Latest Inflation Numbers and Discussion

[11522914]

Yield curve inversion reached a record yesterday, over 103 basis points between the 2 and 10 year treasury yields.

Strong recession predictor.

And interesting how long rates barely budge as Fed hikes.

Very interesting to say the least. Several economic reports coming out in the next week that will clearly affect this one way or the other.

 

[Bigdawg]

with all of the crazy speculation and rumors of market decline I'm directing excess funds to choices #2 and #3. #2 is my Navy Federal 5% CD (15 months) and #3 is my 2.87% mortgage. I usually have 2-3K available to deploy each month. I'll let the current equities stash ride for the rest of 2023. Personal inflation rate is fairly steady. Thankful to have COLA pensions, low mortgage, no car payments and ability to cook good stuff here at the house.

 

[Montecfo]

ADP report came in stronger than expected. Which is a bit ominous for tomorrow's BLS jobs report. Unless there is a big downward revision of the stunning January number.

 

[harley]

with all of the crazy speculation and rumors of market decline I'm directing excess funds to choices #2 and #3. #2 is my Navy Federal 5% CD (15 months) and #3 is my 2.87% mortgage. I usually have 2-3K available to deploy each month. I'll let the current equities stash ride for the rest of 2023. Personal inflation rate is fairly steady. Thankful to have COLA pensions, low mortgage, no car payments and ability to cook good stuff here at the house.

Just out of curiosity, why would you be paying off your 2.87% mortgage when you could also put that money into a 5% CD and come out ahead? Seems like you are losing money by doing so. Unless it's just one of those "sleep better without a mortgage" things.

 

[Mulligan]

Just out of curiosity, why would you be paying off your 2.87% mortgage when you could also put that money into a 5% CD and come out ahead? Seems like you are losing money by doing so. Unless it's just one of those "sleep better without a mortgage" things.

I have a pension and easily pay the monthly note out of my pension. I have a 2.75% mortgage and you will have to pry that mortgage note paper from my cold dead hands.

 

[pb4uski]

Just wondering, can anyone recall the yield curve being as inverted as it is now?

I just saw a piece that had the 1,2,3,5 and 10 year Treasuries at 5.18%, 5.00%, 4.27%, 3.92% and 3.84% respectively, and that is as inverted as I can recall though I'll admit I'm not one to follow yield curves that closely.

 

[audreyh1]

Just wondering, can anyone recall the yield curve being as inverted as it is now?

I just saw a piece that had the 1,2,3,5 and 10 year Treasuries at 5.18%, 5.00%, 4.27%, 3.92% and 3.84% respectively, and that is as inverted as I can recall though I'll admit I'm not one to follow yield curves that closely.

Historical graphs show it the most inverted in decades and far deeper than the last two. I saw one recently but I don’t seem to find the link to it. I think someone had posted the link in this forum.

OK here is one. Looks like 1982 was the last time we had a stronger inversion. Set it to max timeline. https://fred.stlouisfed.org/series/T10Y2Y

 

[ShokWaveRider]

Not sure how that predicts a Recession. OK., I know the history. But all I see in this is that they ("The Royal They") think that in 3 years rates will start to decline, that seems smart to me. The economy seems to be roaring along, OK. inflation is high, but folks are still buying, earning and there are tons of jobs.

You all know the adage: "Past Performance Is No Guarantee of Future Results".

I tend to ignore what the stock market thinks as it has no real relation to actuality and does not have any control over rates, it is really based on folks perceptions, speculation, and what they want it to be in order to make the most money of the not so informed punter's vulnerabilities. JMHO

 

[captain3d]

but folks are still buying, earning and there are tons of jobs.

Credit card debt has skyrocketed. People are delusional about maintaining the lifestyle they deserve

 

[Bigdawg]

Just out of curiosity, why would you be paying off your 2.87% mortgage when you could also put that money into a 5% CD and come out ahead? Seems like you are losing money by doing so. Unless it's just one of those "sleep better without a mortgage" things.

Not paying it off. Just paying some extra principal. We owe 489K on a 900K value. 3 years into a 30 yr fixed at 2.87%. Over 34 months we have paid an additional $33,600 on the principal. Each month when I have an extra 1,2,3 K I make decisions on where to deploy that $. Some months I will put all 3 k into equities. Some months I'll throw a k or 2 against the mortgage principal. It all depends on which way the wind is blowing. This month I see the 5% CD as the best option for an extra $. I think (have no idea) that the market will tank by another 10-20% this year. When/if that happens, I will deploy any extra $ to the market. This is all play account $ anyway. Doesn't move the needle. The only time I would pay off the mortgage would be when it get's below say 100K. Until then I will play these market timing games.

Sorry for the thread drift. Now back to our regularly scheduled inflation topic.

 

[latexman]

Not sure how that predicts a Recession. OK., I know the history. But all I see in this is that they ("The Royal They") think that in 3 years rates will start to decline, that seems smart to me. The economy seems to be roaring along, OK. inflation is high, but folks are still buying, earning and there are tons of jobs.

Yes, I am still w*orking, so I am okay, but there is a lot of people going backwards right now.

Record share of Americans are raiding their 401(k) plans due to hardship

A record share of Americans tapped their 401(k) plans last year for so-called hardship withdrawals, a financial lifeline that can help people who are strapped for money handle emergencies like medical care or staving off eviction.

The share of 401(k) participants taking hardship withdrawals from their accounts rose to 2.4% last year, up from 1.9% in 2021, according to financial services firm Fidelity. That represents the highest share of hardship withdrawals recorded at Fidelity, which noted the share typically ranges from 2% to 2.3% annually.

The rise in hardship withdrawals comes after a year that has seen the highest inflation in four decades, along with rising interest rates, factors that have made it more expensive to borrow money, and afford all manner of goods and services. Hardship withdrawals are only approved for a small set of financial circumstances that point to serious financial distress, noted Mike Shamrell, vice president of thought leadership, workplace investing, at Fidelity.

I think it's going to get worse before it gets better.

 

[Bigdawg]

I think it's going to get worse before it gets better.

Additionally along with 401k raiding is the rising auto loan defaults and high credit card use. Curious to see what the tipping point will be. Might be looking for e repo vehicle in 6-9 months. We'll see.

 

[Montecfo]

Just wondering, can anyone recall the yield curve being as inverted as it is now?

I just saw a piece that had the 1,2,3,5 and 10 year Treasuries at 5.18%, 5.00%, 4.27%, 3.92% and 3.84% respectively, and that is as inverted as I can recall though I'll admit I'm not one to follow yield curves that closely.

Just read that the 2 to 10 year Treasury inversion is largest in history at 103bp+.

 

[audreyh1]

Just read that the 2 to 10 year Treasury inversion is largest in history at 103bp+.

See the graph posted in https://www.early-retirement.org/fo...ers-and-discussion-114292-67.html#post2906489. 1980 was far worse.

 

[HawkOwl]

Historical graphs show it the most inverted in decades and far deeper than the last two. I saw one recently but I don’t seem to find the link to it. I think someone had posted the link in this forum.

OK here is one. Looks like 1982 was the last time we had a stronger inversion. Set it to max timeline. https://fred.stlouisfed.org/series/T10Y2Y

That being said, is it better to purchase two year treasury notes and lock in the higher rates for a longer time, (but risking the opportunity costs if there are further interest rate increases)? Or is it better to go for the lower volatility and quicker turnover of a 6 month t-bill?

I guess that is the same impossible question as asking whether interest rates will go up or down. �� But it seems like a rare opportunity to buy short term t-bills at a historicaly “odd” cost.

 

[pb4uski]

That being said, is it better to purchase one or two year t-bills and lock in the higher rates for a longer time, but risking the opportunity costs if there are further interest rate increases? Or is it better to go for the lower volatility and quicker turnover of a 6 month t-bill?

Unfortunately, for most of us our crystal balls are not working so hard to say. I think short rates will drift higher over the next few months and then hold steady for a while and then decline, but who knows.

Many here are splitting the difference... do both... sort of diversification I guess.

 

[audreyh1]

That being said, is it better to purchase two year treasury notes and lock in the higher rates for a longer time, (but risking the opportunity costs if there are further interest rate increases)? Or is it better to go for the lower volatility and quicker turnover of a 6 month t-bill?

I guess that is the same impossible question as asking whether interest rates will go up or down. �� But it seems like a rare opportunity to buy short term t-bills at a historicaly “odd” cost.

Well there will be more Fed interest rate increases. How that will impact the longer durations nobody knows. You can always do some of both.

 

[Chuckanut]

My 2 cents on the future of interest is this…..

A few months ago some people were mourning the blip up in five year bond rates and thought they had missed the boat. Now it appears that a bigger fancier boast will be safely docked for a few months.

Personally, my big concern is long term past five years. I still remember the late 70s and early 80s. And I still believe that last decade’s rates were too low to go on for another decade. IOW, we might be very normal at the moment. So why risk a long term debacle if rates rises for whatever reason: wars, deficit spending, lack of young workers, etc..?

 

[Montecfo]

See the graph posted in https://www.early-retirement.org/fo...ers-and-discussion-114292-67.html#post2906489. 1980 was far worse.

That's curious. My source was financial press. But yes 1980 looks worse.

Perhaps they meant worst in 50+ years.

 

[HawkOwl]

Unfortunately, for most of us our crystal balls are not working so hard to say. I think short rates will drift higher over the next few months and then hold steady for a while and then decline, but who knows.

Many here are splitting the difference... do both... sort of diversification I guess.

Well there will be more Fed interest rate increases. How that will impact the longer durations nobody knows. You can always do some of both.

Yeah, my thinking too. I may end up doing a t-bill ladder, at least until there is a clear reason to change.

 

[Montecfo]

That being said, is it better to purchase two year treasury notes and lock in the higher rates for a longer time, (but risking the opportunity costs if there are further interest rate increases)? Or is it better to go for the lower volatility and quicker turnover of a 6 month t-bill?

I guess that is the same impossible question as asking whether interest rates will go up or down. But it seems like a rare opportunity to buy short term t-bills at a historicaly “odd” cost.

Depends on your objective and time horizon.

 

[bobandsherry]

Credit card debt has skyrocketed. People are delusional about maintaining the lifestyle they deserve

Agree, past handouts and forgiveness on payments including rent, along with other lower expenses like commuting and childcare, have resulted in some people looking to maintain that previous lifestyle. They are digging into savings and running plastic to fund that lifestyle.

 

[Montecfo]

Agree, past handouts and forgiveness on payments including rent, along with other lower expenses like commuting and childcare, have resulted in some people looking to maintain that previous lifestyle. They are digging into savings and running plastic to fund that lifestyle.

That mirrors what I have read about people taking out loans for very expensive cars they can't afford, but for government largesse. Those cars are getting repossessed at a high rate.

Sadly, some found money can be very dangerous in the wrong hands.

 

[MichaelB]

The data does not support an overextended consumer.

Factoring in a strong job market and high inflation rate, total debt in the US showed little increase in 4Q22, and while credit card debt rose faster than total debt, real PCE was practically flat. So, the increase in CC debt was likely not the result of a strong increase in spending.

Auto loans showed a modest increase, below the rate of inflation, so mo increase in real auto sales.

See the NY Fed report on Hiusehold Debt and Credit, here

 

[Montecfo]

The data does not support an overextended consumer.



Factoring in a strong job market and high inflation rate, total debt in the US showed little increase in 4Q22, and while credit card debt rose faster than total debt, real PCE was practically flat. So, the increase in CC debt was likely not the result of a strong increase in spending.



Auto loans showed a modest increase, below the rate of inflation, so mo increase in real auto sales.



See the NY Fed report on Hiusehold Debt and Credit, here

There is certainly some evidence of an overextended consumer.
Serious delinquencies have risen sharply year over year for all except student loans, according to this table, also from the NYFed.


https://www.newyorkfed.org/newsevents/news/research/2023/20230216