I know, I know, we aren’t supposed to try to time the markets. But I’d like to tap into the METAR “hive mind” to solicit opinions from across the bull-bear spectrum.
I’m interested in Treasury and TIPS yields and inflation projections. The chart shows that the stock market is in a historic bubble and so I have relatively little of my portfolio invested in stocks at this time. (Of course, others disagree, but that’s what makes markets.)
The proportion of my portfolio in stocks is my estimation of the risk that I could be wrong. (I also don’t need to take risks since my assets and income cover my needs.) An exception to my aversion for stocks would be dividend-yielding stocks whose businesses are not sensitive to the business cycle and whose prices are stable in a market-wide drawdown. A historic drawdown that could last longer than I expect to live. (10 - 15 years) However, I would buy back into the stock market if it fell, say, 35% or more. I expect that to be about 9 months to a year and a half from now, based on the Fed’s program of raising interest rates and the time it ususally takes for the stock market to hit bottom after a crash begins.
I have a lot of cash in bank accounts from CDs that have matured recently.
While Treasury yields are rising, bank CD yields are not rising because the banks have more than enough money from deposits. (People saved about half of the 2020-2021 federal fiscal stimulus “Economic Impact Payments.”)
**Flattening Yield Curve Stirs Recession Debate**
**Yields have climbed more quickly on short-term Treasurys than on longer-term bonds, reflecting expectations for a rapid series of interest-rate rises**
**by Sam Goldfarb, The Wall Street Journal, March 22, 2022**
**Yields on shorter-term and longer-term U.S. government bonds have been converging rapidly, stirring fears—along with skepticism—that the bond market is close to signaling a looming recession....**
**Today’s yield curve isn’t exactly downward sloping, but it has been heading in that direction. The gap between two- and 10-year yields has shrunk to around 0.2 percentage point from 0.9 percentage point in early January. Yields on three-, five-, and 10-year notes are all now just under 2.4%....** [end quote]
The yield curve has already climbed due to the Fed’s announcements that it will raise interest rates. Rates of all debts are in a climbing trend.
After the 1990 recession, the Fed cut the fed funds rate, then raised it until it reached a stable level that was maintained until the 1999 stock market bubble. Then they raised the rate, popped the bubble and changed policy. Since 2000, the Fed has a practice of keeping the fed funds rate far too low, far too long after recessions, then raising the fed funds rate rapidly and crashing the market. This has addicted the markets to free money while making them more fragile.
From 1990 - 2020, inflation was kept around 2%. That is no longer the case.
Inflation and " Sticky Price Consumer Price Index less Food and Energy" are climbing. If they continue to rise, TIPS might be a good alternative.
Junk bonds aren’t yielding much more than AAA so I prefer to stick to quality.
From Fidelity research:
3mo 6mo 9mo 1yr 2yr 3yr 5yr 10yr CDs (New Issues) 0.50% 0.85% 1.00% 1.35% 2.15% 2.15% 2.40% 2.40% BONDS U.S. Treasury 0.65% 1.05% 1.41% 1.75% 2.33% 2.52% 2.56% 2.48% U.S. Treasury Zeros -- -- -- 1.55% 2.25% 2.42% 2.56% 2.60% Agency/GSE 0.46% 1.00% 1.44% 1.76% 2.34% 2.62% 2.89% 3.28% Corporate (Aaa/AAA) -- 1.09% 1.57% 1.67% 2.19% 2.63% 2.79% 3.17%
This compares with Discover Bank CDs.
12-month term 0.70%APY 18-month term 0.70%APY 24-month term 0.80%APY 30-month term 0.80%APY
I have been, and will continue to, buy I-Bonds for myself and DH but those are limited to only $10,000 each per year. (Currently yielding 7.3%.)
How to best ladder bonds to maximize yield in the short term while being poised to buy bonds when the Fed’s rate raising cycle reaches its maximum and the stock market crashes? How would the timing look?