When interest rates rise....

[unclemick]

My Goodness - even West Wing took a shot at this (SS) last night.

To be politically correct - I'm thinking of changing from ER to 'investment portfolio manager' - my own of course. Then I will be - 'back in the workforce' - Right?

 

[eytonxav]

To be politically Re: When interest rates rise....

Posted by: unclemick Posted on: Today at 9:20am
My Goodness - even West Wing took a shot at this (SS) last night.

To be politically correct - I'm thinking of changing from ER to 'investment portfolio manager' - my own of course. Then I will be - 'back in the workforce' - Right?

That sounds like a great idea, then you can fire yourself and file for unemployment

Doug

 

[John Galt]

I have 2 confessions this morning. First, I am
actually a closet Luddite (you folks in Rio Linda can check
your dictionary). Secondly, I have read Ted's recent posts
and he may become my new hero, replacing Paul
Terhorst

John Galt

 

[wabmester]

Hmm, I may need a remedial economics course after all. I got the benefit to consumers. I even got the potential shift to a new job base (although it looks like we might currently be in an era of underemployment). But what I still don't get after Ted's lucid post is how this trend increases our *GDP*, which I naively assume drives the value of the capital markets.

If our capital intensive industries get replaced by service industries, and our high-value goods are being made elsewhere, shouldn't that drive the GDP and the overall market capitalization down?

 

[daddyboy]

OK - so my understanding of the period 1960-ish to 1985-ish when the stock market went sideways was a period of rising inflation and therefore interest rates Is this true

Anyway - I'm looking at a plot of the DJIA for that period and am wondering:

1) Are dividends included in this plot?
2) If no to 1) where would a daddyBoy go to find a plot of that?

e.g. Are my stocks gonna yield more dividend if/when the "market" goes sideways for 20 years when the Baby Boomers retire

Anyone have any ideas for me

daddyBoy

 

[Michael]

daddyboy asks:

Are my stocks gonna yield more dividend if/when the "market" goes sideways for 20 years when the Baby Boomers retire...

Mike gives his amateur opinion:

The current dividend yield on the S&P is about 1 1/2 %. This is what you will get for the next 20 years if you buy now and hold. Dividends in the past tended to grow at the rate of inflation, plus a little bit, so your annual income from the S&P may grow to keep up with inflation. However, the growth of dividends in the past was erratic, so there could be many years when dividend income will fall.

 

[Michael]

Re: When interest rates rise....most of the benefi

Ted wrote:

...most of the benefits are in the form of lower prices ...

Mike replies:

I appreciate this very much. I responded to the lower prices on television sets and computers by recently buying a new fast computer and large screen television set. Trade is working very well here. However, the government has a policy of never ever allowing general prices to fall (deflation). If the price of televisions goes down, the government springs into action and furiously tries to raise prices so that the CPI goes up instead of down. This has the effect of raising prices on de jure monopolies like medicine at a rate more than sufficient to offset the fall in the price of imports. The end result is that overall consumer prices never fall (CPI) regardless of how much efficiency trade introduces into the system.

BTW, that was an insightful comment about sanitation and medicine. Sanitation has indeed done more to extend the productive life span of people than virtually all other causes combined. The extended productive lifespan, coupled with machines that magnify the productivity even further, has raised the standard of living appreciably.

 

[cute fuzzy bunny]

Anyone have any ideas for me

daddyBoy

To get a chart including reinvested dividends, do this:

www.moneycentral.com
stocks
drop down 'find' button
common indices
dow jones industrial average
chart
date range 1/1/1960 to 12/31/1985
on the chart click drop down 'chart'
choose investment growth
voila

Results:

A rise from 1960 until late 1965, then a bouncing ball until about mid 1982 when it started to rise again. An ER killer. Many of the times when you do a firecalc and get 95% or 97%, the 1929 crash and this time period are the causes of the non-100% result.

Be advised that I have regularly found mistakes in either the data or the processes that microsoft uses in their moneycentral tools, so any decision-grade analysis should be done with other tools or the microsoft data and process that is applied to the data should be looked at closely. Specifically I have found stocks and funds that are missing dividend data, or have wrong dividend data, and the way microsoft applies dividends to gains is simply wrong and has been for years.

With regards to what you can do to survive this, either market timing successfully (good luck) each bounce, owning investment products that werent correlated to stocks or bonds, or using TIPS.

TIPS sound like a great idea and the analyses look great. Unfortunately most of the analysis produced was done a little while ago and uses 3-3.7% tips returns, and most of the recent stuff still supposes 2-2.5% rates. Super if you could actually get that, but at this point buying tips gets you less than 2% yield (plus of course inflation), and the cheapest fund (vanguards) is at 1.50%.

With my current withdrawal rate of just a little under 4%, clearly that isnt covering me. Including inflation the current real yield would be 4-5% with 2.5-3% of that being bond appreciation that I would have to pay taxes on each year and not receive until the bonds matured and were sold.

I'll take my chances with beating 4% without them for the time being, but clearly if the yield rose above 2.5% they'd be very, very worth considering.

 

[unclemick]

Daddyboy

Use your search engine for: CPCUG InvestCIG and go to long term indexes. Peruse your brains out - I use these to jump start my thinking regularly. Notice that S&P dividends have been in a downtrend since the early eighties - so 'something' is/will be required to reverse the trend.

 

[TheFIREman]

Notice that S&P dividends have been in a downtrend since the early eighties - so 'something' is/will be required to reverse the trend.

Just about the same time CEOs of large corps started rewarding themselves bigtime for their "astounding performance".

 

[John Galt]

Got to weigh in on the CEO pay thing. Let the market take care of it. I believe there is no such thing as too
much compensation (for anyone). If you can get it
legally, then go for it. The marketplace will work all of
this out in time. We attempt to control the free market
at our peril. History is rife with examples. I predict
free enterprise will be destroyed in time, with the chipping away process going on more or less
continuously. A current example? The Martha Stewart
case. A tempest in a tea pot if there ever was once.

John Galt

 

[TheFIREman]

Problem is it is all too often not done legally.