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I'd be in savings accounts
I don’t like CD constraints as I'm always buying or selling something
*Investors Blog*
- Thread starter Warstud
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I don’t like CD constraints as I'm always buying or selling something
OK, so if your talking guaranteed / insured sorts - for those to be 7% inflation would be 10+%.
When inflation went to 9% you saw a outflow from savings and checking accounts, and likely other types of bonds - into money markets and CD's. There was some outflow of equities but not a lot.
So I would say no - it wouldn't change equity buying behavior. I think the majority of people have been trained to keep there money in stocks for money they don't need for > 5 years. The only thing that will change that is a extended drawdown - I mean drawdown in time, not amount. Thats why the majority of wealthy retirees still own 90+ percent in stocks - when conventional wisdom says they should be 60% in securities.
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The interest rate seems to lag inflation a bit, but does follow it. The 60s, and the late 80s were good periods for fixed income.
But the market just goes up - regardless of inflation. At least for the years represented. (This is based on one index.)
The dot com, and 2008 drops, are just a blip on the radar.
Have to wonder if that will ever change.
But the market just goes up - regardless of inflation. At least for the years represented. (This is based on one index.)
The dot com, and 2008 drops, are just a blip on the radar.
Have to wonder if that will ever change.
True, they are just blips from a macro perspective, but that decade from 1970-1980 was absolutely flat.
A decade of no returns.
That should give everyone pause when in a high inflation economy.
Yes, but it is also fair to remember their management tools are not so powerful; economies are slow to react. Even if a good fiscal decision is made, by the time the policy is effective, many other factors have come into play.
Economies, especially big ones like ours, and of course the world economy, are so very complex.
and from 1970-1980 they used those tools like complete incompetents.
Not to say they’re great now, either, but that decade highlights bad policy and bad management.
Interest rates don't correlate with a lag - rates are forward looking. Interest rates = risk free rate + inflation expectations + Term premium.
Inflation expectations being the most volatile, and often expectations don't become reality. For example in blue is the 2 year and dark red is core CPI. It doesn't correlate well either. So I would say no - interest rates seem to be mostly influenced by fed policy and not much else - at least since the Greenspan era.
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Your graph shows the correlation of inflation and Market Yields, which I'm still trying to get my head wrapped around.
I have/had the understanding that investment Yields and interest rates move differently.
Could you elaborate for me?
I am unsure what your asking because yield is just another name for interest.
Are you asking about the interaction between inflation, bond yields, and fed funds rate?
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This is what I was referring to - I've read interest rates influence Investment Yield - often in opposite directions.
- - -
"Regardless of whether a bond is issued by a government or a corporation, the mechanics of bond pricing are the same. Bonds are issued at a specific rate of interest that the issuer will pay to investors, known as the coupon. Once issued, the coupon never changes – but prevailing interest rates can. When that happens, an existing bond’s coupon rate may become more or less attractive by comparison, and that affects its price.
- When an existing bond has a higher coupon than a newly issued bond, it pays out more income. Investors may be willing to pay more to own it, driving its market price up.
- Conversely, when an existing bond has a lower coupon than current rates, investors may find it less appealing, and its market price may go down.
The relationship between a bond’s current price and its coupon is known as its yield, which is the amount of return an investor will realize on a bond, calculated by dividing its face value by its coupon. As market conditions affect a bond’s price, its yield will also change. "
OK, yes I am 100% convinced bankers use confusing and duplicated words to make bonds sound more complicated than their simple math would indicate. I am not sure I am the best at explaining this. So an example.
Lets say today the prevailing interest rate on a 10 year treasury note is 4%. So I buy a $1000 face value note that pays 4%, meaning it will "yield" $40 per year. So I will be paid $40 per year, then in 10 years I will get my $1000 back.
Lets say through some calamity tomorrow, the market rate jumps to 5% (it never moves this fast - just keeping the math simple). So if I were to buy a $1000, 10 year note tomorrow (which is now today), it would pay $50 a year - again returning my $1000 in 10 years.
So clearly no one is going to pay me $1000 for my day old note, because it yields $10 a year less than a note purchased today. So I need to calculate the value of my old note as if that $40 represented a 5% yield rate. So $40/0.05 = $800. So my $1000 note paying 4% is now worth only $800. (due to compounding and some other wonky math its probably worth about $840 - but $800 is close enough to understand).
So - what your text tells you - is that when market interest rates go up, the value of bonds fall, because every bond is immediately repriced by the market based on the then current interest rate for that duration of bond.
Conversely - if interest rates fall - all the bond values go up.
Most services publish the rate - but you can actually look up the actual price of a 10 year treasury note here - https://finance.yahoo.com/quote/ZN=F/
Clear as mud?
Exactly contrary to what was posted yesterday? Who to believe?
"Over 90% of developed and emerging central banks have cut rates or kept them the same over the last 6 months, near the highest since the 2020 pandemic."
Also - the one that matters the most is frantically lowering rates simply so the treasury can issue 85% of their debt in bills, not coupons. Bills are cash equivalents in the banking system, and require zero reserves against. Does it matter if the fed prints the cash or the treasury does? I suggest it doesn't. We have been in QE since Janet and Jerome started this process in December 2023.
However I will add that Cross Border Capital has been screaming from the rooftop for about 3 months that liquidity is drying up - there not easing enough to refi the debt wall caused by compression of refinance in mid 2020.
Anyway, I am not sure what to do. I am 30% cash. Wondering if I should duck in for a Santa rally or wait?
Backward vs forward looking
Yes, but my point was does it matter if central banks are allowing their balance sheets to roll off, if those holdings are being replaced by commercial banks holdings of short term government debt that are essentially cash equivalents and require little or no reserves through pandemic era reserve rules. QE by a different name.
Its the same thing - just a different entity holding the new money.
Yep!Holding cash under mattress since 2011 and recession fears, is it the right time to get back in
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I pulled the trigger on this at about 9:39 AM. I spent all yesterday fooling with it and bought it when it really tanked. Had about a $100k in it because I didn't trust it.
The same game as PLTR, up and down all day and i made up my mind I want out.... it took hours yesterday to make 17 cents...smells of another MPLX... happy...to me its a get in and get out quick stock not for the greedy.
RLBK
The same game as PLTR, up and down all day and i made up my mind I want out.... it took hours yesterday to make 17 cents...smells of another MPLX... happy...to me its a get in and get out quick stock not for the greedy.
RLBK
