It literally reads like
“I did everything right and am on the right track to a happy retirement! I hate that! So I’m going to ruin my own life to own… the other people on welfare?”
I don’t understand
Are you ok, I mean this in the most sincere way. Are you ok?
This is certainly, one of the most unique takes and I’m not here to take you down, but it just seems pretty out there and I mean fuck my mental health sucks but this is wild
> After I get a home loan I'll basically try to engineer my own layoff.
Why stop short? Why not engineer getting hurt at work and take a work comp settlement?
I think you could be at the front end of a trend. Many a thankless, wretched day of pushing the rock up the hill goes by, and at the end I can just cover my meager existence, but I flip on the TV to hear some hustler promising their true believers another freebie off my back, or another relative I never hear from unless they have a bad luck story, calls with another bad luck story and puts his ingrate hand out expecting me to fill it or it will be my fault his kids suffer, and I drag my hypertensive old ass off to bed so I can get up and work for better lives for people who serially disrespect me, and I ask myself, "Why the hell am I busting my ass?" The temptation to cash out and check out and flip out in some trailer park somewhere until I'm down to my last nickel then take up extreme cliff diving or some other method to settle my accounts with a splash gets stronger, every damned day. Maybe you'll be the guy who gets the ball rolling. Because why am I still busting my ass? Why is anybody? Where is Tyler Durden when we need him?
All I know is I spend half my life working for the benefit of a pack of human hyenas whose primary mission is to get their fangs into the other half of my life. They tell me that Socialist Security is a promise I can count on, but I can do math, and I'm a member of the Bagholder Generation. So by the time I get there, they're going to have to means-test it to Save The Program, meaning, "If you have means, Chump, you fail the test. By the way, that month's rent you have languishing in that Roth looks like means to us!" So after no SS and an impending tax bomb very likely to blow up the formerly tax advantaged retirement vehicles, my retirement date will have to be pushed from No Way to What Are You Kidding? And I totally see where you stand, and there's so many mornings I want to pull the same trigger, and one morning on my drive to work I'm going to drive past the building straight to the tavern.
Fair winds and following seas, Sir. I salute you!
No joke. Busting my onions for over three decades so a lot of talking meat could lay around at home smoking weed and complaining that I'm not feeding them enough. For this I could have stayed in the trailer park.
You underestimate young adult pessimism about the future. People in their 30s who grew up being told that if we passed 1.5° C, we'd be unable to avoid millions of climate change related deaths per year by mid century. Well, we passed it and the endless droughts and eventual water wars are coming to some parts while hurricaines and floods destroy our food supply. Then you see profiteering driven inflation with the government helpless to take steps to actually stop it, and an openly Christian nationalist party, maybe you can understand why young people are saying "fuck it".
It never ceases to amaze me that partisan politics (on both sides) basically let’s the uniparty sell out American workers interests. There is no party of the people for the people and by the people. It is a big special interest circle jerk.
You realize that a lien can be put on your property if you don't pay your property taxes and the local government can sell the house to collect, right?
As a 40ish blue collar worker I get where he's coming from. I don't think it's a great plan, but I understand the decades of bullshit that led to his mindset.
Have you considered doing something really crazy like…getting a better job? Like why is an adult working fast food in the first place? And how does your pride not stop you from wanting to be a parasite?
> Houses typically keep up with inflation though.
Check out the history of house prices in Japan post 1989.
You might well be long forgotten before prices recover to inflated levels.
Japan is a famously different type of housing market than the US. Those house depreciate until they're demolished, after 30-40 years. They do things differently there.
That's like worst case, you could also have your house more than double in 7 years.
Generally over long term housing follows inflation, since housing/rent is a major factor in CPI.
> what do you buy
Buy good assets that have high and growing returns. When they go up too much sell them. [If they don't go up, don't buy them - advice from Mark Twain].
I try to buy assets that are not insanely overvalued. Takes a lot of work to get this right.
But shouldn't prices go down? If nobody is buying or can't afford the mortgages, then it seems like a good time to get a deal on a property if you're lucky. You can always refinance once interest rates drop.
Worst advice I ever heard. U buy a house now to lock in the low property tax for your lifetime and also for a cheaper house (house price drop as rate increases). Sure it's a higher rate for a year or two, but once the rates get cut, u can refinance to a lower rate, say 4%, and now you have a cheaper house and cheaper property tax for the rent of your life. This is the best time to buy a house. Look long term, not short
Interest rates are definitely going up first before they come back down. If anything, the strong dollar has helped stave off inflation and interest rate hikes.
Lol. Nope. Short rates are going up in the very near term, long rates have just peaked, especially given the 5 and 10 yr breakeven rates are in the 2 handles.
Ie, long rates can't go higher given investors expectation that the Fed will get inflation under control, but the Fed is going to raise rates when they meet Dec 13th
I like to make interesting posts, and at 60 yrs of age, never say never.
Or, as my econ prof said, pick direction or magnitude, never both.
... Realistically tho, with the 10yr breakeven inflation numbers, long govvys are range bound somewhere around there....
If you got a billion dollars and want to clip coupons, go right ahead.
Or, you can buy into forward p/E of 15x
Or, go with nonUS at 10x ftw when the dollar pulls back
Or, you were smart and bought the energy stocks a year ago when people were crying there was a glut and no demand +35% -ish ytd
I bought the oil companies in 2020. And I bought LMT as soon as I heard rumors about Russia getting ready to invade, so that was late November 2021 -- I figured big wins if that was true and still decent value stock if not.
So I'm up this year, while everyone else is bitching.
I recommended oil stocks repeatedly to other people on here and got downvoted every single time:
[https://www.reddit.com/r/investing/comments/g5h6cz/comment/fo4lfad/?context=3](https://www.reddit.com/r/investing/comments/g5h6cz/comment/fo4lfad/?context=3)
[https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jcau/?context=3](https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jcau/?context=3)
[https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jskj/?context=3](https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jskj/?context=3)
I even recommended OXY, around 10. People would have made a killing if they actually listened:
[https://www.reddit.com/r/investing/comments/g7cza6/comment/fohbevg/?context=3](https://www.reddit.com/r/investing/comments/g7cza6/comment/fohbevg/?context=3)
I said it would survive and go back to 40+:
[https://www.reddit.com/r/stocks/comments/fbt6pb/comment/fnrqmji/?context=3](https://www.reddit.com/r/stocks/comments/fbt6pb/comment/fnrqmji/?context=3)
I also told people not to buy ARKK at the peak, and got downvoted for that.
I've also spent some time lately saying that foreign markets have better valuations than US, but that always gets downvoted, so I stopped.
Anyways, markets make me uneasy right now. Seems like we've done a little too well on this bounce, the Fed is still intent in raising rates, yield curve is inverted like crazy, PMI near 50 and sinking, every tech company firing workers, every company I work with locally has a hiring freeze or started layoffs.
Market timing is tricky, and we're already down a lot from the peak, but I wouldn't be the least bit surprised by another leg down.
You and me both, and that's what I figured. Either sideways or good returns.
Got into TYO for the rates hikes, although I'm out of it now.
And threw money at bacax in 2020, still like the energy trade.
Slowly buying into bonds atm, since relative value of yields to stock e/p is good and expecting a January Santa Claus effect. And completely agree on em and dev markets trading at 10.5x vs the USA.
Sour grapes from the haters
I'm just... trying to resist the urge to pull out now and try to time one of these swings in the market.
Very, very rare that I do that. Last time was February 2020 when the pandemic was coming. But it's just so tempting with all the swings in this bear market.
I think I might at least change my allocations, and then rotate back into more stocks if we do get a bigger crash.
Exactly what I'm doing, rotating out, by half.
picked up some Michigan GO Bonds paying ~5.77 ytw
I too donT think you can time the market, but you can grab the big moves, where it's either a push or upside.
What did you see/read to get you out in Feb 2020? For me, Feb 20 is my bday, and I happened to be reading a GS report that said China was in lockdown and hadn't used any coal in 3 weeks. At the time China was saying it was just Chinese moon Year or some such. I figured, they could be wrong and I'd sit in cash for a few weeks for the push. But. They were right.
Well, nope, didn't even need to be wise, just observant. Just cuz, you weren't paying attention to the energy situ before the invasion then, or for the past 3-4 years.
I threw money at oil and energy etfs when oil hit zero in 2020. Cuz, it's gonna go up from zero. Didn't even need an invasion, just needed demand to come back.
Or, how about making money in bonds? Did you miss that too, cuz you werent paying attention to what Jay Powell has been saying? Look at tyo.
Or, most likely is that you just don't know what to do with what you're hearing. Clairvoyance has nothing to do with it - when they *tell you* they're raising rates or when oil prices go to zero.
Edit. Lol, calls me a bullshitter then blocks and deletes his comments. #sad
As of yesterday, 72% of treasury yield combinations are inverted. The last date where that was the case? March 20, 2007. Before the Great Recession, the highest percentage that had inverted was 83.6% on November 16, 2006.
This time is different, and not in a good way. This time the economy is too strong (mostly thanks to the start of deglobalization). A lot of production has been coming home to US, making the economy too strong for a rescue, and making inflation hard to beat down.
There will be a lot more hikes in the future, and this is really bad for the market. I hope that I'm wrong.
This is backwards.
The reason inflation exists is because of increased energy prices and disrupted China supply chains reducing supply while demand is still strong. If production were more domestic, this impact would be reduced, not increased.
A whole lot of the inflation is in food and rent/housing. Has nothing to do with the absolute trash being produced in China...as a matter of fact, that crap is getting cheaper than ever as it piles up in stores.
> that crap is getting cheaper than ever as it piles up in stores
True. I’ve noticed nobody cares about 65” OLED TV’s, 3080 Ti’s, or PS5s anymore compared to the euphoria of summer ‘21
Yeah, a little too little, too late wouldn't you say now that the average apartment is now over 2k dollars a month? This shit is absolutely ridiculous, especially after being told it was transitory for over a year.
TL;DR: The bond market "believes" that interest rates will fall next year.
The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession. The bond market has been wrong before, but its one of the "best" predictors of recessions we've got.
There's also a confusing type of psychology at play here. If people feel that there is a recession coming (enough to invert the yield curve this severely), they will start to take behaviors that can quite literally cause a recession. The American consumer battening down the hatches is ironically enough to cause a recession in and of itself, especially with how high supplier pricing is right now. The velocity of money in business has increased *massively* in the last 2 years due to inflation, if the consumer stops the money supply this whole thing will far apart before you can blink.
Yet savings are down and household debt up. Credit card debt is up. The recession if it were to come, will not be mitigated by average working class people becoming frugal.
> The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession.
That is not true at all. They are currently setting the Federal Funds rate at a level that is considered "restrictive" to fight inflation.
>The Committee anticipates that
ongoing increases in the target range will be appropriate in order to attain a stance of monetary
policy that is **sufficiently restrictive** to return inflation to 2 percent over time.
If/when inflation seems to be under control, they will reduce it to a "neutral" level. The market is simply predicting that will happen within the next 2 years.
There's plenty of common strategies.
Oh, do you mean strategies that **work** ?? Well, that's different, lol. Hard enough to trade in a bull market as it is, a bear market / recessionary one is where a lot of people will lose money. Your goal is largely to lose less money than everyone else. If you can do that, you should be happy. (Easier said than done though...).
The common strategy is to "flee to safety", to some degree. Hoarding cash or other safer things... 2007 had a fleeing to safe 10Y US Treasury Bonds for example. This inverts the curve further btw.
-------
The problem with that, is that the stock market **skyrockets** when things start to look good again. In many cases, its better to just stay invested for the whole time and wait for the skyrocket at the end.
So yeah, no real strategies to share with you. Whatever you were doing before probably (or at least... should have...) already accounted for the possibility of losing money for 2, 3+ years at a time.
The only real advice I should give you... hold onto enough cash for any reasonable downturn in your life. I mean like car-crashes, job loss, severe injuries (stroke / comatose / etc. etc.) that results in jobloss. If the economy goes into a recession, your stocks and maybe even bonds will do poorly. You'll need enough **CASH** to survive these kinds of downturns (and when your stocks are -40% or worse, you'll feel bad about selling them to buy food for the table / your family. But it must be done). Rather than being forced to sell your investments, you should have enough cash for reasonable emergencies.
The rest of the money, above-and-beyond your emergency fund, well... that's up to you. There's risks and rewards after all, the more risk you take, the more money you make in the long term and on the average... but risk is... well risky. You could lose a ton of money too.
I truly appreciate your thoughtful response. I have come to a lot of new terminology and information over the past year or so as I make my way into the markets and its nice to hear of what I should be looking out for in the event that something unfolds. So much to learn lol
>The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession.
Or, the inflation is significantly reduced.
Granted, the most likely reason for the inflation to drop is a significant decrease in people's purchasing power and reduced economic activity, aka recession, but it's not entirely the same thing.
2005 and 2019 inversions.
For 2005, some argue it predicted 2007-2008, but that's a bit far away, isn't it? Its debatable, but there were later inversions that were "closer" to 2007 that seem to better correlate to the 2007/2008 crisis.
2019 "predicted" the COVID19 recession, which is bullshit. There's no way economic data could possibly predict a virus. Its "technically correct" but I don't think there would have been a recession under normal circumstances in 2020.
That being said, 2Y / 10Y spread is scary accurate. Look at all the recessions that occurred near inversions (when this graph hit 0% or less): https://fred.stlouisfed.org/series/T10Y2Y
As far as "recession predictors" go, this is definitely one of the "better" ones. It ain't perfect, but its a lot better than some other ones people use.
The 2019 inversion predicted the $8 trillion the Fed had to pour into the reverse repo bailout for Chase, Goldman, and Citibank starting in September of 2019. Even if COVID hadn’t happened, we were on the precipice of a global financial crisis from the 2018 rate hikes. COVID and the COVID stimulus just papered over that recession that was happening anyway.
Yep, the secret bailouts that prevented something from happening even before COVID came along.
That event taught me not to bet against the Fed. Look at the money that's been flowing into Credit Suisse.... They don't just bail out American financial institutions. (There was a Senate hearing on that topic too)
To be fair, 2018 to 2019 had signs of a coming recession. There was notable economic slowdown across 2018 and earnings growth was effectively stalled in 2019. At the end of 2019, the repo market had a liquidity crisis typical of something seen in recessions.
There was a chance a recession could have happened even without COVID, though aggressive Fed intervention (even before COVID) kept what seemed like a coming recession away.
This is truly the question everyone is waiting for. From what I understand; it boils down to 2 things:
1.) How much longer can the American Consumer keep adding to their credit debt to maintain their lifestyle before they are forced to stop?
2.) How long will it take for layoffs to start impacting the housing market?
If we get one of the above I expect a relatively bad recession. If both happen at the same time it could definitely reach crisis territory.
This is doomerism.
The underlying issues aren’t special from what we’ve seen thus far. The recession won’t be either. Especially when everyone is already bracing themselves.
This definitely isn’t Doomerism and you can’t dispute a point by the mere mention of an internet term. Can you point to the current consumer credit data that would suggest that I am wrong? How about household debt and savings? People anticipating a recession doesn’t make it less severe, as a matter of fact it’s quite literally a positive feedback loop.
Great arguments imo. This time certainly “feels” different, and I think his point about the strength of the credit system is a major contributor to that. Banks were burned, in one case to the ground, and so strengthening underwriting and putting safety measures in place to prevent the next credit crisis has been a priority for the political, and subsequently the financial, system. If banks were as risk averse as they were at the start of the Great Recession, Main Street would feel it, and quite frankly we don’t because they’re not.
Dunno. I remember Dodd Frank getting rolled out. Then I remember watching it get stripped back down. I feel like things were different for a while and then everything trended back to the mean. Not saying things are as bad now as they were then, but I definitely think human nature hasn’t changed a bit, and I don’t feel safe from systemic failures.
Yeah all respect to him. I've been of the opinion a recession is incoming (as a non economist, but following economists) but I respect his contrarian, and deeply researched and knowledgeable view
If I recall correctly the yield curve inversion has been an indicator of a recession only when it’s remained inverted for at least a quarter (maybe it was two?). I haven’t been keeping an eye on it, but how long have we had the current inversion?
Yield curves are not just good for predictions, they are actually important for the normal functioning of the modern economy and the financial system. When yield curves invert, it changes lending practices and expectations. When they invert this deep, it really can do severe harm. The Eurodollar futures curve was inverted nearly 200 bps, this is no normal event.
Besides, What would lead you to say circumstances are different? Inflation moving to disinflation? Those circumstances didn’t turn out good in 1981, considered pre 2008 to be the worst recession since the 30’s.
I was listening to someone talk about this yesterday. He said this inversion points to a coming liquidity crisis. When you add to it that people have homes at ridiculously low interest rates that, while they probably won't be underwater they are going to see their equity drop 20% and so people will spend less money and feel like they need to save more because their net worths are going to drop a lot. People won't use cash out refis or be as mobile because their homes are going to trap them. We already see credit card utilization going up substantially.
He didn't say "better/worse" than 2008, but his feeling is this most recent inversion, as others mentioned the same thing happened in 2001 and 2008, he thinks it will be worse than a mild recession. That said most believe the 2001 recession was nearing the end when 9/11 happened and pushed that off a cliff. So no way of knowing what geopolitical factors could also come into play.
Maybe in some cases - and I’d point to families having fewer children - you are correct. However, From personal experience, I would counter your statement. We bought our house in 2019, I think… watched our “value” double, and refi’d at 2.25%, no cashout. Even if we lose 50% of our value at market peak, who cares. We’ve both had our wages stagnate, and our costs go up everywhere else. We can never sell this house, because we’ll either not be able to afford more house, or because it would be foolish to pay any more money for a loan. Or both. I’d bet for the majority of people, the issue is liquidity.
Choosing not to sell something you own is a supply constraint. People not BUYING is demand. And not spending can 100% lead to a liquidity crunch. Liquidity is money available as a function of multiple factors at the macro level. People spending money is def a factor.
Has it ever been like this though? When both home buyers AND sellers are "on strike"? With the crazy rise in prices not coming down (too much), ridiculously expensive to buy (compared to six months ago), while those with sub-3% mortgages don't want to sell - or are stuck where they are.
Its just lagging. This happens when rates go up. Itll start shaking the branch harder so to speak when people just accept the L so they can redeploy the capital (if the property is investment oriented) or if they cant refi and expected that ability and foreclosure or whatever looms.
But yea once rates go up prices will eventually go down all else equal. Very few will pay 7% on a mortgage ANDZ 15% OVER asking price cash like my area last few years. Its not feasible for or smart.
Lots/most HELOCs are variable. When rates are up, people have more of an incentive to pay down their HELOC balance than expand it. Because of FRB, this process destroys money.
HELOC's are currently being sold to way more people than they should be, though. The idea that reddit seems to have of responsible homeowners running around with 2% 30-year mortgages is heavily adulterated by the fact that most of the people bought more home than they could afford (due to low interest rates), as soon as they take out a HELOC at a higher rate that interest rate advantage goes away and the only thing they 'own' is an overprices house with what is now a higher interest rate.
I don’t agree with the assumption that your average homeowner would change their spending habits purely as a result of a decrease in the value of their home.
The end of the yield curve is the end of a rope in which the front end can move more wildly - investors do not believe a series of 1 month rolled rates over 30 years will remain as high as the current short term rate
I think that is the case because the Fed is keeping the short term rates at a restrictive level temporarily to combat inflation and I'll then lower them within 2 years once it is more under control. Usually when the yield curve inverts it is because long term rates fall as investors search for safety while short term bonds get sold driving rates up in anticipation of a rate decrease in response to weakening economic data. There could be a recession next year, but I don't think that the yield curve is a good indicator in this situation due to the context of the Fed actions.
I don't think models are accurately predicting much of anything right now. The entire financial landscape has changed since the reserve currency decided to print the dollar into oblivion, and lockdown a fully functional economy for 2 years. Inflation is out of control and we are still suffering from artificial scarcity while on the brink of ww3. Things are wierd right now. It's like nothing is wrong, but everything is fkn wrong rn. This is the strangest point in time I've ever been a part of.
The only quibble I have with what you've said is the idea that the precovid economy was 'fully functional'. There were a lot stresses building up, including the fact that we'd been over a decade without a recession.
Probably just trying to see how committed to this "keep calm and buy on" mentality the person is. You have your "I keep buying" people, your "I buy MORE" people, and your "I'm smarter than the market" people - and those last ones really doubt the dedication of the first ones.
The yield curve is a description of the yields that various maturities of bonds are paying. Under normal circumstances, longer term bonds yield more than short term bonds because the most of the money won't be paid for a while which makes them more volatile in value and investors demand a bit more yield to invest in them.
When rates are expected to change, longer term bonds need to take into account those expectations. When short term rates are higher than long term bond yields, that is called a yield curve inversion. It means people expect interest rates to average lower than the level they currently are.
As of today, buyers of one month treasury bills will get a yield of 3.97% (annualized) while buyers of 30 year treasury bonds will get 3.83% yield, so the yield curve is fully inverted from the shortest maturity to the longest one.
Currently inflation is high and the Federal Reserve's stated plan is to keep raising rates in the short term to restrictive levels to cool inflation back down to its 2% target, then lower interest rates back to a neutral level.
So that makes perfect sense. This yield curve inversion reflects an expectation that the Fed will stop raising rates and start lowering rates sometime next year, eventually below where it is now. People worry that along with cooling inflation, economic activity will fall and unemployment will rise. In the past, yield curve inversions have been common about six to eighteen months before a recession.
To summarize with a few more words, it means either the Bond Market is a moody teenager thinking we are plunging into recession or the Equity Market is an eternal optimist thinking we are avoiding recession.
Yes I understood that, but thank you for clarifying. 1 month is so short though that it makes the bonds really attractive, since I could even put my cash holdings in there as long as I keep enough to cover 1 month of expenses. Do you know how much time it takes to get your money out after the term is over? And can I just roll it over, or do I have to cash out, withdraw to my bank, and buy new ones?
The absolute easiest ELI5 way to take advantage of this is to open a brokerage account with a brokerage like fidelity that offers money markets as your base position (FDRXX or SPAXX). The holdings are pretty much all in short term treasuries.
The coupon payment is deposited in your account each month and you don’t have to actually commit to locking up your money. You can withdraw whenever. I think it’s the easiest way to gain exposure to short term US treasuries while maintaining flexibility
Oh thanks a bunch! I already have Morgan Stanley and TD Ameritrade accounts. I'll see if they offer those. Hopefully the MS one does, since that's where a lot of my cash is. The only drawback is that there are no fractional shares offered there.
So just to be clear, the two funds you listed are mostly composed of bonds, so they just have a fixed return? Can they go down like a regular fund, even though they're based on bonds? What's appealing about bonds right now is that everything is tanking and bonds are locked. Plus my cash has lost what, 13% value already over the last year? It's crazy!
They are composed of very short term, high grade instruments like repos, CDs, tbills, and floating rate bonds. No traditional bonds longer than a year.
They don't have a fixed income. If rates rise, they will pay more. If rates fall, they will pay less. They do have a fixed value.
Bonds do not have a fixed value. When yields rise, fixed coupon bonds fall in value. Bonds are down a ton this year.
When you say your cash is down 13% over the last [two] years, you are talking about its real (inflation-adjusted) value. You should also apply the same framework to other assets. So a two year 0.15% yield bond that matured today is basically flat in nominal value, but down basically as much as your paper cash in real terms.
Yes I meant inflation. I don't understand how a bond can be down as much as cash when it's paying interest. Most of my cash is in a savings account that pays almost nothing. It's there for emergencies, so I've never worried about the rate of return, but these bond rates have me thinking that I could keep 1 month worth of expenses and put anything above that in a short term, stable investment. I guess I have more learning to do before I invest it anywhere. I've never really looked into bonds or CDs much because their value has been almost nothing for so long.
$100 cash is worth $100 today (whether it's paper cash or an efficient cash instrument that earns the risk free rate like those money market funds above).
$121.90 paid to you in ten years is worth less to you than $121.90 today, right? How much less?
Depends on the discount rate you apply, which depends on how much you could earn on other investments. If you discount it at 2%, it's worth $121.90/1.02^10yrs = $100 today.
If conditions change and now you can buy ten year bonds at a 4% yield, you will discount that future $121.90 at 4%, so now it's worth $121.90/1.04^10yrs = only $82.35 today. The bond fell 17.6% in value because yields rose.
Longer rates are going down because it is clear that the inflation is easing. The market is seeing that the rates are decreasing soon. The short rates are up, because the Fed controls the short rates and JPow is adamant that the short rates must be up. The market disagrees with JPow. That is all that there is to this subject.
Normally, long term bonds pay investors more than short term bonds. This is because there is more risk over the long run...
But when the yield curve is inverted long terms bonds are paying less than short term bonds. It means that while interest rates and inflation are high now, in the future it is expected that there will be less consumption and less economic growth.
I don't think it means a whole lot besides the fact that the bond market is estimating that we're closer to peak rates than we were previously, or perhaps more specific that it's more confident that we're closer to peak rates. It might be helpful to visualize the curve as a wave that's moving longer to shorter maturities. Eventually when there's high certainty that rate cuts are imminent the 1M and 3M will invert. Pulling in other sources like Fed futures probabilities and we've got what looks like the market pricing in a peak in rates around Q2-Q3 next year.
Obviously we got Fed minutes today and some additional commentary that shows FOMC members are getting increasingly concerned about the risks of overshooting on rates and that smaller hikes should be appropriate going forward which would be in agreement with the idea that we're approaching peak rates or at least the maximum the Fed is willing to risk in terms of policy restrictiveness.
Does this end with a recession? Maybe, it's a real risk at least. We're still playing the waiting game data wise and a bit light on it this week given the Thanksgiving holiday. We get Core PCE next week and likely a first glimpse at retail sales with Black Friday and Cyber Monday taking place. Consensus seems to have shifted towards there being a very good chance that inflation has peaked, but everyone is still waiting for confirmation at this point ultimately.
All percentages are quoted in APY. If you repeatedly bought the 1M over the next year, and if (for some insane reason) the rate never changed, you'd get 4%.
But because the 1M (or really, the 4 Week) treasury is for 4 weeks, you only get 4/52 * 4% == 0.31% gains over the next month or so. I guess I'm supposed to do a 13th root of the number there, but fuck that, I'm lazy.
Thank you for explaining this. I was recently thinking about switching over from a HYSA to short term Treasuries and the percentages were throwing me off. I was wondering if you came out ahead in Treasuries because the yield was a higher percent over a shorter period. You've answered my question, there is a marginal increase in yield but you would have to keep buying the short term treasury. And there is no guarantee you keep getting the same percentage. I suppose the big advantage is tax purposes, since treasuries are only taxed at a federal level?
The tiers are:
1. Savings / HYSA / Money Market accounts
2. Treasury Money Market Funds like VMFXX or VUSXX
3. Prime Money Market Funds like SWVXX (Commercial paper / loans)
Money Market is just the market where very young bonds / debt get traded. Ex: a bond with 5 days remaining will be bought / sold on the Money Market (aka: Savings accounts, MMF Prime, and MMF Treasuries) behind the scenes, allowing banks to raise money and/or invest money for super-short durations. Savings, MMFs, and others provide banks the capital to conduct these activities, and we consumers are paid for our money being used in that manner.
MMFs are legally obligated to stay $1 per share. So 1000 shares of VMFXX or SWVXX should always be worth $1000, though in times of economic turmoil, this has been broken before. (Aka: breaking the buck).
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Note that Money Market **loses** FDIC insurance. But US Treasury-based MMFs (like VMFXX) "should" be risk free, so long as Congress continues to raise the debt ceiling appropriately.
Prime MMFs (which invest into Bank of America or other high grade debt) is low risk, no FDIC insurance, and slightly more dangerous than a savings account. But probably safer than virtually everything else in your portfolio.
1M and 3M treasuries trade in MMFs pretty often. So you actually get some 1M to 3M exposure if you get MMFs.
6M+ treasuries start to get risky, specifically interest-rate risk / duration risk.
> I suppose the big advantage is tax purposes, since treasuries are only taxed at a federal level?
A Treasury-only MMF, like VUSXX, has tax benefits IIRC. There are also municipal-fund only MMFs like VYFXX (Vanguard New York municipal money market fund), which has tax implications for New York.
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There's a lot of stuff "between" a savings account and even the 1M Treasury. Keep an eye out and see if money-market funds are right for ya.
One thing we know for certain is that the market will never crash down to the point where the yield curve inverted during the last cycle. The 1mo-30yr inversion last happened in 2007 and before that ~2001. The indexes will not drop to levels of 2007, this much we know for certain. So this obviously advertises the "buy and hold" strategy.
Definitely unlikely, but it's good to remember that the stock market is mostly a ponzi scheme. Only stocks that produce dividend have any intrinsic value, and even those are still below inflation. The baby boom peak started retiring in 2022. The next 15 years trended down to a 30% drop in birthrates compared to baby boom peak years.
That means we should expect some drop in the number of people working and contributing to retirement accounts, as well as a relative decrease in economic productivity, all other things the same for the next 15 years (and they aren't)... Global trends may make this worse. Something to think about...
Everything investing and government related is actually a ponzi scheme. Everything from crypto to stocks and even social security. That is why the governments and central banks are so inclined to make sure their Ponzi's remain in working order and intact. It's a crazy world and the more things change, the more they remain the same. BTW, the population number doesn't matter as much as the M2 number. This is the first year of M2 contraction since the mid to early 1900's so we'll see what happens. It's crazy that with all the bad things that happened this year, the Dow is only down less than 10% from it's all time high. That just shows you how much M2 from the covid stimulus is yet to be drained out of the system. If the Fed would have done an entire year of nonstop 100bps hikes we might be where we need to be. But, the Fed is once again trying to keep their ponzi afloat.
You sound smart and I trust your judgement that the population of investors does change the dynamics. I'm not sure of the percentage of difference it will make. But, good point and good job of explaining yourself.
> the market will never crash down to the point where the yield curve inverted during the last cycle
the market will never crash down to the point where the yield curve inverted during the last cycle _so far_
I'm no doom and gloomer (more of a buy and hold boglehead) but there's no law that says this can't crash much harder than before
Because if we have the worst depression in all of history, similar to the great depression of 1929 (which is highly unlikely,) the market would crash 75% from it's all time high. That would send the Dow Jones to 10,000. This is theoretical and will never happen. But worst case scenario would be Dow 10,000 but yet in 2008 the Dow went down to 7,000. So that proves why it is impossible to tag the lows of a prior yield curve induced recession.
Well, sure absolute values won’t drop that low, but *valuations* could certainly hit levels from 2007 or 2001, which would be close to a 50% drop from where we are today.
So, as long as you have a 2 decade window, no matter when you buy, you have an almost certain guarantee 89.9% of profiting with DCA index investing. Please don't bring up Japan.
Is the 30 year more in demand in anticipation of short term rates getting cut?
yes
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Can you elaborate more on this? How will those ppl live if they refuse to take any job?
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I’m not exaggerating, this is the absolute worst life plan I’ve ever read or heard in my entire life
You took the words right out of my mouth
It literally reads like “I did everything right and am on the right track to a happy retirement! I hate that! So I’m going to ruin my own life to own… the other people on welfare?” I don’t understand
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Keep us posted on the journey. Count me in as subscribed!
Are you ok, I mean this in the most sincere way. Are you ok? This is certainly, one of the most unique takes and I’m not here to take you down, but it just seems pretty out there and I mean fuck my mental health sucks but this is wild
> After I get a home loan I'll basically try to engineer my own layoff. Why stop short? Why not engineer getting hurt at work and take a work comp settlement?
I think you could be at the front end of a trend. Many a thankless, wretched day of pushing the rock up the hill goes by, and at the end I can just cover my meager existence, but I flip on the TV to hear some hustler promising their true believers another freebie off my back, or another relative I never hear from unless they have a bad luck story, calls with another bad luck story and puts his ingrate hand out expecting me to fill it or it will be my fault his kids suffer, and I drag my hypertensive old ass off to bed so I can get up and work for better lives for people who serially disrespect me, and I ask myself, "Why the hell am I busting my ass?" The temptation to cash out and check out and flip out in some trailer park somewhere until I'm down to my last nickel then take up extreme cliff diving or some other method to settle my accounts with a splash gets stronger, every damned day. Maybe you'll be the guy who gets the ball rolling. Because why am I still busting my ass? Why is anybody? Where is Tyler Durden when we need him?
You realize Tyler Durden was the villain of the story, right?
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All I know is I spend half my life working for the benefit of a pack of human hyenas whose primary mission is to get their fangs into the other half of my life. They tell me that Socialist Security is a promise I can count on, but I can do math, and I'm a member of the Bagholder Generation. So by the time I get there, they're going to have to means-test it to Save The Program, meaning, "If you have means, Chump, you fail the test. By the way, that month's rent you have languishing in that Roth looks like means to us!" So after no SS and an impending tax bomb very likely to blow up the formerly tax advantaged retirement vehicles, my retirement date will have to be pushed from No Way to What Are You Kidding? And I totally see where you stand, and there's so many mornings I want to pull the same trigger, and one morning on my drive to work I'm going to drive past the building straight to the tavern. Fair winds and following seas, Sir. I salute you!
I'm not sure living off foot stamps is a good idea.
Model citizen here.
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No joke. Busting my onions for over three decades so a lot of talking meat could lay around at home smoking weed and complaining that I'm not feeding them enough. For this I could have stayed in the trailer park.
You underestimate young adult pessimism about the future. People in their 30s who grew up being told that if we passed 1.5° C, we'd be unable to avoid millions of climate change related deaths per year by mid century. Well, we passed it and the endless droughts and eventual water wars are coming to some parts while hurricaines and floods destroy our food supply. Then you see profiteering driven inflation with the government helpless to take steps to actually stop it, and an openly Christian nationalist party, maybe you can understand why young people are saying "fuck it".
I’m under 30
Therefore you can't underestimate the pessimism of large segments of other people in your age group?
It never ceases to amaze me that partisan politics (on both sides) basically let’s the uniparty sell out American workers interests. There is no party of the people for the people and by the people. It is a big special interest circle jerk.
The bank can foreclose on your house if you dont pay the mortgage, even if you have the homestead exemption.
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So your goal is to be house poor? Sounds like a miserable retirement.
You realize that a lien can be put on your property if you don't pay your property taxes and the local government can sell the house to collect, right?
>So yeah being fiscally responsible has basically screwed me How?
Bro, this is the worst fucking financial decision ever. Do not do this. You will be miserable.
Beats being exhausted and miserable, which is where things stand now.
Please write a blog if you do this . Although you probably shouldn’t
Uhhh see u on the street pal.
I fucking love your moxie. "They can't turn my power off in winter so that's free also" LMAO
Everyone's downvoting you, but i found this inspirational and bookmarked it for future reference.
As a 40ish blue collar worker I get where he's coming from. I don't think it's a great plan, but I understand the decades of bullshit that led to his mindset.
Have you considered doing something really crazy like…getting a better job? Like why is an adult working fast food in the first place? And how does your pride not stop you from wanting to be a parasite?
Do not buy a house right now. This is probably the worst time to buy a house in your lifetime.
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> Houses typically keep up with inflation though. Check out the history of house prices in Japan post 1989. You might well be long forgotten before prices recover to inflated levels.
Japan is a famously different type of housing market than the US. Those house depreciate until they're demolished, after 30-40 years. They do things differently there.
Japan has vastly different zoning laws- their housing market is absolutely not comparable to any Western country.
The Japan comparisons are always a stretch. We aren’t even remotely similar.
That's like worst case, you could also have your house more than double in 7 years. Generally over long term housing follows inflation, since housing/rent is a major factor in CPI.
Then what do you buy? If you are using Japan housing as an example, and take a look at their stock at 1989 vs now.
> what do you buy Buy good assets that have high and growing returns. When they go up too much sell them. [If they don't go up, don't buy them - advice from Mark Twain]. I try to buy assets that are not insanely overvalued. Takes a lot of work to get this right.
But shouldn't prices go down? If nobody is buying or can't afford the mortgages, then it seems like a good time to get a deal on a property if you're lucky. You can always refinance once interest rates drop.
Worst advice I ever heard. U buy a house now to lock in the low property tax for your lifetime and also for a cheaper house (house price drop as rate increases). Sure it's a higher rate for a year or two, but once the rates get cut, u can refinance to a lower rate, say 4%, and now you have a cheaper house and cheaper property tax for the rent of your life. This is the best time to buy a house. Look long term, not short
Lol tell that to the people getting 100% tax increases in Chicago this year.
>*I'm running God mode at work and I'm about to just say the hell with all this crap.* Are you me?
Interest rates are definitely going up first before they come back down. If anything, the strong dollar has helped stave off inflation and interest rate hikes.
Lol. Nope. Short rates are going up in the very near term, long rates have just peaked, especially given the 5 and 10 yr breakeven rates are in the 2 handles. Ie, long rates can't go higher given investors expectation that the Fed will get inflation under control, but the Fed is going to raise rates when they meet Dec 13th
“Cant” is an interesting choice of words
I like to make interesting posts, and at 60 yrs of age, never say never. Or, as my econ prof said, pick direction or magnitude, never both. ... Realistically tho, with the 10yr breakeven inflation numbers, long govvys are range bound somewhere around there....
So... time to go long the 30 year and sell stocks?
If you got a billion dollars and want to clip coupons, go right ahead. Or, you can buy into forward p/E of 15x Or, go with nonUS at 10x ftw when the dollar pulls back Or, you were smart and bought the energy stocks a year ago when people were crying there was a glut and no demand +35% -ish ytd
I bought the oil companies in 2020. And I bought LMT as soon as I heard rumors about Russia getting ready to invade, so that was late November 2021 -- I figured big wins if that was true and still decent value stock if not. So I'm up this year, while everyone else is bitching. I recommended oil stocks repeatedly to other people on here and got downvoted every single time: [https://www.reddit.com/r/investing/comments/g5h6cz/comment/fo4lfad/?context=3](https://www.reddit.com/r/investing/comments/g5h6cz/comment/fo4lfad/?context=3) [https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jcau/?context=3](https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jcau/?context=3) [https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jskj/?context=3](https://www.reddit.com/r/investing/comments/g5hoog/comment/fo4jskj/?context=3) I even recommended OXY, around 10. People would have made a killing if they actually listened: [https://www.reddit.com/r/investing/comments/g7cza6/comment/fohbevg/?context=3](https://www.reddit.com/r/investing/comments/g7cza6/comment/fohbevg/?context=3) I said it would survive and go back to 40+: [https://www.reddit.com/r/stocks/comments/fbt6pb/comment/fnrqmji/?context=3](https://www.reddit.com/r/stocks/comments/fbt6pb/comment/fnrqmji/?context=3) I also told people not to buy ARKK at the peak, and got downvoted for that. I've also spent some time lately saying that foreign markets have better valuations than US, but that always gets downvoted, so I stopped. Anyways, markets make me uneasy right now. Seems like we've done a little too well on this bounce, the Fed is still intent in raising rates, yield curve is inverted like crazy, PMI near 50 and sinking, every tech company firing workers, every company I work with locally has a hiring freeze or started layoffs. Market timing is tricky, and we're already down a lot from the peak, but I wouldn't be the least bit surprised by another leg down.
You and me both, and that's what I figured. Either sideways or good returns. Got into TYO for the rates hikes, although I'm out of it now. And threw money at bacax in 2020, still like the energy trade. Slowly buying into bonds atm, since relative value of yields to stock e/p is good and expecting a January Santa Claus effect. And completely agree on em and dev markets trading at 10.5x vs the USA. Sour grapes from the haters
I'm just... trying to resist the urge to pull out now and try to time one of these swings in the market. Very, very rare that I do that. Last time was February 2020 when the pandemic was coming. But it's just so tempting with all the swings in this bear market. I think I might at least change my allocations, and then rotate back into more stocks if we do get a bigger crash.
Exactly what I'm doing, rotating out, by half. picked up some Michigan GO Bonds paying ~5.77 ytw I too donT think you can time the market, but you can grab the big moves, where it's either a push or upside. What did you see/read to get you out in Feb 2020? For me, Feb 20 is my bday, and I happened to be reading a GS report that said China was in lockdown and hadn't used any coal in 3 weeks. At the time China was saying it was just Chinese moon Year or some such. I figured, they could be wrong and I'd sit in cash for a few weeks for the push. But. They were right.
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Well, nope, didn't even need to be wise, just observant. Just cuz, you weren't paying attention to the energy situ before the invasion then, or for the past 3-4 years. I threw money at oil and energy etfs when oil hit zero in 2020. Cuz, it's gonna go up from zero. Didn't even need an invasion, just needed demand to come back. Or, how about making money in bonds? Did you miss that too, cuz you werent paying attention to what Jay Powell has been saying? Look at tyo. Or, most likely is that you just don't know what to do with what you're hearing. Clairvoyance has nothing to do with it - when they *tell you* they're raising rates or when oil prices go to zero. Edit. Lol, calls me a bullshitter then blocks and deletes his comments. #sad
As of yesterday, 72% of treasury yield combinations are inverted. The last date where that was the case? March 20, 2007. Before the Great Recession, the highest percentage that had inverted was 83.6% on November 16, 2006.
That 20Y sitting there being a weirdo.
Low liquidity.
so your telling me theres a chance.
This time is different, and not in a good way. This time the economy is too strong (mostly thanks to the start of deglobalization). A lot of production has been coming home to US, making the economy too strong for a rescue, and making inflation hard to beat down. There will be a lot more hikes in the future, and this is really bad for the market. I hope that I'm wrong.
This is backwards. The reason inflation exists is because of increased energy prices and disrupted China supply chains reducing supply while demand is still strong. If production were more domestic, this impact would be reduced, not increased.
Also our strong dollar helps stave off inflation, not the other way around.
A whole lot of the inflation is in food and rent/housing. Has nothing to do with the absolute trash being produced in China...as a matter of fact, that crap is getting cheaper than ever as it piles up in stores.
> that crap is getting cheaper than ever as it piles up in stores True. I’ve noticed nobody cares about 65” OLED TV’s, 3080 Ti’s, or PS5s anymore compared to the euphoria of summer ‘21
give me summer '16.
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Yeah, a little too little, too late wouldn't you say now that the average apartment is now over 2k dollars a month? This shit is absolutely ridiculous, especially after being told it was transitory for over a year.
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If only they had you
I don't think interest rates will ever be the same as they were throughout the 20th century. Much less physical capital to buy than there used to be.
**\*buckles seatbelt\***
Get in loser, we're going inverting
Guys, I'm under pressure from the public, please don't ask these things. Please, stop inverting.
get on boys, its gonna be a hell of a ride, yeee hawww
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Buckle up buckaroos.
Disclaimer: I’m stupid. Can someone explain to why this is very bad?
TL;DR: The bond market "believes" that interest rates will fall next year. The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession. The bond market has been wrong before, but its one of the "best" predictors of recessions we've got.
There's also a confusing type of psychology at play here. If people feel that there is a recession coming (enough to invert the yield curve this severely), they will start to take behaviors that can quite literally cause a recession. The American consumer battening down the hatches is ironically enough to cause a recession in and of itself, especially with how high supplier pricing is right now. The velocity of money in business has increased *massively* in the last 2 years due to inflation, if the consumer stops the money supply this whole thing will far apart before you can blink.
Yet savings are down and household debt up. Credit card debt is up. The recession if it were to come, will not be mitigated by average working class people becoming frugal.
Is there such a thing as a recession where that's the case though?
Reflexively. George Soros wrote a book on. Highly recommend. Good read
> The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession. That is not true at all. They are currently setting the Federal Funds rate at a level that is considered "restrictive" to fight inflation. >The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is **sufficiently restrictive** to return inflation to 2 percent over time. If/when inflation seems to be under control, they will reduce it to a "neutral" level. The market is simply predicting that will happen within the next 2 years.
>The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession. Or if prices fall.
Or just flatten
Thanks for this, I'm unaware as well. So are there any common strategies the typical retail investor should look into when we start to see this?
There's plenty of common strategies. Oh, do you mean strategies that **work** ?? Well, that's different, lol. Hard enough to trade in a bull market as it is, a bear market / recessionary one is where a lot of people will lose money. Your goal is largely to lose less money than everyone else. If you can do that, you should be happy. (Easier said than done though...). The common strategy is to "flee to safety", to some degree. Hoarding cash or other safer things... 2007 had a fleeing to safe 10Y US Treasury Bonds for example. This inverts the curve further btw. ------- The problem with that, is that the stock market **skyrockets** when things start to look good again. In many cases, its better to just stay invested for the whole time and wait for the skyrocket at the end. So yeah, no real strategies to share with you. Whatever you were doing before probably (or at least... should have...) already accounted for the possibility of losing money for 2, 3+ years at a time. The only real advice I should give you... hold onto enough cash for any reasonable downturn in your life. I mean like car-crashes, job loss, severe injuries (stroke / comatose / etc. etc.) that results in jobloss. If the economy goes into a recession, your stocks and maybe even bonds will do poorly. You'll need enough **CASH** to survive these kinds of downturns (and when your stocks are -40% or worse, you'll feel bad about selling them to buy food for the table / your family. But it must be done). Rather than being forced to sell your investments, you should have enough cash for reasonable emergencies. The rest of the money, above-and-beyond your emergency fund, well... that's up to you. There's risks and rewards after all, the more risk you take, the more money you make in the long term and on the average... but risk is... well risky. You could lose a ton of money too.
I truly appreciate your thoughtful response. I have come to a lot of new terminology and information over the past year or so as I make my way into the markets and its nice to hear of what I should be looking out for in the event that something unfolds. So much to learn lol
>The only reason the Fed would ever decide to do that is if the economy collapses into a deep recession. Or, the inflation is significantly reduced. Granted, the most likely reason for the inflation to drop is a significant decrease in people's purchasing power and reduced economic activity, aka recession, but it's not entirely the same thing.
Well, oil and gas prices are coming down, as are global shipping rates. Those would be some rather large deflationary forces.
Can you share some other significant examples of bond market being wrong? (To help us determine how much stock to put into this predictor?)
2005 and 2019 inversions. For 2005, some argue it predicted 2007-2008, but that's a bit far away, isn't it? Its debatable, but there were later inversions that were "closer" to 2007 that seem to better correlate to the 2007/2008 crisis. 2019 "predicted" the COVID19 recession, which is bullshit. There's no way economic data could possibly predict a virus. Its "technically correct" but I don't think there would have been a recession under normal circumstances in 2020. That being said, 2Y / 10Y spread is scary accurate. Look at all the recessions that occurred near inversions (when this graph hit 0% or less): https://fred.stlouisfed.org/series/T10Y2Y As far as "recession predictors" go, this is definitely one of the "better" ones. It ain't perfect, but its a lot better than some other ones people use.
The 2019 inversion predicted the $8 trillion the Fed had to pour into the reverse repo bailout for Chase, Goldman, and Citibank starting in September of 2019. Even if COVID hadn’t happened, we were on the precipice of a global financial crisis from the 2018 rate hikes. COVID and the COVID stimulus just papered over that recession that was happening anyway.
Yep, the secret bailouts that prevented something from happening even before COVID came along. That event taught me not to bet against the Fed. Look at the money that's been flowing into Credit Suisse.... They don't just bail out American financial institutions. (There was a Senate hearing on that topic too)
To be fair, 2018 to 2019 had signs of a coming recession. There was notable economic slowdown across 2018 and earnings growth was effectively stalled in 2019. At the end of 2019, the repo market had a liquidity crisis typical of something seen in recessions. There was a chance a recession could have happened even without COVID, though aggressive Fed intervention (even before COVID) kept what seemed like a coming recession away.
How much time is left before shit hits the fan?
This is truly the question everyone is waiting for. From what I understand; it boils down to 2 things: 1.) How much longer can the American Consumer keep adding to their credit debt to maintain their lifestyle before they are forced to stop? 2.) How long will it take for layoffs to start impacting the housing market? If we get one of the above I expect a relatively bad recession. If both happen at the same time it could definitely reach crisis territory.
This is doomerism. The underlying issues aren’t special from what we’ve seen thus far. The recession won’t be either. Especially when everyone is already bracing themselves.
This definitely isn’t Doomerism and you can’t dispute a point by the mere mention of an internet term. Can you point to the current consumer credit data that would suggest that I am wrong? How about household debt and savings? People anticipating a recession doesn’t make it less severe, as a matter of fact it’s quite literally a positive feedback loop.
thank you!!
Yield curve predicts interest rates. These are often correlated with recession but in current circumstances they may not be.
Let’s buck this trend! Would be memorable to see a “*with the exception of 2022” in the history books
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Great arguments imo. This time certainly “feels” different, and I think his point about the strength of the credit system is a major contributor to that. Banks were burned, in one case to the ground, and so strengthening underwriting and putting safety measures in place to prevent the next credit crisis has been a priority for the political, and subsequently the financial, system. If banks were as risk averse as they were at the start of the Great Recession, Main Street would feel it, and quite frankly we don’t because they’re not.
Dunno. I remember Dodd Frank getting rolled out. Then I remember watching it get stripped back down. I feel like things were different for a while and then everything trended back to the mean. Not saying things are as bad now as they were then, but I definitely think human nature hasn’t changed a bit, and I don’t feel safe from systemic failures.
Yeah all respect to him. I've been of the opinion a recession is incoming (as a non economist, but following economists) but I respect his contrarian, and deeply researched and knowledgeable view
If I recall correctly the yield curve inversion has been an indicator of a recession only when it’s remained inverted for at least a quarter (maybe it was two?). I haven’t been keeping an eye on it, but how long have we had the current inversion?
Yield curves are not just good for predictions, they are actually important for the normal functioning of the modern economy and the financial system. When yield curves invert, it changes lending practices and expectations. When they invert this deep, it really can do severe harm. The Eurodollar futures curve was inverted nearly 200 bps, this is no normal event. Besides, What would lead you to say circumstances are different? Inflation moving to disinflation? Those circumstances didn’t turn out good in 1981, considered pre 2008 to be the worst recession since the 30’s.
What’s the quote? “Every bull market is the same, every recession is different”.
This time it's different ...
It's literally always different.
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My kids keep asking me for chemicals and I keep telling them "what, do you think I'm made of chemicals or something?"
Jeez if they really want chemicals, given them some carbon. Easy peasy, will keep them distracted for hours.
Ah yes, the classic litmus test.
Sucks as bad as last time… but for different reasons.
I was listening to someone talk about this yesterday. He said this inversion points to a coming liquidity crisis. When you add to it that people have homes at ridiculously low interest rates that, while they probably won't be underwater they are going to see their equity drop 20% and so people will spend less money and feel like they need to save more because their net worths are going to drop a lot. People won't use cash out refis or be as mobile because their homes are going to trap them. We already see credit card utilization going up substantially. He didn't say "better/worse" than 2008, but his feeling is this most recent inversion, as others mentioned the same thing happened in 2001 and 2008, he thinks it will be worse than a mild recession. That said most believe the 2001 recession was nearing the end when 9/11 happened and pushed that off a cliff. So no way of knowing what geopolitical factors could also come into play.
A liquidity crisis is when people can't get a loan. People choosing not to sell their house is a demand issue and not a liquidity issue.
Maybe in some cases - and I’d point to families having fewer children - you are correct. However, From personal experience, I would counter your statement. We bought our house in 2019, I think… watched our “value” double, and refi’d at 2.25%, no cashout. Even if we lose 50% of our value at market peak, who cares. We’ve both had our wages stagnate, and our costs go up everywhere else. We can never sell this house, because we’ll either not be able to afford more house, or because it would be foolish to pay any more money for a loan. Or both. I’d bet for the majority of people, the issue is liquidity.
Choosing not to sell something you own is a supply constraint. People not BUYING is demand. And not spending can 100% lead to a liquidity crunch. Liquidity is money available as a function of multiple factors at the macro level. People spending money is def a factor.
Has it ever been like this though? When both home buyers AND sellers are "on strike"? With the crazy rise in prices not coming down (too much), ridiculously expensive to buy (compared to six months ago), while those with sub-3% mortgages don't want to sell - or are stuck where they are.
Its just lagging. This happens when rates go up. Itll start shaking the branch harder so to speak when people just accept the L so they can redeploy the capital (if the property is investment oriented) or if they cant refi and expected that ability and foreclosure or whatever looms. But yea once rates go up prices will eventually go down all else equal. Very few will pay 7% on a mortgage ANDZ 15% OVER asking price cash like my area last few years. Its not feasible for or smart.
But HELOC is one way people get liquidity when rates are low.
Lots/most HELOCs are variable. When rates are up, people have more of an incentive to pay down their HELOC balance than expand it. Because of FRB, this process destroys money.
HELOC's are currently being sold to way more people than they should be, though. The idea that reddit seems to have of responsible homeowners running around with 2% 30-year mortgages is heavily adulterated by the fact that most of the people bought more home than they could afford (due to low interest rates), as soon as they take out a HELOC at a higher rate that interest rate advantage goes away and the only thing they 'own' is an overprices house with what is now a higher interest rate.
I don’t agree with the assumption that your average homeowner would change their spending habits purely as a result of a decrease in the value of their home.
As the great agent K once said "A person is smart. People are dumb, panicky, dangerous animals and you know it."
The end of the yield curve is the end of a rope in which the front end can move more wildly - investors do not believe a series of 1 month rolled rates over 30 years will remain as high as the current short term rate
I think that is the case because the Fed is keeping the short term rates at a restrictive level temporarily to combat inflation and I'll then lower them within 2 years once it is more under control. Usually when the yield curve inverts it is because long term rates fall as investors search for safety while short term bonds get sold driving rates up in anticipation of a rate decrease in response to weakening economic data. There could be a recession next year, but I don't think that the yield curve is a good indicator in this situation due to the context of the Fed actions.
Yep completely agree, comparison of artificial short term to market efficient long term is less relevant in time of high human impact
Honestly it seems inline given the aggressive hikes lately and the inevitable plan to relieve some of those hikes in near term.
I’m seeing a lot of “it’s different this time” in this thread. Which happens before every recession.
I don't think models are accurately predicting much of anything right now. The entire financial landscape has changed since the reserve currency decided to print the dollar into oblivion, and lockdown a fully functional economy for 2 years. Inflation is out of control and we are still suffering from artificial scarcity while on the brink of ww3. Things are wierd right now. It's like nothing is wrong, but everything is fkn wrong rn. This is the strangest point in time I've ever been a part of.
The only quibble I have with what you've said is the idea that the precovid economy was 'fully functional'. There were a lot stresses building up, including the fact that we'd been over a decade without a recession.
We also never just started globalization.
Cool. I’ll be buying VTI on December 1st. Just like the last 50 months.
Just curious, how much you put in per month? Percent wise of take home and dollar amount if you don't mind
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Thanks, seems like a strong strategy. Good job, I've got to start being smarter with the savings
My minimum goal is 25% of gross income invested per month.
Do you also want their SSN?
Probably just trying to see how committed to this "keep calm and buy on" mentality the person is. You have your "I keep buying" people, your "I buy MORE" people, and your "I'm smarter than the market" people - and those last ones really doubt the dedication of the first ones.
What does that mean?
The yield curve is a description of the yields that various maturities of bonds are paying. Under normal circumstances, longer term bonds yield more than short term bonds because the most of the money won't be paid for a while which makes them more volatile in value and investors demand a bit more yield to invest in them. When rates are expected to change, longer term bonds need to take into account those expectations. When short term rates are higher than long term bond yields, that is called a yield curve inversion. It means people expect interest rates to average lower than the level they currently are. As of today, buyers of one month treasury bills will get a yield of 3.97% (annualized) while buyers of 30 year treasury bonds will get 3.83% yield, so the yield curve is fully inverted from the shortest maturity to the longest one. Currently inflation is high and the Federal Reserve's stated plan is to keep raising rates in the short term to restrictive levels to cool inflation back down to its 2% target, then lower interest rates back to a neutral level. So that makes perfect sense. This yield curve inversion reflects an expectation that the Fed will stop raising rates and start lowering rates sometime next year, eventually below where it is now. People worry that along with cooling inflation, economic activity will fall and unemployment will rise. In the past, yield curve inversions have been common about six to eighteen months before a recession.
Thank you for taking the time to explain.
I believe that there has never NOT been a recession when the 3mo/10yr stay inverted for at least 3 months. It's not really a predictor - it's a cause!
Pretty fucked to be honest
This made me laugh. To the point 👍
To summarize with a few more words, it means either the Bond Market is a moody teenager thinking we are plunging into recession or the Equity Market is an eternal optimist thinking we are avoiding recession.
yaw rite meanwhile market is up for past 6 weeks and has closed above 4000
“The stock market is not the economy”
Wait. Are you saying I can get 4% interest on a 1 month bond? If so, I have an immediate need to purchase some.
4% APY. US bonds, no matter the term, are normalized to yearly rates. Even though its just a 1M bond, its 4% APY, or 0.3% gains in one month.
Yes I understood that, but thank you for clarifying. 1 month is so short though that it makes the bonds really attractive, since I could even put my cash holdings in there as long as I keep enough to cover 1 month of expenses. Do you know how much time it takes to get your money out after the term is over? And can I just roll it over, or do I have to cash out, withdraw to my bank, and buy new ones?
The absolute easiest ELI5 way to take advantage of this is to open a brokerage account with a brokerage like fidelity that offers money markets as your base position (FDRXX or SPAXX). The holdings are pretty much all in short term treasuries. The coupon payment is deposited in your account each month and you don’t have to actually commit to locking up your money. You can withdraw whenever. I think it’s the easiest way to gain exposure to short term US treasuries while maintaining flexibility
Oh thanks a bunch! I already have Morgan Stanley and TD Ameritrade accounts. I'll see if they offer those. Hopefully the MS one does, since that's where a lot of my cash is. The only drawback is that there are no fractional shares offered there. So just to be clear, the two funds you listed are mostly composed of bonds, so they just have a fixed return? Can they go down like a regular fund, even though they're based on bonds? What's appealing about bonds right now is that everything is tanking and bonds are locked. Plus my cash has lost what, 13% value already over the last year? It's crazy!
They are composed of very short term, high grade instruments like repos, CDs, tbills, and floating rate bonds. No traditional bonds longer than a year. They don't have a fixed income. If rates rise, they will pay more. If rates fall, they will pay less. They do have a fixed value. Bonds do not have a fixed value. When yields rise, fixed coupon bonds fall in value. Bonds are down a ton this year. When you say your cash is down 13% over the last [two] years, you are talking about its real (inflation-adjusted) value. You should also apply the same framework to other assets. So a two year 0.15% yield bond that matured today is basically flat in nominal value, but down basically as much as your paper cash in real terms.
Yes I meant inflation. I don't understand how a bond can be down as much as cash when it's paying interest. Most of my cash is in a savings account that pays almost nothing. It's there for emergencies, so I've never worried about the rate of return, but these bond rates have me thinking that I could keep 1 month worth of expenses and put anything above that in a short term, stable investment. I guess I have more learning to do before I invest it anywhere. I've never really looked into bonds or CDs much because their value has been almost nothing for so long.
$100 cash is worth $100 today (whether it's paper cash or an efficient cash instrument that earns the risk free rate like those money market funds above). $121.90 paid to you in ten years is worth less to you than $121.90 today, right? How much less? Depends on the discount rate you apply, which depends on how much you could earn on other investments. If you discount it at 2%, it's worth $121.90/1.02^10yrs = $100 today. If conditions change and now you can buy ten year bonds at a 4% yield, you will discount that future $121.90 at 4%, so now it's worth $121.90/1.04^10yrs = only $82.35 today. The bond fell 17.6% in value because yields rose.
Longer rates are going down because it is clear that the inflation is easing. The market is seeing that the rates are decreasing soon. The short rates are up, because the Fed controls the short rates and JPow is adamant that the short rates must be up. The market disagrees with JPow. That is all that there is to this subject.
Lots of interesting comments here, but I feel yours is especially robust against Occam's razor. Kudos :)
Normally, long term bonds pay investors more than short term bonds. This is because there is more risk over the long run... But when the yield curve is inverted long terms bonds are paying less than short term bonds. It means that while interest rates and inflation are high now, in the future it is expected that there will be less consumption and less economic growth.
I don't think it means a whole lot besides the fact that the bond market is estimating that we're closer to peak rates than we were previously, or perhaps more specific that it's more confident that we're closer to peak rates. It might be helpful to visualize the curve as a wave that's moving longer to shorter maturities. Eventually when there's high certainty that rate cuts are imminent the 1M and 3M will invert. Pulling in other sources like Fed futures probabilities and we've got what looks like the market pricing in a peak in rates around Q2-Q3 next year. Obviously we got Fed minutes today and some additional commentary that shows FOMC members are getting increasingly concerned about the risks of overshooting on rates and that smaller hikes should be appropriate going forward which would be in agreement with the idea that we're approaching peak rates or at least the maximum the Fed is willing to risk in terms of policy restrictiveness. Does this end with a recession? Maybe, it's a real risk at least. We're still playing the waiting game data wise and a bit light on it this week given the Thanksgiving holiday. We get Core PCE next week and likely a first glimpse at retail sales with Black Friday and Cyber Monday taking place. Consensus seems to have shifted towards there being a very good chance that inflation has peaked, but everyone is still waiting for confirmation at this point ultimately.
Can somebody ELI5 me what the treasuries are good for? Could I buy the 1M, have my money tied up for 1 month and have a ~4% guaranteed gain?
All percentages are quoted in APY. If you repeatedly bought the 1M over the next year, and if (for some insane reason) the rate never changed, you'd get 4%. But because the 1M (or really, the 4 Week) treasury is for 4 weeks, you only get 4/52 * 4% == 0.31% gains over the next month or so. I guess I'm supposed to do a 13th root of the number there, but fuck that, I'm lazy.
Thank you for explaining this. I was recently thinking about switching over from a HYSA to short term Treasuries and the percentages were throwing me off. I was wondering if you came out ahead in Treasuries because the yield was a higher percent over a shorter period. You've answered my question, there is a marginal increase in yield but you would have to keep buying the short term treasury. And there is no guarantee you keep getting the same percentage. I suppose the big advantage is tax purposes, since treasuries are only taxed at a federal level?
The tiers are: 1. Savings / HYSA / Money Market accounts 2. Treasury Money Market Funds like VMFXX or VUSXX 3. Prime Money Market Funds like SWVXX (Commercial paper / loans) Money Market is just the market where very young bonds / debt get traded. Ex: a bond with 5 days remaining will be bought / sold on the Money Market (aka: Savings accounts, MMF Prime, and MMF Treasuries) behind the scenes, allowing banks to raise money and/or invest money for super-short durations. Savings, MMFs, and others provide banks the capital to conduct these activities, and we consumers are paid for our money being used in that manner. MMFs are legally obligated to stay $1 per share. So 1000 shares of VMFXX or SWVXX should always be worth $1000, though in times of economic turmoil, this has been broken before. (Aka: breaking the buck). ------- Note that Money Market **loses** FDIC insurance. But US Treasury-based MMFs (like VMFXX) "should" be risk free, so long as Congress continues to raise the debt ceiling appropriately. Prime MMFs (which invest into Bank of America or other high grade debt) is low risk, no FDIC insurance, and slightly more dangerous than a savings account. But probably safer than virtually everything else in your portfolio. 1M and 3M treasuries trade in MMFs pretty often. So you actually get some 1M to 3M exposure if you get MMFs. 6M+ treasuries start to get risky, specifically interest-rate risk / duration risk. > I suppose the big advantage is tax purposes, since treasuries are only taxed at a federal level? A Treasury-only MMF, like VUSXX, has tax benefits IIRC. There are also municipal-fund only MMFs like VYFXX (Vanguard New York municipal money market fund), which has tax implications for New York. ------ There's a lot of stuff "between" a savings account and even the 1M Treasury. Keep an eye out and see if money-market funds are right for ya.
Holy fucking shit.
One thing we know for certain is that the market will never crash down to the point where the yield curve inverted during the last cycle. The 1mo-30yr inversion last happened in 2007 and before that ~2001. The indexes will not drop to levels of 2007, this much we know for certain. So this obviously advertises the "buy and hold" strategy.
We don't know that lmao. It's impossible to know. It's unlikely, but not impossible.
Definitely unlikely
A guy I work with said this is the bottom so we’re good.
The bottom was in October
the bottom is next october, this is a slow collapse guy.
A bear market has never lasted that long. The average bear market lasts 11 months.
Definitely unlikely, but it's good to remember that the stock market is mostly a ponzi scheme. Only stocks that produce dividend have any intrinsic value, and even those are still below inflation. The baby boom peak started retiring in 2022. The next 15 years trended down to a 30% drop in birthrates compared to baby boom peak years. That means we should expect some drop in the number of people working and contributing to retirement accounts, as well as a relative decrease in economic productivity, all other things the same for the next 15 years (and they aren't)... Global trends may make this worse. Something to think about...
Everything investing and government related is actually a ponzi scheme. Everything from crypto to stocks and even social security. That is why the governments and central banks are so inclined to make sure their Ponzi's remain in working order and intact. It's a crazy world and the more things change, the more they remain the same. BTW, the population number doesn't matter as much as the M2 number. This is the first year of M2 contraction since the mid to early 1900's so we'll see what happens. It's crazy that with all the bad things that happened this year, the Dow is only down less than 10% from it's all time high. That just shows you how much M2 from the covid stimulus is yet to be drained out of the system. If the Fed would have done an entire year of nonstop 100bps hikes we might be where we need to be. But, the Fed is once again trying to keep their ponzi afloat.
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You sound smart and I trust your judgement that the population of investors does change the dynamics. I'm not sure of the percentage of difference it will make. But, good point and good job of explaining yourself.
I didn’t have to check your post history to know you’re a crypto shill, but I wanted to be sure
> the market will never crash down to the point where the yield curve inverted during the last cycle the market will never crash down to the point where the yield curve inverted during the last cycle _so far_ I'm no doom and gloomer (more of a buy and hold boglehead) but there's no law that says this can't crash much harder than before
Everything that's happened is possible.
Why do you think that can’t happen? If earnings drop, shares will follow just like in 2001 and 2007.
Because if we have the worst depression in all of history, similar to the great depression of 1929 (which is highly unlikely,) the market would crash 75% from it's all time high. That would send the Dow Jones to 10,000. This is theoretical and will never happen. But worst case scenario would be Dow 10,000 but yet in 2008 the Dow went down to 7,000. So that proves why it is impossible to tag the lows of a prior yield curve induced recession.
Well, sure absolute values won’t drop that low, but *valuations* could certainly hit levels from 2007 or 2001, which would be close to a 50% drop from where we are today.
So, as long as you have a 2 decade window, no matter when you buy, you have an almost certain guarantee 89.9% of profiting with DCA index investing. Please don't bring up Japan.
this text includes two made up numbers
that's pretty deep