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Fed Announcement 0% till mid 2013
08-09-2011, 03:08 PM
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#1
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Give me a museum and I'll fill it. (Picasso)
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Fed Announcement 0% till mid 2013
I suppose the 0% is a little off... but not by much for the really short-term fixed!
What now.... This changes the picture a little. Seems to make their plans a little more transparent. However, if inflation kicks up... they might change their posture!
What's a small investor to do..... go for the max coupon for a year or so or keep the duration short?
Thoughts and ideas on bonds and other fixed investments.
 Quote:
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Interest rates: The Fed indicated it plans to keep "exceptionally low" interest rates in place until at least mid-2013 as a way to continue to prop up the recovery.
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Federal Reserve to keep fed funds rate low until 2013 - Aug. 9, 2011
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08-09-2011, 03:09 PM
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#2
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Give me a museum and I'll fill it. (Picasso)
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Translation: The War on Savers rages on. Anyone who is retired and living partially on interest income may have thought they could weather a short storm of pathetic interest rates, but for this long? Will some of them be forced to move in with their kids and such?
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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08-09-2011, 03:12 PM
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#3
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 413
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Bond funds are looking good.
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Retired - Class of 2011
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08-09-2011, 03:13 PM
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#4
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Give me a museum and I'll fill it. (Picasso)
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It seems to me that it is an obvious reaction to the market sell-off.
Their message seems to be... if you want any return, take more risk!
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08-09-2011, 03:15 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2010
Location: USA
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Quote:
Originally Posted by Beryl
Bond funds are looking good.
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Which type of bond funds?
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08-09-2011, 03:18 PM
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#6
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Give me a museum and I'll fill it. (Picasso)
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Quote:
Originally Posted by ziggy29
Translation: The War on Savers rages on. Anyone who is retired and living partially on interest income may have thought they could weather a short storm of pathetic interest rates, but for this long? Will some of them be forced to move in with their kids and such?
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I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?
It doesn't, but it sure is sweet for the banks and Wall Street.
Ha
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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08-09-2011, 03:38 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Aug 2007
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Quote:
Originally Posted by haha
I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?
It doesn't, but it sure is sweet for the banks and Wall Street.
Ha
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It could work if you have enough of them (to paraphrase Groucho Marx)
DD
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At 54% of FIRE target
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08-09-2011, 03:44 PM
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#8
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Give me a museum and I'll fill it. (Picasso)
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Quote:
Originally Posted by DblDoc
It could work if you have enough of them (to paraphrase Groucho Marx)
DD
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True, but 4% is 4%, regardless of what it is 4% of.
I think you are suggesting that given enough oversaving, the withdrawal rate can be so low as to basically make returns on the asset unimportant. That will be true for few people, but not very many because the average person worked to make and save money in order to spend that money.
Ha
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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08-09-2011, 03:49 PM
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#9
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Give me a museum and I'll fill it. (Picasso)
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Quote:
Originally Posted by haha
I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?
It doesn't, but it sure is sweet for the banks and Wall Street.
Ha
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Sweet for anyone issuing some form of debt.... securities or getting a mortgage.
Still... he probably just made their intentions clear... because of housing, they were probably going to do it anyway.
I suppose it is better to know than not.
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08-09-2011, 04:05 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
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Quote:
Originally Posted by chinaco
Their message seems to be... if you want any return, take more risk!
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Vegas, here I come. Everything on red.
Quote:
Originally Posted by haha
. That will be true for few people, but not very many because the average person worked to make and save money in order to spend that money.Ha
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The "average" person has apparently made a false assumption in thinking they can spend the maoney they have saved. 
I can see some that were ready to pull the plug say "Just one more year (or two or three).
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Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
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08-09-2011, 04:38 PM
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#11
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Full time employment: Posting here.
Join Date: Apr 2008
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It probably would not have been necessary if congress and the president enacted a
sound debt ceiling plan and the US rating did not sink to AA-.
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08-09-2011, 04:52 PM
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#12
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,498
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Quote:
Originally Posted by haha
I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?
It doesn't, but it sure is sweet for the banks and Wall Street.
Ha
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Vanguard's Total Bond Market Index Fund has an SEC yield of 2.38%.
As you know, the 4% withdrawal rate unfortunately was not based on analysis of a 100% bond portfolio. Most of us have some equities or equity funds as well, and hope that this will help in compensating for inflation. Some others who have mostly bonds also have no problems living on 2% instead of 4%. Luckily, inflation has (supposedly) been low recently.
To those accustomed to the high returns of the 1990's, returns this low must be a big shock.
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Happily retired since 2009, at age 61. Best years of my life by far!
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08-09-2011, 04:55 PM
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#13
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Give me a museum and I'll fill it. (Picasso)
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Quote:
Originally Posted by Beryl
Bond funds are looking good.
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Can someone explain this? I guess if interest rates aren't going up, then bond prices won't go down, but the yield is so low...
__________________
Al
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08-09-2011, 05:15 PM
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#14
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Administrator
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Location: Chicagoland
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There is very little good in this announcement. It is a sign that the US economy is sick with too much debt (gov't and mortgage) and some of that debt needs to be paid down and written off. If we can't find a way to pro-actively write it down, the Fed is going to make sure it is inflated away. Savers beware.
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In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”
― Rudiger Dornbusch
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08-09-2011, 05:35 PM
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#15
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Recycles dryer sheets
Join Date: May 2006
Posts: 465
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Quote:
Originally Posted by TromboneAl
Can someone explain this? I guess if interest rates aren't going up, then bond prices won't go down, but the yield is so low...
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The interesting thing is that even though bond fund yields are low, the total returns have thus far been phenomenal:
Vanguard Inter-Term Bond Index VBILX - Yield = 2.74%, YTD RTN = 8.73%.
Difficult to see how this can be sustained.
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08-09-2011, 05:42 PM
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#16
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 118
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Pundits said the U.S. was not going to follow the path of Japan . . . anyone want to take bets that The Fed doesn't raise rates WELL BEYOND 2013? Chances are it won't be Bernanke that raises rates, but his successor, after Ben retires.
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08-09-2011, 05:49 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
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I am sorry if my question is basic, but are these the same bonds as municipal bonds ? I am thinking of buying a muni bond this month for $20k.
Quote:
Originally Posted by Aiming_4_55
Which type of bond funds?
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Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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08-09-2011, 05:53 PM
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#18
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Moderator
Join Date: Feb 2010
Location: Flyover country
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Quote:
Originally Posted by haha
I see that many forumites have 50% or more of their port in fixed assets. How does that support a 4% withdrawal rate?
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I think that's 4% Celsius.
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I thought growing old would take longer.
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08-09-2011, 06:28 PM
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#19
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Full time employment: Posting here.
Join Date: Mar 2008
Posts: 654
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Haven't looked today butt !!!
Yesterday, Alley Bank was offering 1.9% for 4 years with 2 shots at an up grade. I'm beginning to wonder should I jump to that with cash on hand and ride it out for a while.
What say you folks?
Steve
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08-09-2011, 06:32 PM
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#20
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Dec 2004
Location: the City of Subdued Excitement
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Quote:
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What now.... This changes the picture a little. Seems to make their plans a little more transparent. However, if inflation kicks up... they might change their posture!
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I am not worried about inflation. I am worried about deflation. Keynes showed that depressions happen when people stop spending money and low demand makes prices drop. They continue to not spend because things will be cheaper tomorrow or they are afraid (Japan) or they don't have any money (coming soon to a Homeland near you!). Then low demand kills jobs because no one is buying anything.
In the middle of all this, the government cuts spending because of pressure. Exactly the wrong thing to do. Then there is the ongoing attack on business, mostly small business. The only good thing to come out of this may be reducing the number of government employees. I suggest starting with the elected ones.
It looks like a perfect storm of stupidity, incompetence and greed to me, in all elected officials north of dog catcher.
Has anyone figured out that Greenspan caused more damage to the US than Bin Laden?
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I have outlived most of the people I don't like and I am working on the rest.
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