METARs, stay on topic!

OK, I know that everyone is highly emotional. But the METAR board is being taken over by OFF TOPIC posts.

I posted about the Congressional Budget Office’s economic forecast for the next 10 years and it was ignored.

Meanwhile, everyone is posting about current events which have nothing to do with investing.

Sit down, have a cup of coffee and GET FOCUSED!

What do you think the Federal Reserve is going to do if/ when the stock market tanks after they raise the fed funds rate 1% by August?

Have you found evidence that inflation will be significantly lower by then? (Real evidence, not pulled out of your orifice?)

Wendy

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Wendy,

Yep my last now pulled off topic post was also on gun control by the head of the state of CT’s Homeland Security…but yes we are getting further afield.

I think the FED will allow the market to drop. The idea that the FED props up the market is not as simple as small investors would like to believe. The FED acknowledges the wealth effect from the markets but its job is to increase the GDP which indirectly often increases equity market values. That is not purposeful as in the bears are stymied by the FED. The bears just bet when they should not be which is often.

This time around the bears will probably get you.

I guess, no orifice in mind, we go sideways till the Chinese Lehman Brothers moment.

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Have you found evidence that inflation will be significantly lower by then? (Real evidence, not pulled out of your orifice?)

Wendy,

Some weeks ago the latest inflation report for March showed a slight reduction in the month over month and a tad in the year over year to 8.3%. The Metar crew were too busy believing inflation was rising to believe it. The board was using their orifices when evidence was produced…no matter how slight that evidence was.

Now higher rates are settling in and more rate hikes are coming. The FED announced in February the bond selling program would begin. Yet out of more orifices there are denials here that it has started. No one calls the FED a liar…but it is like reading fiction when small investors declare the FED is doing nothing.

https://www.marketplace.org/2022/04/06/the-fed-will-sell-som…

In March the FED stopped buying bonds. I believe this means net. Trading must be ongoing.

What do you think the Federal Reserve is going to do if/ when the stock market tanks after they raise the fed funds rate 1% by August?

Short answer is that the Fed will break something before engaging in another plan of approach.

Longer answer: The real question should be: “What will break?” No shortage of candidates there.

How many low hurdle due to near zero return potential corporate loans will quickly (I know a relative term) lead to default? Which lenders will be harmed by previously not-widely-known counter-party risk and exposure?

If the impact of the beginning of QT is broadly higher rates, then what response will the average American consumer provide?

If the broad market declines due to QT, will there be a follow-on effect of lower retirement savings? If so will that effect be so lagged as to have the impact of lengthening the overall revaluation of equities and bonds?

My base case assumption is that real interest rate must broadly increase. Is that base case entirely accurate?

What will it take to break the “buy the dip” default setting? What happens if that paradigm breaks?

If one can derive thoughtful answers to the above questions, then can they develop an investment strategy, other than going to cash, which will be served well by such outcomes? Or is this question just another version of “buy the dip”?

I once advised a friend who wanted to learn how to invest/trade/speculate in the US markets: “Are you prepared to learn lessons about yourself that you never wanted the answers to? For the market will extract a heavy price for every poor choice you make until you learn the lesson you need to learn…and the lessons just keep coming.”

The people who post here are, for the most part, very experienced investors/traders/speculators. However, over the ~25 years I’ve been visiting and contributing to the Fool boards, many thoughtful people have gotten wiped out. A few have admitted it, others have dropped away quietly. How many of us will become part of that cadre? Will I be one of them?

Tough questions to pose and to answer. But it far better to ask them now than not; for we are in the early stages of a generational paradigm shift and to wait until the pain gets greater will not ensure that one will be more objective. Fear and greed, so difficult to recognize in matters involving money, retirement, lifestyle.

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I posted about the Congressional Budget Office’s economic forecast for the next 10 years and it was ignored.

I read that post. I can only tell you why I ignored it. It doesn’t affect me. Broad interest rates don’t affect me. As a consumer, there are three interest rates of, well, interest. Mortgage rates. Car loan rates. Credit card rates.

Of those, only mortgage rates would change by any actions. Car rates are generally approximately zero due to manufacturer’s subsidies. Consumers have gotten so used to these subsidies, that they won’t buy a new car without them. Credit card rates are already 20% and up.

The fallout from increasing mortgage rates are pretty easy to predict. Refinancing will largely stop. Homeowners who want to access their equity will go for home equity loans or lines of credit instead, and leave their low rate first mortgages in place. Home buyers are mainly concerned with the payment. So they’ll reduce the price they’re willing to pay to offset the higher interest rate. That could depress home prices slightly, or push buyers into smaller, less expensive houses. Look for the median home price to drop in either case.

As a saver, I mostly look to the rates banks pay, not to the bond market. And it’s hard to get excited about rates moving from 0.01% to 0.10% or even 0.25%. Better off savers might look at CDs, but those are just as bad. Average rates are still terrible. https://www.bankrate.com/banking/cds/current-cd-interest-rat… 5 year jumbo CD average is still less than 0.5%. The highest rates are better, with 6 month and 1 year getting well over 1%, while 3 year is into the twos and 5 year is starting to flirt with 3%. (At the same link)

None of this is really exciting in the least.

I will make one prediction, however. There will be a very lot of conservative savers who are going to learn that in a rising interest rate market, the per share value of bond funds drops.

–Peter

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<As a saver, I mostly look to the rates banks pay, not to the bond market. And it’s hard to get excited about rates moving from 0.01% to 0.10% or even 0.25%.>

With the short end of the yield curve rising, the place to store short-term cash is in Treasuries. Open an account at TreasuryDirect.gov. Link your bank accounts. Place orders for 3 or 6 month Treasuries (or whenever you think you will need the money – the 2-year is yielding 2.5%). If you want, check the “automatic renew” box.

https://www.treasurydirect.gov/
https://www.treasurydirect.gov/instit/auctfund/work/auctime/…

https://stockcharts.com/freecharts/candleglance.html?$IRX,$U…

Wendy

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Thank you, but I’m talking more as a typical saver than myself personally.

Personally, I can’t afford to get Treasuries. Everything I can stomach is in the stock market. Actually, just one stock: BRK. (OK - there’s a second penny stock that I put $100 in as a flyer - not working out so far, and probably won’t. But hope springs eternal.) Life threw me some curveballs, so I will need to work well into my 70s. Fortunately, I’m in a line of business where that is possible.

–Peter

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What do you think the Federal Reserve is going to do if/ when the stock market tanks after they raise the fed funds rate 1% by August?

The Federal Reserve Board of Governors will act to protect the assets and portfolio values of the politicians who appointed them.

intercst

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The Federal Reserve Board of Governors will act to protect the assets and portfolio values of the politicians who appointed them.

intercst
Bingo!

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I agree with you IF inflation is at least partially under control.
Which it isn’t now.

Wendy

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"My base case assumption is that real interest rate must broadly increase. Is that base case entirely accurate? "

Everybody on this board remembers the not all too distant past of CD’s getting 5% or 6%, in this century. A time when savers could keep money out of the stock market, and still get a return on their money, not just a return of their money.

Anybody really think that’s going to happen again ??
Fed is going to be under enormous pressure if /when the economy and stock markets tank hard.

I guess we’ll find out what the Fed’s true mission is. If they keep turning the screws until
inflation is crushed, then the Fed is true to their mission. If they bail from the stated
objective of keeping inflation in check ( is 2% still their goal ? ), then we’ll know that
they are a politically controlled entity.

I know which one I think will happen.
Everybody place their bets according to their beliefs.

My orifices are both concerned about the Chinese Lehman Brothers moment. One thinks we will have a worldwide econ tank, and the other thinks we will have a wild kaleidoscopic up and down in different markets.

E.g. if Mexico plays its cards right it would be an enormous beneficiary of China collaspe combined, especially as security concerns force manufacturers to bring supplies closer to home. But neither Mexico nor USA play their neighbor cards right

E.g. What a time for Romania Bulgaria Slovenia Greece to ramp up quality control and education! Not a chance.

We are going ever deeper into uncharted waters.

david fb

Open an account at TreasuryDirect.gov.

I did that. DW and I invested in 2021 and again in 2022. Tried to log into my account this AM, and the web site was totally unresponsive. Looks like they are getting pounded. Not sure if it’s the Russians or a bunch of folks running for the exits.

'38Packard

The Federal Reserve Board of Governors will act to protect the assets and portfolio values of the politicians who appointed them.

I totally disagree. Next year the public will demand action on fiscal policy. We are going in for a hard landing.

But I will give you a for instance…family I know at Vanguard have been told to ride it out by a money manager. What else could Vanguard or any of them say? Sell everything? Ha that is just not possible to state for a money manager.

The FED orders the printing of money in a very rich economy of course equity values and profits rise most days. But this is some serious down time coming. The goal of the FED is to cut off inflation. But only fiscal policy can solve things. That will be true for the next 20 to 25 years.

If you think the FED can solve anything other than inflation and print as the economy grows, then you are in a supply side mindset still. That is DOA.

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Leap1 writes,

But I will give you a for instance…family I know at Vanguard have been told to ride it out by a money manager. What else could Vanguard or any of them say? Sell everything? Ha that is just not possible to state for a money manager.

Depends. No way I’d sell anything in a taxable account and incur trading cost and the tax liability, but in an IRA/401k, you can “sell everything” without a tax liability, why not?

Maybe market timing and mungofitch’s 99-day rule is the road to wealth, just don’t “pay the skim” to do it.

intercst

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Have you found evidence that inflation will be significantly lower by then?

On the contrary. Rents are being raised to completely unaffordable levels in our area. Salaries are going up, but not nearly as much as groceries and rent. I expect people will be moving in with friends and relatives to an even greater degree than they have in the past two years.

Our neighbors have received absolutely obscene home valuations by appraisers. Two of our neighbors are about to start renting out basement apartments in their homes, and I was astonished at what they plan to ask for rent. The value Zillow places on our home is beyond crazy.

A new car is becoming unaffordable for nearly everyone as well, and a good used car is beyond most budgets.

The only “anti-inflationary” event might be the ending of lockdowns in China, but I’m not sure how real the victory over Covid actually is.

I think we will have the worst of both worlds, recession with inflation, which will increase misery for everyone.

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The highest rates are better, with 6 month and 1 year getting well over 1%, while 3 year is into the twos and 5 year is starting to flirt with 3%.

I can’t speak to bankrate, but Schwab is showing me 1-year CDs @ 2.25%, going up to 3-year CDs @ 3.1%. Those rates won’t beat inflation over the corresponding time periods, but for someone looking for a place to hide for a while, they’re not nothing.

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I think we will have the worst of both worlds, recession with inflation, which will increase misery for everyone.

The people in economic power positions are doing well no matter what. If the market crashes into next year those folks were not trading much of their estates anyway. There will be no losses there. If profits rachet down for half a year makes little difference as things will come back to growth for them at the higher prices set by this the prior inflationary period. The USD appreciating will drive down their nominal commodity prices.

In other words any down time is not a problem for the powers that be.

Unless China’s financial implosion takes out one of their financials. The swaps market is going to start going crazy in a bad way later this year.

But I will give you a for instance…family I know at Vanguard have been told to ride it out by a money manager. What else could Vanguard or any of them say? Sell everything?

Tru dat!

Sell everything and do what?

I’m at Vanguard, if I sold out and rebought every time the market hiccuped I’d miss out on a lot of dividends.

Desert (buy and hold through hell and high water) Dave

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