Something to keep in mind in 2021 and beyond

GatorCatsi

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We've discussed this before, but worth considering as we continue down whatever this road is.

“A surprisingly large percentage of US income tax receipts are tied to a rise in US stock prices. When the US stock market just stops rising…not falls, but just stops rising, that will put pressure on the receipt side of the US fiscal picture, which no one is talking about.”– Alan Greenspan, 5/19/15


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Concrete Helmet

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I have a plan that could bring this country to it knee's and make it make it roll my weiner in it's mouth if 69,999,999 other people are interested.....
 

MissouriGator

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It is interesting to examine the correlation when the dow is up and and the individual stocks are down. Just a thought.
 

BMF

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This run is going to end badly for a lot of people, especially the robinhooder's (although most of them likely have accounts w/ less than $5k-$10K, but that's probably their life savings at 26-30 years old). Some big hitters are going to take a beating also.
 

Concrete Helmet

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Anyone looking at the 10 year over the last month? It's tapping 1.30 today and from what I'm thinking I believe were losing control of inflation. Powell is full of sh!t with his 2% lies. We are getting very close to the edge here of a BIG correction and possibly a crash. Even the stimulus isn't going to keep the stock market from rolling over. Better commodity up boys!!
 

BMF

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Anyone looking at the 10 year over the last month? It's tapping 1.30 today and from what I'm thinking I believe were losing control of inflation. Powell is full of sh!t with his 2% lies. We are getting very close to the edge here of a BIG correction and possibly a crash. Even the stimulus isn't going to keep the stock market from rolling over. Better commodity up boys!!

The 10-year has gone up way faster than anyone predicted (so far this year). This is going to cause mortgage interest rates to go back up a little (which I'm all for, even though I may be buying soon).
 

FireFoley

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@Concrete Helmet and @BMF beat me to it. The Fed is okay with a slow rise in long term rates but I can assure you they do not want those long rates moving up 5+ basis points a day or even a week. If it continues, the FED will have to adjust their Treasury buying program and buy more on the long end to suppress those rates, aka yield curve control. It usually takes a few weeks for rate rises like this to filter into mortgage rates, but if the 10 yr. hovers around 1.30, I would be curious as to where the 30 yr. mortgage is in a month. What I suspect is that you have a last rush by people into buying and or/reyfying thinking that the trend has turned.
 

Concrete Helmet

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@Concrete Helmet and @BMF beat me to it. The Fed is okay with a slow rise in long term rates but I can assure you they do not want those long rates moving up 5+ basis points a day or even a week. If it continues, the FED will have to adjust their Treasury buying program and buy more on the long end to suppress those rates, aka yield curve control. It usually takes a few weeks for rate rises like this to filter into mortgage rates, but if the 10 yr. hovers around 1.30, I would be curious as to where the 30 yr. mortgage is in a month. What I suspect is that you have a last rush by people into buying and or/reyfying thinking that the trend has turned.
You understand bonds very well which leads me to ask if what you are saying means QE? From my understanding the FED is about the only one who seems to want to buy LT's anymore. I've heard China(and other countries) are off loading them pretty quickly....As I mentioned in another thread our biggest client(credit union) is showing a major drop off in mortgage lending around July or so....As I've said before you don't have to be the smartest guy in the room to get out of a burning building...just find the smartest guy.
I just STRONGLY advised my wife NOT to hire anyone else....
 

Concrete Helmet

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(which I'm all for, even though I may be buying soon).
You've got enough jack to plunk down and kick a higher rate in the a$$...Remember interest rate is nothing more than a rental rate on borrowed money over a time period....shorten the terms with a large DP and stab that pig with additional principal payments on a regular basis and you'll pay a lot less than lunch pail Johnnie who puts 10-20% down and pays a regular monthly payment. Higher rates will also cause a pricing correction in the housing market...
 

FireFoley

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You understand bonds very well which leads me to ask if what you are saying means QE? From my understanding the FED is about the only one who seems to want to buy LT's anymore. I've heard China(and other countries) are off loading them pretty quickly....As I mentioned in another thread our biggest client(credit union) is showing a major drop off in mortgage lending around July or so....As I've said before you don't have to be the smartest guy in the room to get out of a burning building...just find the smartest guy.
I just STRONGLY advised my wife NOT to hire anyone else....

We are already still in QE (whatever number it is 5,8 or 20). The FED is buying 80 or 120 BIL a month across the Treasury curve as well as mortgage backed securities etc. All I am suggesting is that if long rates rise too fast, the FED will adjust and put more of their funds into purchasing long term in hopes of suppressing the rise in those rates. The FED can shun buying short term paper b/c they control the overnight rate with policy and have said they are not raising rates until .... never. so rates thru say 2-3 years will stay tethered close to zero without a lot of extra buying in those maturities. But if inflation begins to arise sending longer term rates skyward, this could stifle any hint of recovery and the only solution the FED will have will be to throw as much money as possible sucking up those longer term securities, b/c the general public, soverigns etc. don;t want that risk. The FED can't control long rates by setting interest rate policy on them, they only control the overnight rate.

In regards to your business, your advice could be correct, but as you know all residential real estate is local. Also another 6 month rental moratorium and mortgage forbearance just adds to the uncertainty and just kicks the can down the road.
 

BMF

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From a blog I read (on the 10-year):

New lows for bonds, as the ten-year US Treasury yield hits 1.26%, up 38 basis points since January 1 and a one-year high. 1.50% here we come! Ever hear the expression “Don’t fight the Fed”? All financials are off to the races, where we were 60% long. Biden’s $1.9 trillion rescue package will be 100% borrowed and take total US borrowing to a back-breaking 55% of GDP. I hate to sound like a broken record but keep selling rallies in the (TLT), buy (JPM), (BAC), (GS), (MS), and (BRK/B) on dips.
 

FireFoley

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From a blog I read (on the 10-year):

New lows for bonds, as the ten-year US Treasury yield hits 1.26%, up 38 basis points since January 1 and a one-year high. 1.50% here we come! Ever hear the expression “Don’t fight the Fed”? All financials are off to the races, where we were 60% long. Biden’s $1.9 trillion rescue package will be 100% borrowed and take total US borrowing to a back-breaking 55% of GDP. I hate to sound like a broken record but keep selling rallies in the (TLT), buy (JPM), (BAC), (GS), (MS), and (BRK/B) on dips.

Not sure when that was written but the 10 yr, hit 1.38% today and 1.50 is within sight. According to the talking morons, the dividend yield on the aggregate S&P 500 is 1.5%. So for argument sake you could buy 10 yr. paper and get the exact same return as the S&P 500 for 10 years and guaranteed principal and no risk ( except for interest rate risk causing price changes, but if you do not sell, you get your money back in 10 years). You could buy the S&P 500 but have the risk of losing principal but also making money on capital appreciation, which is probably a safer thought. But since most would not leave something for 10 years, it does give one an opportunity to earn a return equal to the S&P 500 without risks, if one feels better stock prices to get in may be on the way.

I own some on your list among others in that area, but can't help but think when I was buying JPM in the low 100's, then dipping in for more in the low 90's and then squeezing my cheeks when I saw it in the mid 80's. Well lo and behold it is 150 now, but I can't say I agree that now is the time to jump in. Seems like that times has passed.
 

Concrete Helmet

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Here comes yield control
here comes yield control
right down yield control lane....
 

BMF

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Not sure when that was written but the 10 yr, hit 1.38% today and 1.50 is within sight. According to the talking morons, the dividend yield on the aggregate S&P 500 is 1.5%. So for argument sake you could buy 10 yr. paper and get the exact same return as the S&P 500 for 10 years and guaranteed principal and no risk ( except for interest rate risk causing price changes, but if you do not sell, you get your money back in 10 years). You could buy the S&P 500 but have the risk of losing principal but also making money on capital appreciation, which is probably a safer thought. But since most would not leave something for 10 years, it does give one an opportunity to earn a return equal to the S&P 500 without risks, if one feels better stock prices to get in may be on the way.

I own some on your list among others in that area, but can't help but think when I was buying JPM in the low 100's, then dipping in for more in the low 90's and then squeezing my cheeks when I saw it in the mid 80's. Well lo and behold it is 150 now, but I can't say I agree that now is the time to jump in. Seems like that times has passed.

Who are the primary buyers of the 10-year treasury? It just seems like a long time to lock up your money.
 

FireFoley

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Who are the primary buyers of the 10-year treasury? It just seems like a long time to lock up your money.

Not many individuals, but I was using that as an example for return purposes. Soverign govt's. are buyers of our paper as well as many insurance companies. Lots of insurance products are based on Treasury paper. Other financial institutions are buyers and really anyone who wants to purchase can participate either in the auctions or buy in the secondary market. State and Local Gov'ts also play in these instruments for pension plans, etc. Lastly the FED has become a LARGE buyer and if that 10 yr. keeps rising, they might well become the largest buyer to contain the rise as @Concrete Helmet so eloquently put it "yield control"
 

BMF

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Time for a Tantrum?
The bond markets are getting fussy.

DealBook

The bond market gets fussy
The S&P 500 suffered its worst single-day drop in a month yesterday, with tech stocks hard hit. But the big story is in bonds, where yields surged (and prices fell) as investors worried that the Fed wasn’t, well, worried enough.

Is this another “taper tantrum”? The sharp rise in government bond yields in recent days, particularly in the longer-dated maturities used as benchmarks for consumer loans and mortgages, reminded many of the 2013 “taper tantrum.” Then, a jump in yields followed comments from Ben Bernanke, the Fed chairman at the time, that he would taper off the central bank’s emergency bond-buying program, which was propping up markets after the financial crisis.



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This time, the Fed isn’t suggesting anything like that. Instead, it’s the central bank’s calm despite a potential surge in post-pandemic economic growth that seemingly spooks investors. They fear that keeping rates low and stimulus flowing freely will stoke inflation, which would require raising rates and withdrawing stimulus sooner than expected.

Cue the toddler metaphors. As every parent knows, there are several stages that a child goes through before hitting a full-blown tantrum:

  • “As long as the Fed is far away from tapering, it is too early to throw a serious taper tantrum,” Holger Schmieding of Berenberg wrote.

  • This is a “tantrum without the taper,” noted analysts at TD Securities (and others).

  • The financial adviser Richard Bernstein, in a Financial Times op-ed, wrote that the Fed should ignore the bond selling, likening it to teaching “babies to self-soothe and fall asleep on their own.”
But what if the tantrum is for real? A truly serious bond sell-off often leads to “contagion, illiquidity, busts, bankruptcies” and other ills, across all assets, analysts at Bank of America noted. That said, the 2013 tantrum faded relatively quickly and markets regained their footing. Now, the “only reason to be bearish is there is no reason to be bearish,” the analysts wrote (as good a reason as any for most tantrums).

  • Stocks are still mostly up on the year, and futures this morning suggest that equities and bonds are set for modest gains as cranky investors calm down — or take a breather before resuming their protest.


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