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Fed Announcement 0% till mid 2013
Old 08-09-2011, 04:08 PM   #1
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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:
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.
Federal Reserve to keep fed funds rate low until 2013 - Aug. 9, 2011
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Old 08-09-2011, 04:09 PM   #2
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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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Old 08-09-2011, 04:12 PM   #3
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Bond funds are looking good.
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Old 08-09-2011, 04:13 PM   #4
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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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Old 08-09-2011, 04:15 PM   #5
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Bond funds are looking good.
Which type of bond funds?
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Old 08-09-2011, 04:18 PM   #6
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Originally Posted by ziggy29 View Post
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?
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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Old 08-09-2011, 04:38 PM   #7
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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
It could work if you have enough of them (to paraphrase Groucho Marx)

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Old 08-09-2011, 04:44 PM   #8
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It could work if you have enough of them (to paraphrase Groucho Marx)

DD
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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Old 08-09-2011, 04:49 PM   #9
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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

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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Old 08-09-2011, 05:05 PM   #10
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Their message seems to be... if you want any return, take more risk!
Vegas, here I come. Everything on red.

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Originally Posted by haha View Post
. 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
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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Old 08-09-2011, 05:38 PM   #11
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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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Old 08-09-2011, 05:52 PM   #12
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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
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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Old 08-09-2011, 05:55 PM   #13
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Bond funds are looking good.
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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Old 08-09-2011, 06:15 PM   #14
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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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Old 08-09-2011, 06:35 PM   #15
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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...
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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Old 08-09-2011, 06:42 PM   #16
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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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Old 08-09-2011, 06:49 PM   #17
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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.
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Which type of bond funds?
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Old 08-09-2011, 06:53 PM   #18
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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?
I think that's 4% Celsius.
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Old 08-09-2011, 07:28 PM   #19
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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?
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Old 08-09-2011, 07:32 PM   #20
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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!
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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