Fed cuts interest rates to Zero

[luckydude]

Another way to look at this is the Fed is confirming what the bond market needs and already priced. Not doing this would be the equivalent of tightening, which would be worse.

I am no economist, but wouldn't this be a bit like the tail wagging the dog? Historically, are bond market yields a good predictor of Fed interest rate directions?

Lucky Dude

 

[teejayevans]

But isn’t cutting rate to 0% a sign they expect more than just a mild recession? Seems they are doing more damage than helping.

 

[RobbieB]

Lower rates mean my bonds just went up. Just what I needed when my stocks went down -

 

[foxfirev5]

Lower rates mean my bonds just went up. Just what I needed when my stocks went down -

If you're 20% bonds, the amount they increase won't begin to offset the decline in equities.

 

[COcheesehead]

Tomorrow the washout day? Or just one of many gut wrenching days down until we hit the washout day? Enquiring minds want to know.

 

[COcheesehead]

If you're 20% bonds, the amount they increase won't begin to offset the decline in equities.

I am 80% bonds/fixed income and I can attest that they don’t make up for a free fall. They help though. As of today (who knows tomorrow) I am down 5.5%.

 

[foxfirev5]

In afraid it may be the first of many washout days. Until tonight I've been concerned but this may be reaching a higher level on several fronts. Time to turn off the news and hideout.

 

[DCdave]

Tomorrow the washout day? Or just one of many gut wrenching days down until we hit the washout day? Enquiring minds want to know.

Predicting market moves is always a wild guess but this weekend has been very eventful and could lead to a washout tomorrow .....
*The fed move signals things are worse than we think.
*The closing of restaurants, bars, schools, travel etc is accelerating. I believe virtually all dining/entertainment etc will be closed by the end of the week and the entire travel industry will dry up.

The market has three circuit breakers after the open tomorrow (-7,-13-20) and I would not be at all surprised if the last two breakers are tested.

 

[Freedom56]

I am 80% bonds/fixed income and I can attest that they don’t make up for a free fall. They help though. As of today (who knows tomorrow) I am down 5.5%.

With bonds, the first thing to go are low yield bonds with premiums over par as funds sell to raise cash. If you buy bonds or preferred shares over par, you risk the capital loss in any case. I find that the best strategy is to time your bond purchases during these sell-offs and always buy below par at a decent spread between treasuries, and float your cash in MM funds while waiting.

 

[GenXguy]

I had predicted the stock market wouldn't recover for at least 2 years, probably longer. At this point, I'm now pushing that out even further.

 

[Another Reader]

My guess is the demand for ammunition now might be approaching the demand for toilet paper. People are really scared right now. They have lost a lot of money and their jobs and businesses are on the line. Debt heavy businesses are going to need a lot of help to get past dramatic drops in revenue. The market sees this and discounts the future skimpy revenues at a much higher rate.

 

[Fermion]

I am 80% bonds/fixed income and I can attest that they don’t make up for a free fall. They help though. As of today (who knows tomorrow) I am down 5.5%.

How did you make any money last year at 80% bonds

 

[Running_Man]

But isn’t cutting rate to 0% a sign they expect more than just a mild recession? Seems they are doing more damage than helping.

The FED would like to keep the stock market up. Please stop to think where the economy was BEFORE this started to happen. The Budget deficit was 1 Trillion annually, The Fed had begun a 500 million addition to their assets to keep liquidity open for hedge funds. Corporate debt as a percentage to GDP was at an all time high more than 30 percent of all listed companies had a net loss over the 3 years ending 12/31/2019. 80 percent of all IPO's last year were companies with no net profit.

Now take the economic implications of the population being restricted, Oil dropping 60 percent and tax revenue drying up. FED has to get to zero to allow debt to have no additional economic impact to borrowers, who is pretty much everyone. There is no other choice for the FED. They so far have announced the net total of 2 trillion dollars of purchasing assets under various programs, this total will swell in the coming year and rates are never going up if the FED can help it, noone can afford an interest payment.

 

[Helen]

Now take the economic implications of the population being restricted, Oil dropping 60 percent and tax revenue drying up. FED has to get to zero to allow debt to have no additional economic impact to borrowers, who is pretty much everyone. There is no other choice for the FED. They so far have announced the net total of 2 trillion dollars of purchasing assets under various programs, this total will swell in the coming year and rates are never going up if the FED can help it, noone can afford an interest payment.

So where does this leave us in the long run?

 

[Running_Man]

So where does this leave us in the long run?

Will have to see how the next year plays out. Eventually no matter what the market does there will be bargains available, but I am still waiting one year or 1300 or 3100 on S&P500 before I buy anything myself.

 

[Fermion]

So where does this leave us in the long run?

Don't cry for me Argentina...

 

[COcheesehead]

With bonds, the first thing to go are low yield bonds with premiums over par as funds sell to raise cash. If you buy bonds or preferred shares over par, you risk the capital loss in any case. I find that the best strategy is to time your bond purchases during these sell-offs and always buy below par at a decent spread between treasuries, and float your cash in MM funds while waiting.

Some of what you say isn’t really correct regarding premiums and losses, but this isn’t the thread to get into the details.
You should be focused on YTW, yield to worst. That takes into account maturity and call dates.

 

[COcheesehead]

How did you make any money last year at 80% bonds

I was up 13% last year.

 

[Fermion]

I was up 13% last year.

I really had no idea at this level that bonds could perform so well in any environment. Sounds like a free lunch.

 

[COcheesehead]

I really had no idea at this level that bonds could perform so well in any environment. Sounds like a free lunch.

Bond CEFs smoked it last year. 25%+ returns in many cases. Not so much this year, but I reduced my stake in them.

 

[capjak]

I was up 13% last year.

Bonds were up 8.5% Last Year
Bonds are down 0.04 % 2020 YTD

per personal capital

Not bad for risk

 

[COcheesehead]

Bonds were up 8.5% Last Year

PFN was up 22%.
PCI was up 33%

 

[Fermion]

They just seem so uninteresting now. I am sure not excited to go out and buy 0.5% 10 year treasuries. I would rather buy the S&P500 at 2200, and ride it up or down, knowing that if it drops too low for too long, a default in government is coming.

 

[COcheesehead]

They just seem so uninteresting now. I am sure not excited to go out and buy 0.5% 10 year treasuries. I would rather buy the S&P500 at 2200, and ride it up or down, knowing that if it drops too low for too long, a default in government is coming.

My plan is buy more equities now too, but I am sure glad I started a muni bond ladder a few years ago. I was building a portfolio for SORR knowing my retirement was pending. I am pulling the plug in 4 months and my bond ladder forms the foundation of making that happen. I have income for years to live on.
BTW, there were some deals in muni’s last week. Some 2-6 year durations yielding close to or above 3%. If more funds liquidate, those deals may pop again. I’ll be watching for them.

 

[Fermion]

My plan is buy more equities now too, but I am sure glad I started a muni bond ladder a few years ago. I was building a portfolio for SORR knowing my retirement was pending. I am pulling the plug in 4 months and my bond ladder forms the foundation of making that happen. I have income for years to live on.
BTW, there were some deals in muni’s last week. Some 2-6 year durations yielding close to or above 3%. If more funds liquidate, those deals may pop again. I’ll be watching for them.

No worry of muni defaults? Pension fund crisis with no tax revenue because all the businesses have shut down and unemployment is 15%?

In before "that can't happen" Yeah I didn't think bat soup could cause a 10 trillion dollar drop in the market either.