Samurai Says: 1/2% SWR...

[NW-Bound]

I paid 14% for an FHA mortgage in April 1980. I believe there was another 1/2% for the mortgage insurance on top of that.

The rate moved up even further after that, and I patted myself on the back for getting in before it got really bad. Ended up refinancing twice when the rate dropped, prior to selling and moving to another home in 1987. I cannot remember what the rate was on the newer home, and am too lazy to go through my file for the mortgage paper. That high mortage rate in 1980 is however unforgettable.

[Gumby]

My first car loan, in 1981, was 21% APR.

[CRLLS]

In 1973-6 we rented an upstairs apartment. The next door neighbor bragged that he had a 5.5% mortgage and said they would never get that low again. He was right for about 40+ years which in mortgages, is basically forever. IIRC, I got a mortgage for ~12.75% in 1983 plus the mortgage insurance. Those were tough times. But it was not uncommon to get double digit raises. I paid 15.5% on a car loan in that period.

[jazz4cash]

I bought 1st home in ‘83. The going rate was -12% and everyone said rates would never drop below 10. Many people were doing seller financing. I got a state mortgage bond subsidized loan for 9.375 + .375 for insurance. I think auto loans were ~8% and I recall 10% MM rates.

[BeachOrCity]

No credibility. Close the thread

[NW-Bound]

Quote:

Originally Posted by Gumby My first car loan, in 1981, was 21% APR.

Consumer loan interest such as car loan and credit card interest was even tax deductible back then. It was taken away in 1981 or 1982, as I recall.

PS. My memory is shot. It was later than what I wrote. The phasing out of consumer loan interest deduction did not start until 1986.

[CardsFan]

I guess I started a trip down memory lane

My only point was, no one knows with any accuracy what will happen to the economy, the market, interest rates, etc. in the long term.

Even in the short term, I recall some very well respected financial pundits predicting a financial Armageddon in November 2016.

So, back on topic, I don't give much credence to people like the "Samurai" with their normal predictions. So, when they spout nonsense I don't even notice unless I see it referenced at ER.org.

And then I just laugh it off.

[jazz4cash]

Quote:

Originally Posted by BeachOrCity No credibility. Close the thread

You post this right after my comments?
I guess I should not take it personally?

[SecondCor521]

Quote:

Originally Posted by jazz4cash You post this right after my comments? I guess I should not take it personally?

Pretty sure they were referring to Financial Samurai, not you.

(Maybe you're teasing or joking. If so, sorry, but I can't tell very well.)

[Out-to-Lunch]

Quote:

Originally Posted by HI Bill So, imagine if interest rates bumped back up to 17%, and we could no longer service the national debt. The US would default on the debt, or a portion of it, and the US currency value would plummet (inflation would skyrocket).

Perhaps I am mistaken, but you seem to imply that the existing US debt would be subject to these increased interest rates. Remember that inflation is kind to debtors. I would argue that the value of outstanding debt would plummet, and inflation would make paying these debts off easier. (Of course, there would be ****-tons of other problems.) Or am I misinterpreting your post?

[BeachOrCity]

Quote:

Originally Posted by jazz4cash You post this right after my comments? I guess I should not take it personally?

I meant FS has no credibility. It’s not even worth discussing.

[Aerides]

Quote:

Originally Posted by BeachOrCity I meant FS has no credibility. It’s not even worth discussing.

Exactly. And yet, every time he posts something outrageous, we get another thread, and feed him more clicks, so I guess he's not completely stupid.

His advice is not even worth the time spent reading it.

[BreathFree]

Quote:

Originally Posted by Out-to-Lunch Perhaps I am mistaken, but you seem to imply that the existing US debt would be subject to these increased interest rates. Remember that inflation is kind to debtors. I would argue that the value of outstanding debt would plummet, and inflation would make paying these debts off easier. (Of course, there would be ****-tons of other problems.) Or am I misinterpreting your post?

Unless something changes with budgets or taxes the U.S. has no money to pay off debt, they would have to roll the debt over into new debt at the current interest rate, thereby increasing the debt service costs. Are you suggesting inflation would increase tax revenues to offset the higher debt service costs? This sounds like a terrible experience either way for a retiree with no remaining human capital.

[HawkeyeNFO]

Quote:

Originally Posted by BreathFree Unless something changes with budgets or taxes the U.S. has no money to pay off debt, they would have to roll the debt over into new debt at the current interest rate, thereby increasing the debt service costs.

Federal Government doesn't need to have money to pay off the debt. They can literally make their own money. They could then take some of that money to pay to the lender, and in theory, the result is inflation.

For the US Federal budget, taxes and other revenues have ZERO connection to expenditures, including debt service.

[BreathFree]

Quote:

Originally Posted by HawkeyeNFO Federal Government doesn't need to have money to pay off the debt. They can literally make their own money. In theory, the result is inflation. For the US Federal budget, taxes and other revenues have ZERO connection to expenditures, including debt service.

Of course they could just print the money, or they could confiscate from the citizenry or just default and refuse to pay. How about not taking any of those risks and be fiscally responsible.

[HawkeyeNFO]

Quote:

Originally Posted by BreathFree How about not taking any of those risks and be fiscally responsible.

Majority of voters don't want the candidate who does that. Voters want benefits.

[Mo Money]

Quote:

Exactly. And yet, every time he posts something outrageous, we get another thread, and feed him more clicks, so I guess he's not completely stupid. His advice is not even worth the time spent reading it.

I think we may actually be agreeing...

I posted and started this thread, knowing full well the FS article was bunk. (Thus all the emojis and my sarcastic tone.)

I figure that the thread (a) provides a certain amount of entertainment value, and (b) enables a discussion of people's recent thoughts on the SWR, which thoughts are revealed while we all shoot at FS.

No one has to read the thread. But yet almost everyone does, and people post both substantively good comments -- as well as laments that this is all a waste of time.

To many people, shooting down an "idiot's" argument is not a waste of time. The guffawing alone at his shamelessness merits the attention of those who elect to read the thread. (I put "idiot" in quotes because I honestly don't think FS really believes his own stuff -- but if he does, then God bless him: he needs a bit of sympathy for such a handicap.)

And yes, we are driving revenue to FS -- and to ER.org for that matter, since our discussion attracts clicks and many ER.org readers see advertisements.

All in good fun.

[RapmasterD]

Let’s say I’m 60% invested in VOO, 30% in BND, and I’ve got 10% in cash.

Why do I care about bond YIELD alone? Wouldn’t I instead focus on total bond RETURN over a longer period of time?

This is one of many issues that tripped me up on Sam’s article.

[Koolau]

Quote:

Originally Posted by Out-to-Lunch Perhaps I am mistaken, but you seem to imply that the existing US debt would be subject to these increased interest rates. Remember that inflation is kind to debtors. I would argue that the value of outstanding debt would plummet, and inflation would make paying these debts off easier. (Of course, there would be ****-tons of other problems.) Or am I misinterpreting your post?

I think you are correct about existing debt (yours, mine or the US Gummint debt.) BUT, the US Gummint never actually pays off its debt! It just borrows MORE (in effect, rolling over its debt). And, of course, the gummint borrows EVEN more than it needs to roll over its current debt. It constantly creates even MORE debt. It is THESE NEW debts which will break the bank (eventually).

I have just told you WAY more than I KNOW or UNDERSTAND about bonds, debt, gummint, etc. etc., so YMMV.

[njhowie]

Quote:

Originally Posted by RapmasterD Let’s say I’m 60% invested in VOO, 30% in BND, and I’ve got 10% in cash. Why do I care about bond YIELD alone? Wouldn’t I instead focus on total bond RETURN over a longer period of time? This is one of many issues that tripped me up on Sam’s article.

Though Sam supposedly has a financial background and worked in the industry, he is obviously not the sharpest knife in the drawer.

His entire thesis is based on his personal claim that the 4% came about as a result of it being 80% of the 10-year treasury rate of 5% at the time. He then extrapolates that thesis (which had no particular basis to begin with) that this should mean that whatever the 10-year treasury rate is at the time, 80% of that number is the safe withdrawal rate. Who said that the 4% came about because it was 80% of the 10-year then-current 10-year treasury rate in the first place? I am certain that much more went into it - that there was some consideration for long-term interest rates and market returns flowing to an average investors portfolio/retirement fund.

Sam's analysis and claims in the article are quite shallow, and the comments made that very clear.