Is This Time Different?

[marko]

Or more accurately, "HOW is this time different?"

Thought I'd just throw this out to the collective wisdom and see if there is some consensus.

Most of us have been through recessions, Fed actions and market drops. But 'this time' we seem to have more than the usual influences to what should be the invisible hand of the market.

Ukraine, high inflation, high interest rates, gov't spending billions here and there at a crack, environmentalist pressures. Bonds used to be ballast to your portfolio but are now looking better than equities in many cases.

Personally, I think it will all shake out eventually to the positive, but some days, I do wonder if we're entering a different investing environment than what we've seen over the past 20 years. Yes, I held on in '08 and made a nice profit buying low in '20 but was that by the old rules?

Will the old positions of 'just hold on and ride it out' still be valid? Will the days of 7% equity averages be a thing of the past? Will CDs suddenly become the best you can do? Stagflation?

 

[HenryD]

Ukraine, high inflation, high interest rates, gov't spending billions here and there at a crack, environmentalist pressures. Bonds used to be ballast to your portfolio but are now looking better than equities in many cases.

Are interest rates really that high yet? And what are "environmentalist pressures"?

 

[Closet_Gamer]

The rising rate environment is different than recent past and if it marks a long term reversal will be different than anything in the last 40 years ... so yes, that would be different.

More tactically, the Fed seems to have taken away the "Fed Put" where they would drop rates anytime the market flipped out.

If the Fed stays the course and tells the market & govt fiscal policies to look out for themselves, it will make the time to recovery different than in the major dislocations we've seen in the past 20 years.

 

[copyright1997reloaded]

Are interest rates really that high yet? And what are "environmentalist pressures"?

"Are interest rates really that high" - Life is rough when you first go off the heroin, even with some medications to help the withdraw.
(No personal experience here, but this is what I've been told.)

p.s. when I googled to get the name of a drug used for such a purpose, I have page after page of how I can get help.

 

[W2R]

Is This Time Different?

No, not yet as far as I can tell. It's pretty much the S.O.S.

Now, how long it may go on is anybody's guess. It might be different in that respect, who knows?

 

[aja8888]

Interest rates aren't that high from a historical perspective. I remember buying 12% CDs in the 1980s.

The Talyor Rule, which the FED is supposed to be following, says that the FFR should be higher than the inflation rate. That's where interest rates NEED TO GO.

 

[Mr. Tightwad]

I don't think things are different.

I put 2% of my accumulated dividends into Realty Income on Thursday.

They'll be more purchases coming.

 

[Montecfo]

Mostly not different.

But Fed action historically need not also battle excessive government spending which is also inflationary.

That part is not typical. And rates rising from a historically low base.

But essentially, equities will fall until markets are able to project inflation under control and an end to the rate rise cycle. Obviously, we are not there yet.

 

[marko]

Interest rates aren't that high from a historical perspective. I remember buying 12% CDs in the 1980s.

The Talyor Rule, which the FED is supposed to be following, says that the FFR should be higher than the inflation rate. That's where interest rates NEED TO GO.

Agreed. But here's the thing. SIL is a realtor in Boston. A typical Sunday will have 30 or 40 people at an open house with 5 or 6 bidders offering $50k to $100k over asking price.

This weekend: zero. Like zee.ro. people at 9 different open houses. Nobody. Her team hasn't seen this since '08.

So just one data point but housing tends to cascade into dozens of other businesses and the economy overall. The mortgage rate has doubled in just a month or two.

 

[marko]

Mostly not different.

But Fed action historically need not also battle excessive government spending which is also inflationary.

That part is not typical. And rates rising from a historically low base.

But essentially, equities will fall until markets are able to project inflation under control and an end to the rate rise cycle. Obviously, we are not there yet.

Right. There seems to be a lot of competing forces at work which is unusual. And until people start worrying about get laid off, spending will continue but there are still too many Help Wanted signs out there.

 

[Dtail]

All relative with interest rates. Still not that high and relative to inflation and relative to the inflation vs yield ratio of the early 80's, it is just not there yet.
However, looking at the concept of equities vs fixed income, yeah if I saw the yields of the early 80's, I would lock in more long term yields which should outlast the higher inflation.

 

[Still Learning]

Started my career and married in 1979 so no investments to loose and found easy money in CDs and Money Market accounts during the high inflation years. So why are local banks still at .01% for savings/CDs & Money Market when inflation and interest rates rise? By local, I mean truly local banks up to Wells Fargo with local brick & mortar offices. Shifting $1 million to Capitol One and American Express high field accounts.


I was good at staying with my investment plan starting with 401Ks and then Vanguard mutual funds until this year. I missed the really bad investment losses in my early working years simply because I had no investments, only pension, savings, CDs and Money Markets. This year started with a 60/40 stock/bond funds and have progressed to 8% Equities/14% Bonds/78% Cash (VMXFF Money Market) as my current investment portfolio after after a 17% loss since January of this year. Never saw myself as a person not to stick with the plan, but my management career was all about solving problems which included changing plans when they did not work. I hear the "do not attempt to time the market" but preserving capitol for better use later I believe my be better. Will shift back to larger equity stake when this market finds a bottom. Which is better, hold to my 60/40 plan for less remaining capitol when a bottom is found to this market or reinvesting in equities a bit later but with more investment capitol?

 

[marko]

No, not yet as far as I can tell. It's pretty much the S.O.S.

Agree that right now it's the same SOS. What I wonder about is if the conditions surrounding the SOS are different. It just seems that there are more complex and competing forces at work.

We want people to slow their spending but give them incentives to spend more. We raise interest rates but then print more money. We're hitting the brakes and the gas at the same time.

Again, there just seem to be subtle differences now that didn't exist in previous downturns that make me wonder

 

[W2R]

Agree that right now it's the same SOS. What I wonder about is if the conditions surrounding the SOS are different. It just seems that there are more complex and competing forces at work.

We want people to slow their spending but give them incentives to spend more. We raise interest rates but then print more money. We're hitting the brakes and the gas at the same time.

Again, there just seem to be subtle differences now that didn't exist in previous downturns that make me wonder

Perhaps, but not to the point that I'm going to throw everything I know out the window and freak out. Remember back in 2007 or 2008, when EVERYBODY was saying, "But, but... this time, it's DIFFERENT!!! " And then selling right and left on impulse to cope with this new unknown territory? Nope, not falling for it. I didn't then, won't now (even though the "different stuff" is different "different stuff" than it was in 2008). I haven't even listened to Cramer since then (unforgettable meltdown!).

Just remember there's a whole industry of financial commentators whose job it is to say scary stuff and get our clicks, not to mention money.

I mean, I could be totally wrong and maybe I should be changing everything, but TBH, right now I don't see a logical, clear, and certain path to switch to. Besides I'm convinced that I shouldn't change anything at all, so I'm not gonna.

 

[Dtail]

Started my career and married in 1979 so no investments to loose and found easy money in CDs and Money Market accounts during the high inflation years. So why are local banks still at .01% for savings/CDs & Money Market when inflation and interest rates rise? By local, I mean truly local banks up to Wells Fargo with local brick & mortar offices. Shifting $1 million to Capitol One and American Express high field accounts.


I was good at staying with my investment plan starting with 401Ks and then Vanguard mutual funds until this year. I missed the really bad investment losses in my early working years simply because I had no investments, only pension, savings, CDs and Money Markets. This year started with a 60/40 stock/bond funds and have progressed to 8% Equities/14% Bonds/78% Cash (VMXFF Money Market) as my current investment portfolio after after a 17% loss since January of this year. Never saw myself as a person not to stick with the plan, but my management career was all about solving problems which included changing plans when they did not work. I hear the "do not attempt to time the market" but preserving capitol for better use later I believe my be better. Will shift back to larger equity stake when this market finds a bottom. Which is better, hold to my 60/40 plan for less remaining capitol when a bottom is found to this market or reinvesting in equities a bit later but with more investment capitol?

How will you know when the market finds a bottom?

 

[daylatedollarshort]

What is different is that interest rates were generally decreasing worldwide since the 80s until they reached near zero here and negative in Europe, and now that trend is reversing. Mutual funds have only been widely popular since the 80s, so yes there is something currently very different since the 80s. Bond funds have never experienced such a huge rise in interest rates in a short time period like we have now.


The near zero interest rates caused some pretty big bubbles in stocks, real estate and bonds, and now those bubbles are all popping.

 

[gcgang]

How will you know when the market finds a bottom?

After it goes up 25%.

But then it might go back down. Didn’t the 1930’s Great Depression years have some of the sharpest rallies? But I guess that was after it had declined 90%.

 

[W2R]

After it goes up 25%.

But then it might go back down. Didn’t the 1930’s Great Depression years have some of the sharpest rallies?

The past 2-3 days I have been watching youtubes with original footage of the 1930's dustbowl migration. The determination and resourcefulness shown by those farming families, who lost everything in those dust storms, are absolutely inspirational. Didn't mean to change the topic, but to me it is very impressive.

 

[Chuckanut]

Just remember there's a whole industry of financial commentators whose job it is to say scary stuff and get our clicks, not to mention money.

+1

And a ton of people who are now trying to sell us all sorts of inflation protected investments.

Today, I heard a commercial from a outfit selling gold bullion. You will be glad to know that gold could go as high as $9300 an ounce in these inflationary times according to these gold dealers.

Then there is this, starting last year.

https://braeburnwhisky.com/how-whisky-cask-investment-can-help-to-protect-against-inflation/

As an asset backed tangible investment, supply and demand plays an important role, with investors purchasing a tangible commodity which they will own and be able to sell on when the time is right. The value of whisky casks is largely determined by its age and brand and tends to increase at a steady rate over time, irrespective of the wider economic situation. It’s hard to predict the real impact that inflation will have on our investments, and on the wider economy over the next few months. But we do know that it’s coming. In the current climate, inflation-hedged asset classes should be an important part of any diversified portfolio.
This may be the ideal moment to invest in whisky casks.

And this: https://www.londondaily.news/protect-the-value-of-your-savings-and-avoid-rising-inflation-pressure/

“In uncertain times, wise investors traditionally turn to tangible assets to invest in, knowing that these offer less risk of being impacted by fluctuations in the markets,” Louise explains. “Assets like Scotch whisky have shown that they can ride out such storms and continue to offer value for money.”

It's the 70's and 80's all over again.

The above is all just my opinion. Take what you wish and leave the rest.

 

[RobbieB]

Of course this time is different, we have covid and Ukraine. But other times have had other stuff.

 

[Another Reader]

Started my career and married in 1979 so no investments to loose and found easy money in CDs and Money Market accounts during the high inflation years. So why are local banks still at .01% for savings/CDs & Money Market when inflation and interest rates rise? By local, I mean truly local banks up to Wells Fargo with local brick & mortar offices. Shifting $1 million to Capitol One and American Express high field accounts.


I was good at staying with my investment plan starting with 401Ks and then Vanguard mutual funds until this year. I missed the really bad investment losses in my early working years simply because I had no investments, only pension, savings, CDs and Money Markets. This year started with a 60/40 stock/bond funds and have progressed to 8% Equities/14% Bonds/78% Cash (VMXFF Money Market) as my current investment portfolio after after a 17% loss since January of this year. Never saw myself as a person not to stick with the plan, but my management career was all about solving problems which included changing plans when they did not work. I hear the "do not attempt to time the market" but preserving capitol for better use later I believe my be better. Will shift back to larger equity stake when this market finds a bottom. Which is better, hold to my 60/40 plan for less remaining capitol when a bottom is found to this market or reinvesting in equities a bit later but with more investment capitol?

You can do much better than Amex and Capital One. Start with depositaccounts.com for better savings rates. Buy brokered CD's backed by name banks at your broker. Schwab, Fido and Vanguard all do this. Buy treasury bills through the same brokers. Can't get much safer than that. Better yields than Amex and Capital One.

 

[enjoyinglife102]

One thing very much different this time is the fed balance sheet with both unprecedented purchases and amount. In 15 years the balance has gone from about one trillion to about nine trillion. Historically its been very challenging to wind it down; from these levels no one has a clue.

 

[11522914]

What scares me this time is we've had low rates for so long, then Zirp.

The entire economy is addicted to low rates. Now that rates are rising, and honestly, they're not even close to being high enough, I wonder what is going to collapse because of it.

I really think what happened in England is the canary in a coal mine. What else is out there that most of us have no idea about is ready to collapse because of rising interest rates.

And if the Fed pivots (look at what the UN was saying today) how will inflation get reduced.

And one last thing which I believe is different this time is the Fed is limited by how high they can raise rates to stop inflation. If it gets too high, eventually, a much larger portion of tax revenue goes towards the debt. And if the government can't pay it's bills we have to print again.

Have you seen some of the inflation rates in Europe. Are we naive enough to think ours can't get higher, significantly higher??

This is one hell of a mess we're in.

 

[Car-Guy]

This is one hell of a mess we're in.

Yep! Often hard to see it coming (well usually) and often hard to see how we are going to get out of it.

 

[luckydude]

I have no idea how long the recovery will take, but I expect lower than average market returns for the next few years once the market finds the bottom (wherever that might be), maybe in the 3-4% range of real returns, and I think RE prices will likely take a 30-40% haircut from their frothy heights.

I will continue to overweigh on RE (i.e, land with development potential), which I think is a good hedge against inflation, start buying munis for my fixed income once the Fed is done with rate hikes (whenever that might be) with dividend cashflow from my RE investments, and gradually add to my equity positions (now down to around 15% of overall AA due to market declines).