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Laddered T-Bills

psulongago

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Aug 29, 2001
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Hoping for input from financial people. Mostly concerned about preserving capital, laddered T-Bills and CD's have been suggested for the next 12 - 24 months.
 
Hoping for input from financial people. Mostly concerned about preserving capital, laddered T-Bills and CD's have been suggested for the next 12 - 24 months.
An individual can only purchase $10,000 worth in a given calendar year, but Series I Savings Bonds offer a very safe, secure, and high yielding (about 7%) return. T-Bills and CD's still offer very low interest rates, and you are actually losing money due to inflation. The difference is that the returns on Series I Savings Bonds are tied to inflation. There is a penalty if not held for three years, but IMO they are one of the best financial options currently out there. The key economic indicators aren't very rosy looking ahead, and higher energy costs affect virtually every product and service we purchase. Add in the uncertainty in Ukraine and with Russia and the spiraling national debt, and it's not a pretty picture.
 
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An individual can only purchase $10,000 worth in a given calendar year, but Series I Savings Bonds offer a very safe, secure, and high yielding (about 7%) return. T-Bills and CD's still offer very low interest rates, and you are actually losing money due to inflation. The difference is that the returns on Series I Savings Bonds are tied to inflation. There is a penalty if not held for three years, but IMO they are one of the best financial options currently out there. The key economic indicators aren't very rosy looking ahead, and higher energy costs affect virtually every product and service we purchase. Add in the uncertainty in Ukraine and with Russia and the spiraling national debt, and it's not a pretty picture.
Agree re i savings bonds.

The new 6 month rate due out May 1.
The annualized rate expected to approximate 9.5%.
About 4.7% for the 6 months. Then a new rate November 1.

Can't withdraw your money for 1 year.
Years 2-5 ownership, you get hit with a three month interest early withdrawal penalty.

Edit( if you can get to an article 4-12-22. ,,,,,,
Optimizedportfolio.com/i-bonds/

It's a good article/read.

Check the Q and A stuff @ treasurydirect.gov
( the feds rule)

,,,,cheers
 
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I think much of the economic gain manifested in s&p growth, real estate, etc over the last two years is due to federal policies. Now with demand > supply due to free money and loose policy, people are blowing through cash reserves. With interest rates going up, we are all about to get squeezed really hard. Inflation will fall in line, but there are surely millions of people who blew through their money on stupid crap and will find it harder to borrow. Say hello next debt bubble and crashing prices as demand tanks.
 
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Hoping for input from financial people. Mostly concerned about preserving capital, laddered T-Bills and CD's have been suggested for the next 12 - 24 months.

Presumably you are over the $250k FDIC level?

TBills are about the lowest yield possible although they do preserve wealth, not at 1% when inflation is 10%

I would go with CDs. Do not buy anything with optionality... callable. You will get your face ripped off.

LdN
 
Presumably you are over the $250k FDIC level?

TBills are about the lowest yield possible although they do preserve wealth, not at 1% when inflation is 10%

I would go with CDs. Do not buy anything with optionality... callable. You will get your face ripped off.

LdN
thank you all,
 
Thank you all, I thought the 250 FDIC insured limit pertains to each account and not the number on accounts you may have within the same bank, multiple accounts, different account numbers. For years we were just comfortably taking income and whenever value dipped always thought value would return, not sure that is the case now. Income is really not important, just preserve value for the next alum.
 
I believe it is by bank. So you would need an accoubt with each bank to stack it. Not by account.

LdN
 
I believe it is by bank. So you would need an accoubt with each bank to stack it. Not by account.

LdN

A husband and wife can have 500k in a joint account and have individual accounts at 250k each within the same bank and all of the money will be insured. There are other examples that can get you even more coverage.

go to p. 21 at this link (p.23 of the pdf)

 
I bonds are a good but limited option as has been stated.
If you were going to buy a portfolio of laddered T bills or other government bonds I would wait 3-4 months. With a couple 50 basis point jumps coming rates will almost certainly go up.

FWIW my advisor has this philosophy
. keep 10 years worth of living expense out of the market, typically in laddered bonds.
. keep all the rest 100% in the market

The thinking is
can't time the market
the market over any 10 year period has like a 98% of being higher at the end of 10 years
you don't want to "need" money and be forced to sell into a down market

For the last 10 years with bond yields so low this has been a challenging proposition.[the good news has been the market has gone up so much that it makes the near 0 growth of bond income much more tolerable] As rates rise this will work very well.
 
Agree re i savings bonds.

The new 6 month rate due out May 1.
The annualized rate expected to approximate 9.5%.
About 4.7% for the 6 months. Then a new rate November 1.

Can't withdraw your money for 1 year.
Years 2-5 ownership, you get hit with a three month interest early withdrawal penalty.

Edit( if you can get to an article 4-12-22. ,,,,,,
Optimizedportfolio.com/i-bonds/

It's a good article/read.

Check the Q and A stuff @ treasurydirect.gov
( the feds rule)

,,,,cheers
Bump:

The initial interest rate on New Series I Savings Bonds is 9.62%. You can Buy I Savings Bonds at that. Rate through October2022

(Homework Time?)

Treasurydirect.gov

Their rules rule.

,,,,cheers
 
. keep 10 years worth of living expense out of the market,
That many years seems extreme. Your advisor's head is in the right place about trying to plan for sequence of returns risk, but there haven't been too many 10 year periods where this would have been apropos. I know history isn't an indicator of future results and all that, but the gains lost by keeping such a large amount out of the market is likely costing you more in the long run.
 
Presumably you are over the $250k FDIC level?

TBills are about the lowest yield possible although they do preserve wealth, not at 1% when inflation is 10%

I would go with CDs. Do not buy anything with optionality... callable. You will get your face ripped off.

LdN
1 year treasury rate is 2.1%. That's probably better than a CD and it's state tax exempt.
 
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That many years seems extreme. Your advisor's head is in the right place about trying to plan for sequence of returns risk, but there haven't been too many 10 year periods where this would have been apropos. I know history isn't an indicator of future results and all that, but the gains lost by keeping such a large amount out of the market is likely costing you more in the long run.
Agree Historically.
With so many supposed interest rate hikes coming, you have to ease into the market, IMHO.,
And carefully pick your investing poison.

,,,,300
 
I bonds are a good but limited option as has been stated.
If you were going to buy a portfolio of laddered T bills or other government bonds I would wait 3-4 months. With a couple 50 basis point jumps coming rates will almost certainly go up.

FWIW my advisor has this philosophy
. keep 10 years worth of living expense out of the market, typically in laddered bonds.
. keep all the rest 100% in the market

The thinking is
can't time the market
the market over any 10 year period has like a 98% of being higher at the end of 10 years
you don't want to "need" money and be forced to sell into a down market

For the last 10 years with bond yields so low this has been a challenging proposition.[the good news has been the market has gone up so much that it makes the near 0 growth of bond income much more tolerable] As rates rise this will work very well.
I would avoid Bonds for now. They lose principle as rates rise.

10 years worth of expenses out of the market seems extreme.
 
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1 year treasury rate is 2.1%. That's probably better than a CD and it's state tax exempt.

I seriously doubt that rate is better than a CD. Maybe today when customers don't know any better.

Fed is expected to hike 9.5 to 10x this year.

That is why the treasury rate is 2.1%

A bank should be paying that plus around 25 to 100 bps depending on the bank.
 
I seriously doubt that rate is better than a CD. Maybe today when customers don't know any better.

Fed is expected to hike 9.5 to 10x this year.

That is why the treasury rate is 2.1%

A bank should be paying that plus around 25 to 100 bps depending on the bank.
Checking Locally/Bankrate.com
Looks like 1.51% APY $25K 1 year C D.

,,,300
 
Checking Locally/Bankrate.com
Looks like 1.51% APY $25K 1 year C D.

,,,300

You can do much better than that.

Some banks are flush with cash.

Or more appropriate is that most banks are flush with cash.

In no way or time should anyone buy a CD over a tbill of higher yield.
 
I would avoid Bonds for now. They lose principle as rates rise.

10 years worth of expenses out of the market seems extreme.
Yea many folks think that however it is reassuring for folks. Also if you add up work income or Social Security, pension if you have one and other income (rental or annuities for example your annual “need” isn’t that great. Let’s say you have a million dollar portfolio. You collect SS as does your spouse. You have small pension or annuity from a lump sum payment. Maybe your annual shortfall is $30,000 per year. In this example you would have 30% bonds and 70% stocks. For a retiree that is actually pretty aggressive. Regarding bonds the reason for a laddered mix is they always hold them to maturity so no risk on principal. In the scenario above in a perfect world they would buy 10 $30,000 bonds with one maturing each year to fill the cash shortage. Not for everyone but I like it. Actually at my age and with the market so high I wish I was a much higher bond percentage.
 
Yea many folks think that however it is reassuring for folks. Also if you add up work income or Social Security, pension if you have one and other income (rental or annuities for example your annual “need” isn’t that great. Let’s say you have a million dollar portfolio. You collect SS as does your spouse. You have small pension or annuity from a lump sum payment. Maybe your annual shortfall is $30,000 per year. In this example you would have 30% bonds and 70% stocks. For a retiree that is actually pretty aggressive. Regarding bonds the reason for a laddered mix is they always hold them to maturity so no risk on principal. In the scenario above in a perfect world they would buy 10 $30,000 bonds with one maturing each year to fill the cash shortage. Not for everyone but I like it. Actually at my age and with the market so high I wish I was a much higher bond percentage.
Here' my hypothetical why for 1year and a Day I like the I Savings bonds over one year Govt bonds./C D's

Say: Principal $10K invested for either, today
Government bond today you get 2.1%. So +$210 interest State Tax Free a year later. Bond matures you've your $10K back.

With the i savinds bond. Today's annualized rate announced @ 9.62%
That gets you 4.81% for 6 months so you're +$481.00
On October 31'22. Interest is State tax free.
Can't cash out for six more months.

say: November 1'22 Treasury announces next annualized bond payment rate. They announce a rate of 0% because there's been ZERO inflation. You earn no interest.
But, because there's a 3 month interest penalty for early withdrawal, your previous 6 month interest earned will drop by half. Your net after a year and a day is About $240
So about 2.4% on your year's investment.


Say November 1, Feds announce annualized bond payment rate of 4%. So for the subsequent 6 months you get an extra $200 on your $10K. Half of 4%. (forget compounding)
So then time to cash outafter year and a day.
3months interest penalty. That's a minus $100.(half of $200)

So after year and a day you've earned
First six months interest of $481
Second six months interest of $100
State Tax Free..
$581 net, Interest Taxable to the Feds. Approximately 5.8% simple interest, taxable

As I'm sipping some fine Costco Canadian Whiskey,,
figures sound reasonable.??

Always Double Check Treasurydirect
Them's my interpretaion of their rules.

,,,cheers
 
"I" bond rate just went to 9.62%. Risk free and state tax free. Max $20K purchase per year for a married couple and $10K can be purchased for certain other legal entities. Purchase through Treasury Direct.
 
Here' my hypothetical why for 1year and a Day I like the I Savings bonds over one year Govt bonds./C D's

Say: Principal $10K invested for either, today
Government bond today you get 2.1%. So +$210 interest State Tax Free a year later. Bond matures you've your $10K back.

With the i savinds bond. Today's annualized rate announced @ 9.62%
That gets you 4.81% for 6 months so you're +$481.00
On October 31'22. Interest is State tax free.
Can't cash out for six more months.

say: November 1'22 Treasury announces next annualized bond payment rate. They announce a rate of 0% because there's been ZERO inflation. You earn no interest.
But, because there's a 3 month interest penalty for early withdrawal, your previous 6 month interest earned will drop by half. Your net after a year and a day is About $240
So about 2.4% on your year's investment.


Say November 1, Feds announce annualized bond payment rate of 4%. So for the subsequent 6 months you get an extra $200 on your $10K. Half of 4%. (forget compounding)
So then time to cash outafter year and a day.
3months interest penalty. That's a minus $100.(half of $200)

So after year and a day you've earned
First six months interest of $481
Second six months interest of $100
State Tax Free..
$581 net, Interest Taxable to the Feds. Approximately 5.8% simple interest, taxable

As I'm sipping some fine Costco Canadian Whiskey,,
figures sound reasonable.??

Always Double Check Treasurydirect
Them's my interpretaion of their rules.

,,,cheers
I decided to buy the last week of April, that way I lock in the previous rate of 3.56% for six months and then 4.8% for the following six months, so I've locked in 8.36 for the next twelve months.
 
I decided to buy the last week of April, that way I lock in the previous rate of 3.56% for six months and then 4.8% for the following six months, so I've locked in 8.36 for the next twelve months.
You're a Very Smart Man!

Edit: I too put in couple of $K a few weeks ago. Need another 8 to finish the year.

,,,cheers++
 
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I would avoid Bonds for now. They lose principle as rates rise.

10 years worth of expenses out of the market seems extreme.

Have you studied similar conditions in our history? This looks a lot like a cross between 1970s stagflation and the 2000 tech bubble. Look at the start of those periods. Where were investors 10 years later? We have more debt to deal with in 2022 as well. Interest rate increases are limited, so I think we can expect inflation, and returns not keeping pace.

Retirees will pay one way or another. If the Fed curbs inflation portfolios are going down. If they don't stop inflation (my expectation) then fixed income and those dependent on Social Security are going to be hurting. Either way it isn't pretty for retirees. If retired I think you need to accept that, whatever the portfolio, you'll be lucky to keep pace with inflation. I don't see a pro-growth environment.

There is a reason Warren Buffet would ratio market cap to a country's GDP as a general indicator of returns. We are in dangerous territory. Really need a breakthrough invention to create value.

If this pops you'll wish you had more than a decade on the sidelines. The gains since 2008 have clearly been the result of unsustainable stimulus. With debt at 130% of GDP I just don't see the source for more in the punch bowl. The Fed-put is probably ka-put. I've heard our market called "the mother of all stock market bubbles."

I wish I was still working, as these conditions make me really uneasy. Real rates are close to negative double digits. That is massive for a debtor nation, banana republic stuff. How do you get positive without an asset crash? Not seeing it. Valuations make no sense at the interest rates needed to stop this kind of inflation.
 
Have you studied similar conditions in our history? This looks a lot like a cross between 1970s stagflation and the 2000 tech bubble. Look at the start of those periods. Where were investors 10 years later? We have more debt to deal with in 2022 as well. Interest rate increases are limited, so I think we can expect inflation, and returns not keeping pace.

Retirees will pay one way or another. If the Fed curbs inflation portfolios are going down. If they don't stop inflation (my expectation) then fixed income and those dependent on Social Security are going to be hurting. Either way it isn't pretty for retirees. If retired I think you need to accept that, whatever the portfolio, you'll be lucky to keep pace with inflation. I don't see a pro-growth environment.

There is a reason Warren Buffet would ratio market cap to a country's GDP as a general indicator of returns. We are in dangerous territory. Really need a breakthrough invention to create value.

If this pops you'll wish you had more than a decade on the sidelines. The gains since 2008 have clearly been the result of unsustainable stimulus. With debt at 130% of GDP I just don't see the source for more in the punch bowl. The Fed-put is probably ka-put. I've heard our market called "the mother of all stock market bubbles."

I wish I was still working, as these conditions make me really uneasy. Real rates are close to negative double digits. That is massive for a debtor nation, banana republic stuff. How do you get positive without an asset crash? Not seeing it. Valuations make no sense at the interest rates needed to stop this kind of inflation.
Thanks for the great read.
You're reference to Warren Buffett and market caps reminded me of the Jersey Deli from a year ago.( had to refresh/google)

Deli had a Market Cap of $100M, and sales of about $35K over a two year period.
It eventually got delisted from one of the OTC marketplaces.

,,,cheers
 
Have you studied similar conditions in our history? This looks a lot like a cross between 1970s stagflation and the 2000 tech bubble. Look at the start of those periods. Where were investors 10 years later? We have more debt to deal with in 2022 as well. Interest rate increases are limited, so I think we can expect inflation, and returns not keeping pace.

Retirees will pay one way or another. If the Fed curbs inflation portfolios are going down. If they don't stop inflation (my expectation) then fixed income and those dependent on Social Security are going to be hurting. Either way it isn't pretty for retirees. If retired I think you need to accept that, whatever the portfolio, you'll be lucky to keep pace with inflation. I don't see a pro-growth environment.

There is a reason Warren Buffet would ratio market cap to a country's GDP as a general indicator of returns. We are in dangerous territory. Really need a breakthrough invention to create value.

If this pops you'll wish you had more than a decade on the sidelines. The gains since 2008 have clearly been the result of unsustainable stimulus. With debt at 130% of GDP I just don't see the source for more in the punch bowl. The Fed-put is probably ka-put. I've heard our market called "the mother of all stock market bubbles."

I wish I was still working, as these conditions make me really uneasy. Real rates are close to negative double digits. That is massive for a debtor nation, banana republic stuff. How do you get positive without an asset crash? Not seeing it. Valuations make no sense at the interest rates needed to stop this kind of inflation.
I mostly agree but I'm not as much doomsday as you are. I think we're in for a period of subdued growth. Real estate is a good example. 5%-6% mortgages will put a damper on things. Not a crash, just slowing demand.

I don't think the Fed will be able to increase short rates above 3.5% so I expect inflation to persist for a while before finally dropping to 4%. Say goodbye to the days of 2% inflation.

Companies will continue invent new stuff and investors will continue to support them.

The saving grace for the U.S. is that other countries are debasing their currencies just like us. So the dollar isn't losing a lot of value.

P.S. Bonds are a bad deal until the Fed has about 5 rate hikes.
 
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Isn't the reality that beyond just government debt, but government pension obligations, along with so much corporate and personnel debt that things have to 'pop' and reset at some time. I mean tax rates (and hidden taxes like fees for everything now) are only going to have to continue to go up to pay off the government debt load. I also believe you will start to see some level of higher taxation on retirement savings, social security retirement age increase to 70 from 67, and means testing on social security such that if you saved money then you won't get much social security as that system is not sustainable either.

Ultimately, aren't we headed at some point in the near future to see a whole lot of defaults, first at the local level and then more at the state level as no way that all these govt. entities can pay off the debt loads they have.
 
Isn't the reality that beyond just government debt, but government pension obligations, along with so much corporate and personnel debt that things have to 'pop' and reset at some time. I mean tax rates (and hidden taxes like fees for everything now) are only going to have to continue to go up to pay off the government debt load. I also believe you will start to see some level of higher taxation on retirement savings, social security retirement age increase to 70 from 67, and means testing on social security such that if you saved money then you won't get much social security as that system is not sustainable either.

Ultimately, aren't we headed at some point in the near future to see a whole lot of defaults, first at the local level and then more at the state level as no way that all these govt. entities can pay off the debt loads they have.
We all buy Chinese goods and they buy our debt?
Such that the wheels still/always in spin.

usdebtclock.org

,,,,300
 
I decided to buy the last week of April, that way I lock in the previous rate of 3.56% for six months and then 4.8% for the following six months, so I've locked in 8.36 for the next twelve months.
I did exactly the same thing for $10k. The wife didn’t want to lock up any more than that since we have both a wedding to pay for and need to get a new vehicle within the next 12 months.
 
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I did exactly the same thing for $10k. The wife didn’t want to lock up any more than that since we have both a wedding to pay for and need to get a new vehicle within the next 12 months.
Kudos.
"Money for nothing and your cheques for free.."
( Dire Straits)

,,,,at least till inflation abates.😉

,,,,cheers
 
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I did exactly the same thing for $10k. The wife didn’t want to lock up any more than that since we have both a wedding to pay for and need to get a new vehicle within the next 12 months.

I see I-bonds as an excellent way to put money aside for known future purchases, such as an HVAC, roof, cars, appliances, etc.

You can have a little assurance that you are saving the right amount to cover the cost. If inflation goes down that doesn't hurt you.

What can really hurt is putting money into stock for those purchases and expecting a return to cover inflation. Worse would be leveraging a home to buy equities. I think people did that during the pandemic just as they did right before the dot-com bubble burst.

This time the Fed cannot pick up the tab.
 
Retirees will pay one way or another. If the Fed curbs inflation portfolios are going down. If they don't stop inflation (my expectation) then fixed income and those dependent on Social Security are going to be hurting. Either way it isn't pretty for retirees.

Pretty clear after today's Fed meeting that we continue to have a dovish Fed that does not want to buck the system. Bad for consumers/retirees/fixed income people (probably high inflation for years to come), but good for investors (+ 3% today as soon as Powell spoke).

No surprise. I don't see this Fed really caring about price control despite the rhetoric. What they do is more telling. No balance sheet reductions until June. No 75 point basis hikes on the table despite real interest rates approaching negative double digits. This is just nuts.

Keep your day job.
 
Pretty clear after today's Fed meeting that we continue to have a dovish Fed that does not want to buck the system. Bad for consumers/retirees/fixed income people (probably high inflation for years to come), but good for investors (+ 3% today as soon as Powell spoke).

No surprise. I don't see this Fed really caring about price control despite the rhetoric. What they do is more telling. No balance sheet reductions until June. No 75 point basis hikes on the table despite real interest rates approaching negative double digits. This is just nuts.

Keep your day job.
I think the Fed cares a lot about inflation. They just don't want to crash the economy to fix it. They kept rates low and bought bonds for too long and now they're in a pickle. They're hoping that their modest rate cuts and bond selling will lower inflation without killing the economy. IMO they'll be partly successful. There's enough pent up demand to keep the economy going for a while and the infrastructure spending hasn't even occurred yet. But 5-6% mortgage and car loan rates will certainly be a drag on the economy.

My guess is inflation will be 5%-6% by year end and GDP growth will be 1%-2%,
 
I think the Fed cares a lot about inflation. They just don't want to crash the economy to fix it. They kept rates low and bought bonds for too long and now they're in a pickle. They're hoping that their modest rate cuts and bond selling will lower inflation without killing the economy. IMO they'll be partly successful. There's enough pent up demand to keep the economy going for a while and the infrastructure spending hasn't even occurred yet. But 5-6% mortgage and car loan rates will certainly be a drag on the economy.

My guess is inflation will be 5%-6% by year end and GDP growth will be 1%-2%,

Fed has prioritized "soft landing" over inflation control. In other words, Powell doesn't want asset values (real estate and stocks) to go down, and he's willing to tax consumers with inflation to support those prices.

The Fed is so far "behind the curve" that most analysts do not believe he can have it both ways (propped up asset prices and low inflation). So no, actions speak louder than words. The Fed doesn't care about inflation.

The key economic issue is that they spent two years ignoring the fact that the money supply should match productivity. The Fed answered more than a year ago with this: "We have the tools to control inflation." That's true. What they don't have is the will to control inflation after creating an asset bubble.
 
Fed has prioritized "soft landing" over inflation control. In other words, Powell doesn't want asset values (real estate and stocks) to go down, and he's willing to tax consumers with inflation to support those prices.
I mostly agree. The Fed will face immense criticism if the economy tanks and that's what will happen if the get too aggressive. That's why I expect rate increases and bond sales to be somewhat limited. Inflation will come down some but not to 2%. The economy will putter along.
 
I mostly agree. The Fed will face immense criticism if the economy tanks and that's what will happen if the get too aggressive. That's why I expect rate increases and bond sales to be somewhat limited. Inflation will come down some but not to 2%. The economy will putter along.
Cannot undo 8+ years of bad policy in 6 months. Recession is going to happen
 
Cannot undo 8+ years of bad policy in 6 months. Recession is going to happen
Maybe but I'm not convinced. There's a lot of pent up demand and a $1.2 trillion infrastructure package still to be spent. We already have more jobs than people looking. Inflation and interest rates will hurt but maybe not enough to send us too far south in the short run. Could just be a period of slow growth.
 
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I mostly agree but I'm not as much doomsday as you are. I think we're in for a period of subdued growth. Real estate is a good example. 5%-6% mortgages will put a damper on things. Not a crash, just slowing demand.

I don't think the Fed will be able to increase short rates above 3.5% so I expect inflation to persist for a while before finally dropping to 4%. Say goodbye to the days of 2% inflation.

Companies will continue invent new stuff and investors will continue to support them.

The saving grace for the U.S. is that other countries are debasing their currencies just like us. So the dollar isn't losing a lot of value.

P.S. Bonds are a bad deal until the Fed has about 5 rate hikes.
I agree. I’m currently laddering as many bills and notes as possible so that I can maximize interest income in 2022 and 2023.

I’m also feathering funds into 2 and 3 year notes because the Treasury’s (and thus the Fed’s) hands are jointly tied with any interest rate higher than 3% anywhere along the yield curve. I’ll hold to maturity because I’m not exposing much $$$ in the longer durations.

Over the next 3-4 months, I think we’ll get a better feel of what the Fed feels it can do. Powell is already hemming after today’s 50 bp hike.

Have you researched the US Fed debt service on $30 Trillion at various interest rates?
 
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