Have We Hit The Top?

[james22]

8 hours ago, changegonnacome said:

The treasury did a horrible job on duration during 2020/2021......while the rest of America was re-financing their mortgages into 30yr paper at 3%......the treasury did close to diddly squat......we should have got the guy who came up with the Austrian 100yr bond...thats my type of treasury secretary....selling that paper into the 2021 bond bull market. Genuis.

 

Treasury Seizes the Moment to Revisit Ultra-Long Bond Proposal

 

August 19, 2019

 

Record-low interest rates make this an opportune time for the Treasury to revisit a proposal it’s shelved in the past: To issue the longest-term debt it can. So for the second time since President Donald Trump took office, the department is exploring the prospect of selling bonds due in 50 or 100 years, going way beyond the current three-decade maximum.

 

https://archive.ph/Lz3C5

[Spekulatius]

I would be careful betting on anything house related now. Buying a house at 3.5% Cap rates when mortgages are at 8% seems like a loser proposition. Housing prices are auction driven (just like anything else) but value is affordability and we are at a 25 year + low on that metric.

[changegonnacome]

1 hour ago, james22 said:

 

Treasury Seizes the Moment to Revisit Ultra-Long Bond Proposal

 

August 19, 2019

 

Record-low interest rates make this an opportune time for the Treasury to revisit a proposal it’s shelved in the past: To issue the longest-term debt it can. So for the second time since President Donald Trump took office, the department is exploring the prospect of selling bonds due in 50 or 100 years, going way beyond the current three-decade maximum.

 

https://archive.ph/Lz3C5

 

Probably the greatest missed opportunity in a generation.......one of the great sins of omission of our time - as measured by the dollar amount over a 30yr period......and for which no public servant at treasury will ever lose his or her job over!

Edited October 20, 2023 by changegonnacome

[Gregmal]

The direct stimulus payment IMO only really proved the trickle up economics theory, little else. Of course the people getting them were better off than had they not, but thats really where the wealthy creation for the majority of Americans started to accelerate. Its given, spent and then transferred to asset owners. Fairly simple. 

[changegonnacome]

1 hour ago, Spekulatius said:

Buying a house at 3.5% Cap rates when mortgages are at 8% seems like a loser proposition. Housing prices are auction driven (just like anything else) but value is affordability and we are at a 25 year + low on that metric.

 

Yep it's a standoff - super low inventory is allowing homes to transact at affordability levels that are nose bleed. Cant move, wont move versus have to/need to buy is levitating nominal house prices for now.  Investors aren't stepping into this mess.....it's forced sellers, selling to somewhat forced buyers (or buyers with means who are betting on rate cuts soon or have no need for financing at all).

 

Underneath the surface - in the markets i look at -  inflation adjusted home prices are indeed falling vs. 2021 peak.....staying flat is the new price fall......and affordability can be restored slowly over time via a kind of monetary illusion....a few years of stagflation will for sure restore some affordability.

 

What happens next is the great puzzle - pressure is building behind the supply dam for sure......folks have postponed retirement and downsizing sales.....each deferred sale....is a future supplier of inventory......but so too is demand....the rent vs. buy math in the markets I follow doesn't require 3% rates to make sense.........5% would do the trick....such is the short squeeze in the rental market. 

 

The high level math seems clear - housing is undersupplied.....a temporary dislocation in pricing if it occurs...will be just that

[Gregmal]

Housing is still and always generally has been about location. NYC suburbs just have no inventory and not a ton of land to build on, plus unfriendly political headaches attached to any build request. 
 

It also comes down to who’s doing what and where. The big nationals have huge advantages because they can give incentives and do rate buydowns to entice people. That’s probably more ideal to them in todays market where they’re making 2x where they made on a SFH in 2018. Regional and local builders, idk, it’s area dependent. I follow closest the northern NJ and NW/SE FL markets where your smaller/regional builders are well capitalized and disciplined. And there’s enough money in the area to just wait for your buyers. 
 

Now, if you’re in Albany or inland Carolinas? I mean without knowing those markets hugely well, I’d say your pool of demand is smaller and the who will blink first quandary will settle itself sooner than later and be downward in terms of price direction.
 

My guess is new build stays generally strong across the board. Older stuff in super tight markets, like Bergen County for instance, does well. But older stuff in general is probably what softens quite a bit when rates come back down. There’s a lot of “boomer homes” that just dont appeal to the newer demographic 

[james22]

8 hours ago, changegonnacome said:

Probably the greatest missed opportunity in a generation.......one of the great sins of omission of our time - as measured by the dollar amount over a 30yr period......and for which no public servant at treasury will ever lose his or her job over!

 

To be fair, it seems it was the market that shot down Treasury's idea.

 

Though arguably they didn't fight for it.

[ValueArb]

March 16, 2022 the S&P closes at 4,358. The next day the Fed made its first rate increase to 25%. 

 

Today the S&P closed at 4,224 with Fed rate 5.3%.

 

Down 3% in a year and half (not counting dividends) while interest rates up by 5% in probably the fastest increase in history.  To be honest, I think the market has done pretty well all things considering. Now you could argue the rate increase expectations started in December when market was over 4,600 and is really down over 9%, but even that should not be considered too bad.  

[UK]

 

[changegonnacome]

11 hours ago, james22 said:

To be fair, it seems it was the market that shot down Treasury's idea.

 

Though arguably they didn't fight for it.

 

Well 50yr and 100yr bonds sure maybe.

 

The reality is being smart about it didn't require reinventing the wheel and creating new types of bonds......20/30yr bonds would have worked very well for extending the avg. maturity of the aggregate Federal debt pile. Christ even 10yr notes would have been good!

 

Instead what we have is the below:

 

 

 

https://research.stlouisfed.org/publications/economic-synopses/2023/06/02/assessing-the-costs-of-rolling-over-government-debt

 

Like I said - if you were CFO of a corporate during ZIRP but especially during 2020/2021......and your companies debt stack looked like this i.e. most of the debt is gonna roll in the next three years......your CEO/board would fire you.

 

It is criminal how much federal debt has to roll into 5% paper. The graph above should be sloping the other way given where we've come from.

 

In some respects whats occuring at the long end of the curve is a response to the reality above....USA LLC. has a debt maturity profile that when rolled into higher rates at maturity will begin to consume larger and larger proportions of the govs net income (tax revenue).

Edited October 21, 2023 by changegonnacome

[changegonnacome]

10 hours ago, ValueArb said:

March 16, 2022 the S&P closes at 4,358. The next day the Fed made its first rate increase to 25%. 

 

Today the S&P closed at 4,224 with Fed rate 5.3%.

 

Down 3% in a year and half (not counting dividends) while interest rates up by 5% in probably the fastest increase in history.  To be honest, I think the market has done pretty well all things considering. Now you could argue the rate increase expectations started in December when market was over 4,600 and is really down over 9%, but even that should not be considered too bad.  

 

So the S&P peaked intraday at 4,790 on Dec 30, 2021

 

in today's money inflation adjusted upwards from Dec 2021 to today......using the BLS inflation calcualtor https://data.bls.gov/cgi-bin/cpicalc.pl........that would require SPY to be at 5,228 such that one could say that they are flat, in real inflation adjusted terms, from the 2021 peak (exlc. dividends)

 

SPY as you say closed at 4,224

 

In real terms SPY is down 19.2% from its ATH on Dec 30 2021 to today.

 

As I've said before - there is a correction occuring in asset prices......perhaps not large enough in nominal terms to draw headlines......but enough in real terms to be meaningful.

[james22]

3 hours ago, changegonnacome said:

The reality is being smart about it didn't require reinventing the wheel and creating new types of bonds......20/30yr bonds would have worked very well for extending the avg. maturity of the aggregate Federal debt pile. Christ even 10yr notes would have been good!

 

Yeah, heads should roll.

[james22]

2 hours ago, changegonnacome said:

In real terms SPY is down 19.2% from its ATH on Dec 30 2021 to today.

 

Newly retired, not the SOR I was looking for.

[TwoCitiesCapital]

5 hours ago, changegonnacome said:

 

So the S&P peaked intraday at 4,790 on Dec 30, 2021

 

in today's money inflation adjusted upwards from Dec 2021 to today......using the BLS inflation calcualtor https://data.bls.gov/cgi-bin/cpicalc.pl........that would require SPY to be at 5,228 such that one could say that they are flat, in real inflation adjusted terms, from the 2021 peak (exlc. dividends)

 

SPY as you say closed at 4,224

 

In real terms SPY is down 19.2% from its ATH on Dec 30 2021 to today.

 

As I've said before - there is a correction occuring in asset prices......perhaps not large enough in nominal terms to draw headlines......but enough in real terms to be meaningful.

 

-19% in real terms and yet - supposedly an inflation hedge. SMDH

 

This is dragging out much longer than I had anticipated. It's possible that we get to -30 or -40% real returns simply staying flattish for the next year or two while inflation stays near 3-4%. My expectation is still for another dump and recovery, but we'll see. Either way, I'm more comfortable owning bonds.

[Gregmal]

All sorts of subjective adjustments can get made, kinda like non gaap earnings, to justify whatever one’s agenda is. No one is guaranteed returns and returns aren’t always linear. But the force is strong, so what can I say? Fear the pullbacks and avoid equities…5% CDs will fast track retirement for sure.

[Gregmal]

Offer you a trade; your NW will increase 40-50% over 5 years with minimal effort…. 
 

Ok great, sign me up. 
 

But it will pull back 10-20% from the peak at some point….

 

Nah bro I’m good.

 

 

Like I can’t even believe this crap is floating around on an investment forum. 

[ValueArb]

9 hours ago, changegonnacome said:

 

So the S&P peaked intraday at 4,790 on Dec 30, 2021

 

in today's money inflation adjusted upwards from Dec 2021 to today......using the BLS inflation calcualtor https://data.bls.gov/cgi-bin/cpicalc.pl........that would require SPY to be at 5,228 such that one could say that they are flat, in real inflation adjusted terms, from the 2021 peak (exlc. dividends)

 

SPY as you say closed at 4,224

 

In real terms SPY is down 19.2% from its ATH on Dec 30 2021 to today.

 

As I've said before - there is a correction occuring in asset prices......perhaps not large enough in nominal terms to draw headlines......but enough in real terms to be meaningful.

great points. 

[vinod1]

1 hour ago, Gregmal said:

Offer you a trade; your NW will increase 40-50% over 5 years with minimal effort…. 
 

Ok great, sign me up. 
 

But it will pull back 10-20% from the peak at some point….

 

Nah bro I’m good.

 

 

Like I can’t even believe this crap is floating around on an investment forum. 

 

The amount of money that is forgone to avoid that 10-20% drawdown is just insane. 

 

I think most investors would be better served if they put 100% of their capital into an index fund. And then when they find an investment that is offering better returns, just sell some index and put that money in that investment. So instead of using cash as the default, use market index.

 

 

[LC]

Just now, vinod1 said:

 

The amount of money that is forgone to avoid that 10-20% drawdown is just insane. 

 

I think most investors would be better served if they put 100% of their capital into an index fund. And then when they find an investment that is offering better returns, just sell some index and put that money in that investment. So instead of using cash as the default, use market index.

 

 

That’s exactly what i do. Although I split it with the index and Berkshire. 

[ValueArb]

6 hours ago, james22 said:

 

Yeah, heads should roll.

Humans really shouldn’t be classified as  Homo Sapiens, that’s an title of pure hubris. Instead we should be more correctly identified as Hominidae Patternia Matchius. We are simply apes that discovered how to predict the future, imperfectly, from patterns in data. And once we find useful correlations we tend to ride them until long after they stop paying benefits and only stop when it starts beating our faces in.

 

As rates fell over 40 years shortening durations kept paying off so profitably that by the time rates started to rise there had to be huge institutional inertia against issuing longer dated treasuries. Everyone who had ever argued for longer durations in fear of higher rates  in the preceding decades had been repeatedly revealed as chicken little fools. They were likely marginalized while the reigns of power were probably mostly populated by those who made their bones arguing for or agreeing with shortening durations. They were likely seduced by the siren song of temporary inflation means temporary rate increases, the song they wanted to hear.

Even now, the assumption is rates will fall over time. If inflation isn’t dead and rates continue higher in the next five years we may think wistfully back to this year remembering the US missing the opportunity to lock in more 30 year treasuries at “only” 5%.

[Gregmal]

As far back as I can remember and as long as I’ve been posting here I’ve basically just said if people are uncomfortable with an index they should just split it all between Berkshire and Google and then DCA. Between the fear and the stubborn need to know it all people cost themselves fortunes. I don’t really get what the point of it all is. Even with the Berkshire and Google strategy, I’m sure there’s people who would make an argument…”well if you bought Microsoft in 1999” and all you can do just throw your hands up and get back to focusing on investing versus figuring out how to be super smart and prolonging your work career another decade by all the “prudent” forecasting.

Edited October 21, 2023 by Gregmal

[Spekulatius]

One reason why the US is doing so well relative to Europe is that the deficit spending in the US is increasing while in Europe it is shrinking. I was not aware on how much the government spending has been diverging lately:

 

[changegonnacome]

28 minutes ago, Spekulatius said:

One reason why the US is doing so well relative to Europe is that the deficit spending in the US is increasing while in Europe it is shrinking. I was not aware on how much the government spending has been diverging lately:

 

Good point - the US is engaged in effectively a very large debt funded economic stimulus program......a stimulus program inside an economy operating at already full capacity. Not very clever.....you usually save your high single digit % deficits for a rainy day like a recession or economic crisis.

 

What's also true is that there is a very good correlation between government deficits and corporate profits/margins......which is to say corporates do significantly better when the government is running large deficits......and vice versa.

 

Perhaps another thesis/explanation on the mystery of sustained profits margins through this cycle - which is to say that contracting household purchasing power via inflation has been supported or 'filled in' by expanding fiscal deficits.

[dealraker]

Up until Ben B I did not believe that the fed turbo charged our already boom-bust natured economy.  But I am now a full believer in that it seems we waffle back and forth between excessive fear of ANY type downturn to near "destruct-all" behavior.  

 

I think at least some period of US debt default fear with all the obvious players likely to participate in that is almost inevitable.  

[changegonnacome]

Yep quite a consequential election cycle coming up for fwd SPY earnings.

 

Very very hard to see the Trump era corporate tax cuts getting renewed/extended when you think about the budgetary arithmetic.