Good time to be in cash

[wildcat]

Thank Martha; she found it. She called me from work and said she found a picture of Alexander Haig. I said I'd rather be a mushroom cloud. Her picture leaves a nice glow, like a blonde, easy to find in the dark

Thanks Martha . I suggested a bear for his avatar but that one has me beat.

 

[uncledrz]

  If you can't trust the US gov't, who can you trust?

http://wwws.publicdebt.treas.gov/AI/OFBills

--Greg

I agree that the government will pay on its debt. OTOH there are plenty of areas in which I don't trust the government.

 

[wabmester]

For what it's worth, below are the current rates on treasury bills at TreasuryDirect.  Current short term rates are near 4% for 4-week and 13 bills.  It take about five minutes to sign up, and it may be a good alternative to longer duration CDs.  If you can't trust the US gov't, who can you trust?

http://wwws.publicdebt.treas.gov/AI/OFBills

Is it worth the extra 20 basis points you're getting over a money market account? Don't you have to manually rotate into new bills? And if you buy at a discount to par, the tax accounting has got to be a nightmare.

 

[Michael]

The tax accounting is easy. They send you a statement at year end telling you exactly what to report as income.

 

[Dry Socks]

Here's the interview:

Bogle on KUOW

Hey wab, thanks for the link.

 

[dex]

For what it's worth, below are the current rates on treasury bills at TreasuryDirect. Current short term rates are near 4% for 4-week and 13 bills. It take about five minutes to sign up, and it may be a good alternative to longer duration CDs. If you can't trust the US gov't, who can you trust?
I did it - I scares me how little time it took to confirm my information.

http://wwws.publicdebt.treas.gov/AI/OFBills

--Greg

 

[greg]

Dex: Yeah, it's amazing how quickly they can go right into your checking account for their . . . um. . . research. Makes you wonder what else they have access to. So far so good for me. It looks like the Fed is going to continue raising rates at least a couple more times, so I'm sticking to shorter durations (4 and 13 weeks) for now. I may go out on the time curve as yields rise and as we get closer to retirement. I'll create a ladder stretching out 3-5 years. At least that's the plan so far. I sort of like playing peek-a-boo with the money: They take money out of your checking account when you buy and automatically put everything back there as the bills/notes mature. I end up having two sets of independent records.

Richard Russell says that T-bills are the safest thing to hold other than cash (actual paper money) or gold in an economic melt down or panic. It's the last line of defence. I wonder what sort of credit rating score the US would get in the real world, with all our debt?

--Greg

 

[dex]

Greg,
Rates are begining to look good. I think there is a possibility of the Fed rasing rates to 5%. That is the time I will be locking in. For income I plan on using a combinatioin of junk bonds, corp bonds and US Government bill. Treasury Direct is good because you don't pay the trading fees. E*Trade charges $40 to participate in a US Treasury auction.

I'm still planning to be RE in April of 2005 and I need to set up my income stream. The only thing I can see stopping me now is bird flu

 

[greg]

Dex: Someone here said that if long rates ever go to 7% there would be a big pile on. I may go way out on the curve if that happens--and it will when the US$ drops.

--Greg

 

[brewer12345]

Greg,
Rates are begining to look good.  I think there is a possibility of the Fed rasing rates to 5%.  That is the time I will be locking in.  For income I plan on using a combinatioin of junk bonds, corp bonds and US Government bill.  Treasury Direct is good because you don't pay the trading fees.  E*Trade charges $40 to participate in a US Treasury auction.

I'm still planning to be RE in April of 2005 and I need to set up my income stream.  The only thing I can see stopping me now is bird flu

This is a slight tangent to your post, but if you are looking at junk bonds, etc. how about exchange-traded preferreds, closed end funds trading at a discount to NAV, and high payout equities? It wouldn't be too hard to get tax-advantaged stuff that yields 7 to 9%. If you are worried about a rate spike, you could always buy a few out of the money (i.e. cheap) puts on TLT.

 

[retire@40]

Dex:  Someone here said that if long rates ever go to 7% there would be a big pile on.  I may go way out on the curve if that happens--and it will when the US$ drops.

I like the 7% rate too, and I would probably start a laddered long-term lock-in at that rate. I'm making an assumption that (my) inflation will average 3% in the long-term and that my average draw will not be more than 4%.

 

[wabmester]

Someone here said that if long rates ever go to 7% there would be a big pile on.  I may go way out on the curve if that happens--and it will when the US$ drops.

In case you guys haven't noticed, the longer-term rates haven't budged. They're still at the same point they were at the beginning of the year. So far, the expectations for longer-term inflation are still rock-bottom low. Everybody believes that the fed has an inflation nuke that will Whip Inflation Now when deployed, so you may never see the longer end of the curve go up unless inflation demonstrates that it is impervious to fed action (or if demand drops way off, and real rates start creeping up).

 

[greg]

In case you guys haven't noticed, the longer-term rates haven't budged. They're still at the same point they were at the beginning of the year. So far, the expectations for longer-term inflation are still rock-bottom low. Everybody believes that the fed has an inflation nuke that will Whip Inflation Now when deployed, so you may never see the longer end of the curve go up unless inflation demonstrates that it is impervious to fed action (or if demand drops way off, and real rates start creeping up).

Wab: I'm of the firm opinion that "the Greenspan Conundrum" is self inflicted, that not only our country but just about every other one has flooded the markets with so much money that it now gravitates toward US bonds, keeping rates low. This too shall pass.

--Greg

 

[TromboneAl]

People talk as if interest rate changes are easier to predict than stock market changes. I'm not so sure anymore.

 

[greg]

T-Al: Who knows for sure? But we do know that Greenspan is currently taking away the punchbowl.

--Greg

 

[Gone4Good]

People talk as if interest rate changes are easier to predict than stock market changes.  I'm not so sure anymore.

They're not any easier to predict because they are set by liquid, forward looking markets, just like stocks. If you could easily predict interest rates then you could predict bond prices. If that were the case you'd have your very own perpetual money machine. Markets don't work like that, unfortunately.

 

[wabmester]

People talk as if interest rate changes are easier to predict than stock market changes.  I'm not so sure anymore.

Some economists believe that the yield curve has predictive powers. The stock market takes all information about a stock and incorporates that into a single price. But the bond market gives you a different yield for short-, mid-, and long-term maturities. Sort of a built-in futures market. The yield curve supposedly gives pretty good predictions of future interest rate changes, future inflation, and future economic growth.

 

[Gearhead Jim]

Right now we have a pretty flat yield curve, which seldom lasts.  But it can un-flatten either by short-medium term rates dropping or by long term rates rising.  The latter seems more likely.  Or perhaps a little of both.

No one really knows...

 

[Cut-Throat]

I'm not sure who this quote is from:

"There are two kinds of people as far as predicting interest rates.

1.) Those who admit they cannot predict interest rates.

2.) Those that don't know that they cannot predict interest rates."

 

[wabmester]

Regardless of the shape of the yield curve, in theory long-term rates should be a reflection of expected short-term rates over the longer term.   This is known as the "expectations hypothesis."   A rational market would give you a long-term yield that is equivalent to the expected series of short-term yields over that term + a risk premium.

Historical data shows that the expectations hypothesis doesn't hold very well.   There are several theories for why this is so.  For example, it may be that the risk premium changes with time, or more likely that the bond market over-reacts to short-term changes.   In any case, the yield curve is the best guess of future interest rates that you're going to find.

 

[retire@40]

It's also interesting how everyone is starting to focus on which BANKS they can get the highest interest rates.

Very few are talking about getting higher returns in the stock market over the long-term.

In fact, I don't think I've heard anyone say they are buying equity funds because they have performed so well in the past 5, 4, 3, 2, or 1 years.

The stock market has become boring for the past 5 years.  A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

 

[renferme]

I'm certainly no expert; there are some on this board though.
But, I have no confidence in the stock market. After the tremendous 90's,
the market has been terrible for the past 6 years. When the bear market hit in 2000, my opinion was that after all the boom years, there was going to be many years of bad times or at least many years of the market going sideways.
Look what's happened since 2000:
Year 2000 : big time down
Year 2001 : big time down
Year 2002 : big time down
Year 2003 : up very nicely
Year 2004 : up a little
Year 2005 : sideways.
Overall 2000 to 2005: DOWN !
Year 2000 Nasdaq hit 5000; Nasdaq today: struggling to stay at 2100.
I'll continue to stay in the market, but only at about 25 to 28 percent, and only invest in dividend stocks.
That's my 2 cents worth; not quite as pessimistic as John Galt, but kind of close!
I still look to pay off the mortgage in about 3 years when SS kicks in and my mortgage balance comes down some more. Don't believe that I can earn much more than the 5.25% mortgage that I have now.

 

[Gone4Good]

The stock market has become boring for the past 5 years.  A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

Agreed.  I hope the stock market stays boring for the next 5 years and then gets very exiting just after I quit working full time.  

 

[Cut-Throat]

It's also interesting how everyone is starting to focus on which BANKS they can get the highest interest rates.

Very few are talking about getting higher returns in the stock market over the long-term.

In fact, I don't think I've heard anyone say they are buying equity funds because they have performed so well in the past 5, 4, 3, 2, or 1 years ago.

The stock market has become boring for the past 5 years.  A boring market could be more profitable in the long-term than chasing banks with the highest short-term rates.

I have a 55/45 stock/fixed portfoilo. Of the fixed portion, some is cash. The cash is always looking for higher yield. Hence the discussion.

I maintain my 55% stock position, and rebalance yearly. I don't need to put any new money in the market, and if I did it would be after re-balancing. I know, I cannot time the market so I don't worry about Market drops or rises.

I can time Cash however. Move it from one institution to the other. Again, hence the discussion!

 

[Gone4Good]

I'm certainly no expert; there are some on this board though.
But, I have no confidence in the stock market.    After the tremendous 90's,
the market has been terrible for the past 6 years.   When the bear market hit in 2000,   my opinion was that after all the boom years, there was going to be many years of bad times or at least many years of the market going sideways.
Look what's happened since 2000:
Year 2000 :  big time down
Year 2001 :  big time down
Year 2002 :  big time down
Year 2003 :  up very nicely
Year 2004 :  up a little
Year 2005 :  sideways.
Overall 2000 to 2005:  DOWN !
Year 2000 Nasdaq hit 5000;   Nasdaq today:  struggling to stay at 2100.
I'll continue to stay in the market, but only at about 25 to 28 percent, and only invest in dividend stocks.
That's my 2 cents worth;  not quite as pessimistic as John Galt, but kind of close!
I still look to pay off the mortgage in about 3 years when SS kicks in and my mortgage balance comes down some more.    Don't believe that I can earn much more than the 5.25% mortgage that I have now.

Would you feel better investing in equities today if stocks had posted double digit returns over the past five years? I wouldn't.

I like the idea that the economy is humming along, companies are growing, and all the while I'm paying less for stocks then I did in 2000.