We are entering a "Golden Period" for fixed income investing

[lawman]

So do you believe your cash sitting in a brokerage or bank account is safer than a FDIC insured CD while you're earning maybe 0.45%?

No. I plan to buy short term C.D.'s just like you.

 

[Freedom56]

People are not looking at inflation from a savers point of view who does not invest in the stock market casino. One year ago you could earn about $250 a year for every $100K invested in CDs. This past week you could lock income of $5000 per year for the next 4-5 years for every $100K invested. So wouldn't that $4750 difference for every $100K invested compensate for the effects of inflation?

 

[11522914]

No. I plan to buy short term C.D.'s just like you.

Good plan. You can certainly buy some FDIC CDs from "sound banks" - you just might not make as much. Honestly were not talking about huge basis points differences anyway but I'm trying to safely maximize my return. So if I make a few extra basis points buying from a FDIC insured "no name" bank then so be it.

 

[mf15]

To be even safer dont buy a 250K CD. The FDIC is not responsible for the earned interest
that might be in the CD and compounding,which would push it over 250K.
Yes,No,Maybe So.
Oldmike

 

[youbet]

On another note, I meet with friends almost daily at a neighborhood Burger King in the morning. BK always has poster size paper (4' x 6') product advertising on the large windows of the store. The new posters have no prices for the advertised food items like the old ones did.

Soon they will be changing from posting actual prices at the drive-up ordering station to "market price!"

 

[11522914]

Soon they will be changing from posting actual prices at the drive-up ordering station to "market price!"

Drive thru order: I'll take a whopper.
Response: That will be $6.99
Payment window: It now is $7.49. Sorry.

 

[thepalmersinking]

We are going to be exiting it soon

 

[youbet]

People are not looking at inflation from a savers point of view who does not invest in the stock market casino. One year ago you could earn about $250 a year for every $100K invested in CDs. This past week you could lock income of $5000 per year for the next 4-5 years for every $100K invested. So wouldn't that $4750 difference for every $100K invested compensate for the effects of inflation?

The answer to that totally depends on what the "effects of inflation" are during the time period specified.

 

[Chuckanut]

We are entering a "Golden Period" for fixed income investing

We’re wandering off topic here. So here’s a nudge back. I will mention that the higher CD rates MAY give us a positive real return on our savings for the first time in years. Good news if it works out that way. Of course, that’s before taxes, if any. After taxes YMMV.

 

[Freedom56]

The answer to that totally depends on what the "effects of inflation" are during the time period specified.

Consider also that many have no mortgages or have locked in their mortgage at ultra low rates for the next 15-30 years. So that component of the housing costs are fixed.

 

[disneysteve]

We’re wandering off topic here. So here’s a nudge back. I will mention that the higher CD rates MAY give us a positive real return on our savings for the first time in years. Good news if it works out that way. Of course, that’s before taxes, if any. After taxes YMMV.

Good point. The current inflation rate is 6% and falling. I bought a CD the other day for 5.35% for 18 months. If inflation continues to trend down, it won’t be long before the CD rate comes out ahead.

 

[Freedom56]

I think it's too much hysteria with Schwab and the stock market casino.

"Schwab hasn’t been hit by people afraid that Schwab is going to go out of business, but they’ve been hit by [customers] going to higher rates...”

Cash sorting appears to be the issue. People are moving their cash balances to higher yielding products. This is forcing Schwab to borrow money at higher rates to cover cash demands in excess of the securities invested with that cash at longer durations. This will impact earnings.

https://www.ft.com/content/9623dde7-281b-4df7-9227-76c6d95a8685

 

[youbet]

Consider also that many have no mortgages or have locked in their mortgage at ultra low rates for the next 15-30 years. So that component of the housing costs are fixed.

Actually, even if you have a high rate fixed mortgage, that component of your housing cost is fixed.

 

[lawman]

People are moving their cash balances to higher yielding products. This is forcing Schwab to borrow money at higher rates to cover cash demands in excess of the securities invested with that cash at longer durations.

https://www.ft.com/content/9623dde7-281b-4df7-9227-76c6d95a8685

Can't read the article but that seems like no small problem to me..

 

[Car-Guy]

^^^^^
Click on the link in the post. Then when it comes up, cut and past the URL in another window and you should be able to read the article. Works for me.

 

[lordjust]

Can't read the article but that seems like no small problem to me..

probably a similar problem with ... every bank at this point.

 

[Montecfo]

QT is done. I can't find the source, but I read yesterday that the new [-]bail out[/-] backstop facilities will result in over half of the QT done being restored to the Fed's balance sheet.



It is the money supply expansion that will eventually end up as higher prices. The question isn't if, it is when.



Early last year I predicted here on ER.org that something would cause the Fed to stop raising rates before their inflation target was reached. I was off on the timing, as I thought it would occur prior to the election, but here we are. They may do the 25 basis point raise to save face, but the more important aspect - cleaning up their books via QT is (in my estimation) done.



Here is my (worth what it is being paid for prediction): We will see rates fall as QE gets reimplemented (under a new name to protect the guilty), inflation may fall further in the short run (credit crisis will impact economic activity), but in the longer run inflation will resurge.



At this point my 5-6% position in precious metals is all of a sudden looking way too small.

Fed was never selling securities. Just letting them run off. Powell said in February that selling securities was not in view.

So it will take time. Fine with me. The direction is most important.

 

[Car-Guy]

I think it's too much hysteria with Schwab and the stock market casino.

"Schwab hasn’t been hit by people afraid that Schwab is going to go out of business, but they’ve been hit by [customers] going to higher rates...”

Cash sorting appears to be the issue. People are moving their cash balances to higher yielding products. This is forcing Schwab to borrow money at higher rates to cover cash demands in excess of the securities invested with that cash at longer durations. This will impact earnings.

https://www.ft.com/content/9623dde7-281b-4df7-9227-76c6d95a8685

And here's what Schwab says about all of this... That and $5 should get you a small coffee at Starbucks. (Maybe)

But still a pretty good statement, IMO.

https://www.aboutschwab.com/my-perspective-on-recent-industry-events

 

[pb4uski]

^^^^^
Click on the link in the post. Then when it comes up, cut and past the URL in another window and you should be able to read the article. Works for me.

Didn't work for me.

 

[Gearhead Jim]

^^^^^
Didn't work for me either.

 

[pb4uski]

No. I plan to buy short term C.D.'s just like you.

I dunno lawman, perhaps you'll need to get cash and put it under your mattress.

Nearly 200 more banks may be vulnerable to the same type of risk that took down Silicon Valley Bank: The value of the assets they hold.

There are 186 banks across the country that could fail if half of their depositors quickly withdraw their funds, a new study published on the Social Science Research Network found.

Even insured depositors — those with $250,000 or less in the bank — could have problems getting their cash if these institutions face the sort of run that Silicon Valley saw a week ago. ...

Source: https://nypost.com/2023/03/18/nearly-200-banks-could-fail-the-same-way-svb-did-study/

The reality is that no banks are designed to survive a big run.... they take deposits and issue CDs and use that money to make or buy loans... let's say for discussion purposes like the old days they make auto loans and mortgage loans... those loans are not immediately liquid... it is totally unrealistic to think that any bank can generate cash quickly enough to endure a run.

I seem to have a faint recollection that by law they could defer paying you your withdrawal by a certain number s but I can't find anythign on that.

 

[Brook2]

Another batch was dumped. I have been buying a lot of CDs again today but this time for my parents joint account that I have power of attorney.

I'm new to CD's and don't understand what you mean when a batch gets dumped. Lots a questions:
Is that when a bank offers a bunch of CD's all at once? Are these "new issues"? If so, does this happen multiple times an hour (by multiple banks)?

I'm trying to understand the pacing of purchasing them, and how I should go about doing it. Is it something you need to watch and buy immediately (because it changes so much - like a stock), or is it more leisurely and it might be around for a week or month until they are all sold?

 

[Brook2]

Can you explain "net new assets" at investment houses

I read this paragraph in an article and I don't understand what they are referring to as 'net new assets.' In this example, does bringing in net new assets means 1) Their stock value went up because people bought a lot 2) People bought a lot of their CD's or 3) People transferred their accounts to Schwab?

"This week, reports note Charles Schwab brought in $16.5 billion in net new assets. With 34 million account holders, it was clear that most of them didn’t especially care about the trouble surrounding the bank, including the massive sell-off. While certainly, the troubles at other banks hit Schwab hard, it was still regarded as a “safe haven” among financial institutions. In fact, Credit Suisse—itself no stranger to trouble this week—considered Charles Schwab enough of a safe haven to upgrade it to “outperform.”

 

[Montecfo]

New assets acquired in excess of assets leaving.

So they sold CDs and customers added new accounts or new money to existing accounts, in excess of withdrawals.

 

[RicDee]

Thanks Again, Freedom