crosses above the zero line. Historically when there are recessions this Differential(yellow line) also moves above the zero line. In summation what I'm saying is that there is going to be a large move in the monthly Nonfarm payrolls either to the upside or downside, but most likely the downside which will precede a recession





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Old 03-02-2018, 10:42 AM
Status: "Praise Be" (set 19 days ago)
 
Location: Trumpville
7,258 posts, read 3,282,394 times
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Quote:
Originally Posted by aridon View Post
Trade war about to heat up. Going to be a perfect orange storm.
Yeah. Thanks to Trump's policies, the coming recession, which I predict will arrive in late 2018 or 2019, will be much, much worse than it otherwise would need to be. I think we'll possibly be looking at something as bad as 2008-09 or worse.
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Old 03-03-2018, 08:09 AM
 
4,729 posts, read 2,259,491 times
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Quote:
Originally Posted by C2BP View Post
We know our government will DO ANYTHING not to have inflation
Actually, no. The government wants inflation and has a target inflation rate, because inflation (to a point) is healthy for the economy. I've not heard anything from the Fed saying they are hoping to achieve 0% inflation, if anything most of the hand wringing over recent years has been about inflation being a bit too low.
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Old 03-03-2018, 11:50 AM
 
731 posts, read 400,517 times
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Quote:
Originally Posted by lieqiang View Post
Actually, no. The government wants inflation and has a target inflation rate, because inflation (to a point) is healthy for the economy. I've not heard anything from the Fed saying they are hoping to achieve 0% inflation, if anything most of the hand wringing over recent years has been about inflation being a bit too low.
We have had inflation for many years now Lieqiang but our government has found a way to structure the CPI so that it does not register ANY inflation except wage inflation. Look at it: debt inflation; food price inflation (until very recently); housing inflation; health-care inflation; transportation inflation; oil inflation (until recently); higher education inflation; asset price inflation. The message is that there is NO INFLATION so we can continue to repress interest rates. Only wages need to be deflated - which helps whom????? Well, the businesses; certainly not the worker.

Wall Street and the Government has the inflation they want: prices of produced goods and real estate appreciation; and wage deflation. Perfect picture, right? American working class, hard working Americans have been played for years by our corrupt elite, Wall Street Crooks and our Washington Swamp = Democrats + Republicans.
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Old 03-03-2018, 12:09 PM
 
2,138 posts, read 1,151,720 times
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Quote:
Originally Posted by C2BP View Post
We have had inflation for many years now Lieqiang but our government has found a way to structure the CPI so that it does not register ANY inflation except wage inflation. Look at it: debt inflation; food price inflation (until very recently); housing inflation; health-care inflation; transportation inflation; oil inflation (until recently); higher education inflation; asset price inflation. The message is that there is NO INFLATION so we can continue to repress interest rates. Only wages need to be deflated - which helps whom????? Well, the businesses; certainly not the worker.

Wall Street and the Government has the inflation they want: prices of produced goods and real estate appreciation; and wage deflation. Perfect picture, right? American working class, hard working Americans have been played for years by our corrupt elite, Wall Street Crooks and our Washington Swamp = Democrats + Republicans.

Look, I agree the CPI and most reported inflation measures are useless.

I don't agree that it is some kind of conspiracy.

The reason wages are low is the vast majority of American's work in jobs that could and will eventually be automated. Easily replaced, easily trained positions that require little to no actual education. This is a product of the one dimensional service based economy we have today and a result of a maturing cycle in the world economy.

There has been a massive push against Unions. There has been massive resistance to raises in the minimum wage. Thus these relatively ****ty but plentiful jobs which most of America works at have seen no real wage growth. Short of a resurgence of interest in those topics or the goverment forcing companies to pay more for wages, say tying tax cuts to wage gains on the low end, it won't change.

As for the asset bubbles, that is a product of low interest rates. Not some massive conspiracy, just a function of not having anything else to invest in except stocks or real estate for decades because returns on everything else is so low.

Now combine that with the fact that jobs and good wages are heavily concentrated in a few areas and you see the types of mass migrations of people and this drives up prices. Which obviously have more room to go up under a low interest rate scenario. There is no conspiracy, just a reaction to trying to kick the can down the road.

Interest rates are low and the stimulus we've seen is all a result of trying to desperately avoid a lost decade like Japan's economic woes. Ultimately we will run out of stimulus options and there will be no choice but to deal with the fact that economic growth is by no means a certainty.

What we need is population growth to rise dramatically to fuel growth decades into the future. Until that happens we will be stuck in neutral playing with numbers that don't matter one bit to 3/4 or more of America.
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Old 03-03-2018, 12:28 PM
 
4,729 posts, read 2,259,491 times
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Quote:
Originally Posted by C2BP View Post
We have had inflation for many years now Lieqiang but our government has found a way to structure the CPI so that it does not register ANY inflation except wage inflation. Look at it: debt inflation; food price inflation (until very recently); housing inflation; health-care inflation; transportation inflation; oil inflation (until recently); higher education inflation; asset price inflation. The message is that there is NO INFLATION so we can continue to repress interest rates. Only wages need to be deflated - which helps whom????? Well, the businesses; certainly not the worker.
You're backing up your previous incorrect claim by making a new incorrect claim. We have indeed had inflation, it will probably be around 2% for 2017 and has run as high as 3.2% since the 2008 recession.

What are you even talking about with CPI, it includes things like housing, food, healthcare, etc.
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Old 03-03-2018, 12:31 PM
 
64,605 posts, read 66,129,695 times
Reputation: 43026
Quote:
Originally Posted by C2BP View Post
We have had inflation for many years now Lieqiang but our government has found a way to structure the CPI so that it does not register ANY inflation except wage inflation. Look at it: debt inflation; food price inflation (until very recently); housing inflation; health-care inflation; transportation inflation; oil inflation (until recently); higher education inflation; asset price inflation. The message is that there is NO INFLATION so we can continue to repress interest rates. Only wages need to be deflated - which helps whom????? Well, the businesses; certainly not the worker.

Wall Street and the Government has the inflation they want: prices of produced goods and real estate appreciation; and wage deflation. Perfect picture, right? American working class, hard working Americans have been played for years by our corrupt elite, Wall Street Crooks and our Washington Swamp = Democrats + Republicans.
nonsense , but it makes for a nice story line anyway .
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