Fed cuts interest rates to Zero

[COcheesehead]

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.

You must be entertaining at parties.


Muni’s are second only to treasuries in terms of safety. The default rate of highly rated muni’s is incredibly low. I have owned them for years and knock on wood, I never had a default. I own well over a hundred issues. In a pinch I would take a muni over an equity all day long.
Nothing with return comes without risk and not all munis are backed by general revenue. Some are project specific.

 

[Running_Man]

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.

OK in 2009 the S&P500 was at 666 and no default occured. There have been many times in history where a market move went below a previous multi year low and didn't result in a government default. Markets can go very low without default.

 

[Fermion]

You must be entertaining at parties.


Muni’s are second only to treasuries in terms of safety. The default rate of highly rated muni’s is incredibly low. I have owned them for years and knock on wood, I never had a default. I own well over a hundred issues. In pinch I would take a muni over an equity all day long.
Nothing with return comes without risk.

Hah, yes I know it is a wild hypothesis that muni bonds could default on a large scale. It really depends if this time is different or if this is just another 2 month road bump in a market which will keep on climbing to DOW 50,000 or higher in the next decade.

I personally feel that your muni bonds are 100% safe and I also have perhaps a 95% certainty that anyone buying the market this week will show a profit by this time next year.

 

[Fermion]

OK in 2009 the S&P500 was at 666 and no default occured. There have been many times in history where a market move went below a previous multi year low and didn't result in a government default. Markets can go very low without default.

It was really only because the recovery was so sharp though, don't you think? If the market had stayed in the 666 area for a few years? I remember on here we were really concerned about city and state defaults but the quick recovery made those fears go away.

 

[Fermion]

I have to add that I really know nothing. If I had known how fast the market was going to drop, I would have held my puts and made somewhere around $1.2 million off of this plunge. I am not going to beat myself up over it (too much) because it was all just a guess. We very well could drop to runningman's 1300 S&P500 or we might never dip below 2000 and recover next year (or even this year) back to 3000

 

[Freedom56]

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.

I time all my bond purchases and have been doing so for a long time. The best strategy for me has been to put low ball limit orders on short and medium term notes of stable companies in technology, telecom, healthcare,and financial stocks. I don't buy any other sectors. Bond fund sell algorithms always prioritize the sell orders to the lowest yielding coupons trading above par for investment grade securities. This is a fact of life. YTW is only a factor if you are buying bonds above par, which I never do and never will do. During market sell-offs my orders often do get filled as bond funds have to sell to raise cash. If they don't get filled I hold MM funds or buy CDs if the offer better value. I don't mind getting 5% YTM for a 1-2 year investment grade corporate note where the default risk is near zero.

 

[COcheesehead]

I time all my bond purchases and have been doing so for a long time. The best strategy for me has been to put low ball limit orders on short and medium term notes of stable companies in technology, telecom, healthcare,and financial stocks. I don't buy any other sectors. Bond fund sell algorithms always prioritize the sell orders to the lowest yielding coupons trading above par for investment grade securities. This is a fact of life. YTW is only a factor if you are buying bonds above par, which I never do and never will do. During market sell-offs my orders often do get filled as bond funds have to sell to raise cash. If they don't get filled I hold MM funds or buy CDs if the offer better value. I don't mind getting 5% YTM for a 1-2 year investment grade corporate note where the default risk is near zero.

But if you buy at a premium at a YTW that is attractive and hold to call or maturity, you don’t risk a loss as you stated in your earlier post.

 

[Running_Man]

It was really only because the recovery was so sharp though, don't you think? If the market had stayed in the 666 area for a few years? I remember on here we were really concerned about city and state defaults but the quick recovery made those fears go away.

Well US Government took on 8 trillion in debt and the FED took on 4.5 Trillion.

In this case almost every business is going to be effected, in 2009/2010 oil was still very high and the income provided support.

Most likely every other business would go under before the US government. All that debt would default. And if the US government was going to go under the IMF would implement SDR's just cutting the US wealth by 1/2 and resetting all debt. (Bondholders would get about 1/2 to 1/4 of the value of the debt relative. It would not be a default, just a reset of the exchange rates and the IMF gets all the US gold.

Have to wait to see how all this monetary action works out, it is so unprecedented I'd have to hazard a guess down initially. But quite willing to react to what actually occurs. This is the path you expected in Jan/Feb to go to 1900 and I think it is actually a bit worse than you thought no?

 

[Fermion]

Have to wait to see how all this monetary action works out, it is so unprecedented I'd have to hazard a guess down initially. But quite willing to react to what actually occurs. This is the path you expected in Jan/Feb to go to 1900 and I think it is actually a bit worse than you thought no?

Yeah it is worse than I thought. Crap I am kicking myself...I should have just held onto 100 of the puts...at one point I had 250 because I was so worried about the virus but everyone around me seemed to be "its just a bad flu"

I don't know if that opportunity will ever come again. Premiums were so incredibly cheap. $5,000 in puts worth $600,000 four weeks later.

 

[copyright1997reloaded]

A big reason the Fed did this action is the widening spread between Libor and OIS (Overnight Index Spread).

 

[Freedom56]

But if you buy at a premium at a YTW that is attractive and hold to call or maturity, you don’t risk a loss as you stated in your earlier post.

When a premium bond matures your will realize a capital loss that is factored into your YTW/YTM.

Consider this example:

Bonds Detail

Wouldn't it be wiser to try buy that note for $99 with YTM of about 5% rather than the foolish fund/investor who bought $5M at a premium on 3/9/20 at a yield to maturity of 1.43%? Consider that rates were falling during this period. Does it not pay to wait until the YTM becomes a little bit more enticing?

Bond Trade Activity Search Results

 

[COcheesehead]

When a premium bond matures your will realize a capital loss that is factored into your YTW/YTM.

Consider this example:

Bonds Detail

Wouldn't it be wiser to try buy that note for $99 with YTM of about 5% rather than the foolish fund/investor who bought $5M at a premium on 3/9/20 at a yield to maturity of 1.43%? Consider that rates were falling during this period. Does it not pay to wait until the YTM becomes a little bit more enticing?

Bond Trade Activity Search Results

Some never do. There’s a reason a bond trades below par.

 

[JoshTrent]

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.

This.. I've spent 25 years in the Luxury Travel industry. I am not an alarmist, but the nearest Ive seen these conditions in our industry was Q4 2001.

 

[cyber888]

If the Dow drops another 5000 points, time to load up on equities. Feds will buy equities

 

[Amethyst]

Predicted: rise in home invasions, as junkies and others realize people are keeping more cash in the house instead of the bank.

 

[eytonxav]

Rate now at 0, what happens when they start raising it? Will it be perceived as a vote of confidence with the market reacting favorably or might it go the other way.

 

[Fermion]

Everything was so locked up this morning I couldn't buy anything

I saw Merck trading at $67 and Etrade was just a spinning circle. When I finally loaded the page, Merck was back to $74

 

[ShokWaveRider]

I wonder how this will effect our 5 year CDs at Credit Unions, If anything at all.

 

[HF63]

Everything was so locked up this morning I couldn't buy anything

I saw Merck trading at $67 and Etrade was just a spinning circle. When I finally loaded the page, Merck was back to $74

You probably going to get another chance at buying at those prices.

 

[Toocold]

Fed needs more finesse. I think they are doing the right things but they need to communicate better. They need a Dr. Fauci at the helm of the Fed.

 

[GreenEggs]

How do I screen for stocks & ETFs that have lost the most since the downturn?

 

[Fermion]

You probably going to get another chance at buying at those prices.

I would have bought then sold and pocketed the $7,000

 

[Freedom56]

I have been buying investment grade preferred shares with coupons over 6% well below par. I got two orders filled so far. This is not an interest rate shock but more fear and emotional selling. These are the best times to buy fixed income - when funds are forced to sell.

 

[GreenEggs]

How do I screen for stocks & ETFs that have lost the most since the downturn?

I found this screener that looks like it will work.

https://www.finscreener.com/screener/stock-screener#

 

[aja8888]

Predicted: rise in home invasions, as junkies and others realize people are keeping more cash in the house instead of the bank.

And valuables like toilet paper!