The Investment Thread

[wallus]

13 hours ago, stoutdude04 said:

Father in Law trying to get us to put 10k into a bond with 9.something annual interest on it.  Seems like a no brainer instead of having it sit in savings...no? 

I-bonds. Yes, if you don't need the money soon it is a good option.

[GAME05]

Can't remember the exact name of that bond, but a cousin and my father are pushing to invest in the same one.

The cousin has been searching for something super-safe for a while since he's close to retirement and that was the best one he found.

[Samurai Bucky]

13 hours ago, wallus said:

I-bonds. Yes, if you don't need the money soon it is a good option.

We moved some of our cash into I-Bonds recently.  I think it is a good option, too.

[owbc]

My dad suggested the same thing but the lack of liquidity scares me away. Recessions are like garage sales -- gotta be able to convert to cash to buy at a discount. 

Unfortunately it sounds like politicians have gone nuts, advocating for tax cuts and further stimulus during an inflation crisis. It's gonna get ugly. 

[GAME05]

That's largely my thinking, too. I have a little ways to go yet, so not quite at that "keep what you have" stage. So can I make more than 7% buying up Disney or Netflix now? Yeah, probably. Heck, there's even indexes which short the market. People still drink coffee. Probably smoke more cigarettes if they're hurting, too. Is there really a world of difference between a bond and buying gold? No guarantee, sure, but about as safe as safe can be.

[wallus]

So in a bear market. For long term investors like me, I am not concerned.

Good news on the economy: Lots of jobs, consumers still spending

Bad news: Inflation, gas prices

It will be interesting to see how the market goes for the rest of the year and what rate increases they go with.

[Fear The Chorizo]

Bad news: Inflation, gas prices

That list is about to get a whole heckuva lot longer - they basically have to force a bad recession in order to get a handle on inflationary/supply chain and energy pressures coupled with deficit spending and dramatic low level wage hikes conducted over the past few years.  Home sales are about to come to a screeching halt due to rising mortgage rates and while I don't see home values plummeting like 2009-2011 because housing market isn't going to be the reason for the incoming recession, removing that economic contribution is going to hurt many industries. 

Consumers are indeed still spending but are needing to burn through savings or even worse use run up credit card debt to cover basic needs - discretionary spending will take a big hit later this year, too.  I saw that the average family is having to pay roughly $1,000 more per month to cover basic living expenses (gas, utilities, food, shelter) now than they were at the start of 2021....the exact figure varies from state to state, but it's just not sustainable to shift that much money to things without sacrificing/limiting other discretionary spending.

The entertainment/restaurant industry is going to get hammered again once the initial pent up pandemic-related demand wears off this summer with trips that were pushed back the last few years.

Specific to what the market will wind up doing, I think it's going to get worse before it gets better, because there really isn't a safe haven to turn to when you have high inflation, stumbling corporate profits, and yet to be resolved supply chain/energy production issues.  In short, I feel very fortunate to be nowhere near retirement age right now...and even more fortunate to not already be on a fixed income retirement like my parents.

 

[LouisEly]

Sort of agree with you FTC.  The housing market having a big slowdown is going to help with commodity prices - lumber, oil byproducts, etc.  Also labor.  The quotes I've been getting for rebuilding my rooftop deck are 50% higher or more than the quotes I got three years ago.  A slowdown in housing construction and building projects will help inflation, which is driving the instability in the market.

Companies that serve the lower end of the economy will get hit hard.  But what we've seen the last few years is the the lower end of the economy doesn't drive the economy.  Once summer is over and the trips that people booked months ago are taken, travel and hospitality will get hit in the fall.  That reduction in demand should help gas prices.

Inflation may increase the labor participation rate.  That will go a long way in filling needed jobs, the labor shortage, rising labor costs, and sustaining the economy from going into recession.

Oil prices are the big thing.  Gas prices drive the cost of almost all tangible goods as they need to be shipped.  Seems like there are similarities to 2008 when all other investments were tanking so investors piled their money into oil futures which shot up gas prices.

[wallus]

I think FTC is being too pessimistic. Yes inflation is causing things to increase in price but wages are up. Granted, not as much as inflation but still up pretty good. I will only start to get concerned when I start to see businesses take down their Now Hiring signs. Right now they are everywhere.

[nate82]

5 hours ago, LouisEly said:

Companies that serve the lower end of the economy will get hit hard.  But what we've seen the last few years is the the lower end of the economy doesn't drive the economy.  Once summer is over and the trips that people booked months ago are taken, travel and hospitality will get hit in the fall.  That reduction in demand should help gas prices.

Inflation may increase the labor participation rate.  That will go a long way in filling needed jobs, the labor shortage, rising labor costs, and sustaining the economy from going into recession.

Oil prices are the big thing.  Gas prices drive the cost of almost all tangible goods as they need to be shipped.  Seems like there are similarities to 2008 when all other investments were tanking so investors piled their money into oil futures which shot up gas prices.

The lower end doesn't drive the economy but they are a high percentage of the economy.  There is no denying it right now but the economy is heading towards a recession and it is unavoidable.  The time to address this has passed.  Gas prices are going to increase and should hit about $6 per gallon on average in the US.  Once this hits it will be the start of the recession but I don't see the price per gallon of gas on average going above $6.  California will see $10 on average within the next month or so.  Even during the fall period when travel goes down don't expect gas prices to fall all that much.  They may drop by a $1 which should put the national average around $5 per gallon but that is where they will stay for the foreseeable future.  

Now the scariest part won't even hit the US all that much this will have the biggest impact on Africa and the Middle East.  The grain shortage if the war in Ukraine continues to the next harvest is going to be a huge problem for Africa and the Middle East.  There will not be enough grain to supply Africa and the Middle East if the war in Ukraine continues to the next harvest.   This is where things start to get in the grim area as there will be famines in Africa and the Middle East.  

The African continent is already a tinder box waiting to explode along with the Middle East but less so.  War is a strong possibility in Africa and the Middle East if there is a severe famine.  This also means a lot of refugees heading to Europe which is already dealing with a refugee crisis with Ukraine and Syria.  This is only going to make things worse in Europe.  This could turn into the 1930-40's all over again.

There are also signs of India being hit with huge storms this summer which will really impact the supply chain.  This could be a very bumpy summer if all of the dominoes start falling.  Hopefully it doesn't happen but it is very possible that we are looking at a 1930's global crisis.  

[homer]

On 5/11/2022 at 11:54 AM, Samurai Bucky said:

We moved some of our cash into I-Bonds recently.  I think it is a good option, too.

At 9.62% yes it is.

[Fear The Chorizo]

15 hours ago, wallus said:

I think FTC is being too pessimistic. Yes inflation is causing things to increase in price but wages are up. Granted, not as much as inflation but still up pretty good. I will only start to get concerned when I start to see businesses take down their Now Hiring signs. Right now they are everywhere.

Wages aren't up anywhere close to actual inflation.  I'd much rather get a 3% wage increase when the CPI/inflation is 2-4% compared to a 6% raise when inflation is 8-10%.

Give it a month or two - there will still be "now hiring" signs left in the doors of businesses that close down.  Most of those positions companies are looking to hire are the result of staff switching jobs and leaving openings, not due to economic expansion as we reached a post-pandemic equilibrium.  Tech industries are already starting to announce layoffs.  The labor participation rate remains on the low side historically, too.  Not too many of us have been around long enough to experience a US economy that truly is experiencing stagflation, but unfortunately I think we're all about to find out how much it sucks.

 

[nate82]

With the raising of the rates today the FED believes the economy will grow at 1.7% for this year and next year.  Hello recession!!!

Also inflation should increase by 4.3% this year.  The CPI grew to 8.6% in May.  I don’t see the CPI going down anytime soon so probably for June another 8-9% rate continuing until at least the fall.  The FED also expects to raise the rates by .75 for the rest of the year.  

[Fear The Chorizo]

1 hour ago, nate82 said:

With the raising of the rates today the FED believes the economy will grow at 1.7% for this year and next year.  Hello recession!!!

Also inflation should increase by 4.3% this year.  The CPI grew to 8.6% in May.  I don’t see the CPI going down anytime soon so probably for June another 8-9% rate continuing until at least the fall.  The FED also expects to raise the rates by .75 for the rest of the year.  

Reminder that q1 gdp was already negative, so by the end of June we are probably already in a recession by its definition of 2 straight quarters of declining activity.  Also, the monthly inflation rates are based on year over year comparisons of each month - since inflation really started ramping up after the last covid stimulus package printed a few trillion out of thin air again last summer, the inflation numbers will probably start dropping into the 3-4% range as early as when July gets reported simply because they have nowhere to go but down when they've been setting fresh 40 year highs...but even that is too much for this economy.

[PlayerHader]

On 6/15/2022 at 3:29 PM, nate82 said:

With the raising of the rates today the FED believes the economy will grow at 1.7% for this year and next year.  Hello recession!!!

Also inflation should increase by 4.3% this year.  The CPI grew to 8.6% in May.  I don’t see the CPI going down anytime soon so probably for June another 8-9% rate continuing until at least the fall.  The FED also expects to raise the rates by .75 for the rest of the year.  

75 bps again in July and then a couple of 50 bps bumps in the fall is what I read.

This is really my second test as an investor. I handle my wife’s and my own retirement accounts. Amidst the Covid crash, I definitely missed on some gains on the way back up by moving a chunk of money from the SP500 into gold and hard asset funds (basically at the worst time, when the SP hit its low). I corrected that by late summer of 2020. So far this year I’ve been disciplined, but I do worry about 1) international stocks and hope they perform going forward, and 2) overall diversification. I’m 60-70% into the SP500 and 100% in equities across all accounts (401(k), 403(b), Roth IRA, HSA). We’re ~20+ years from retirement, so I probably shouldn’t worry much about that.

[homer]

It's actually a good time to buy stocks, IMO. 

[wallus]

54 minutes ago, homer said:

It's actually a good time to buy stocks, IMO. 

Yeah, there's a good chance they can go down a bit more but study after study says time in market>timing the market.

[GAME05]

Unless you're retiring in only a few years, all of this is a value investor's dream come true. If only I had more money to throw in the market right now. Although I don't think we've come anywhere close to the bottom of the market yet.

[LouisEly]

I don't foresee a dramatic drop in oil prices for a long time.  There is a lot of pressure on Europe to divest away from Russian oil/gas and it will need to come from somewhere.  I heard all but two OPEC countries are maxed out on production with Saudi Arabia being one of the two which gets into other political tensions.  Even if the economy slows down, China is still getting back on line which will increase demand.  Oil may drop under $100, but I don't think it will see under $80 for years. 

Right now the US has over 700 oil rigs online and climbing, but that is still less than half of how many were online in 2014.  If more rigs come online that will help pipelines even if prices drop.  And the US dipped into their oil reserve and at some point will need to restock it.

I moved some things around to Energy Transfer.  It's down 10% over the last two days.  Several analysts expect it to double to $20 in a year or so, and they've said their goal is to increase the dividend to well over $1.00 by end of year.  Right now it's yielding almost 8% on a dividend of $0.80.

[Fear The Chorizo]

6 hours ago, wallus said:

Yeah, there's a good chance they can go down a bit more but study after study says time in market>timing the market.

It's important to continue investing/contributing to retirement accounts consistently through peaks and valleys of the market - eventually it does rebound and even if your account is losing money during a downturn, you're at least buying shares at discounted prices that will realize bigger gains as the market rebounds at some point.  

I shifted a pretty large chunk of my retirement account to essentially a money market stable value fund earlier this year when it was apparent both the bond and stock markets were going to suck for an extended period of time.  Granted that fund is getting dinged by inflation like everything else, but its dollar value hasn't changed and at least it didn't get further crushed by being in a stock or bond market diving firmly into bear territory.  I'm not going to try and be perfect predicting the true bottom and best time to shift that part of my portfolio back into stock funds, but the way things are shaping up economically I don't have an immediate sense of urgency to pull the trigger, either.

[owbc]

Usually when oil prices spike, American oil companies invest the profits into additional production. They have been burned by this in the past because prices drop by the time they can actually increase capacity, which takes years. The expectation is also that oil demand will either stagnate or drop because of the increasing electrification of the transportation network. So there isn't any point in increasing production. Prices will stay high. In the long run it was a miracle of fracking technology that temporarily got prices down for an extra two decades. That's over now. 

As for the economy as a whole...the era of free money had to end. Things are going to get worse but at least we're being somewhat proactive this time which is unusual for the government. I don't know what's going to happen to the majority of people in this country who are struggling to get by. 

I'm also curious if they are going to make me repay student loans again in a couple of months. I'm guessing they will use the impending recession to punt on that again...certainly I'm not planning on making any payments prior to the midterm elections. 

 

[Fear The Chorizo]

Things are going to get worse but at least we're being somewhat proactive this time which is unusual for the government.

 

The last time the Fed jacked up rates 75 basis points was 1994, when Greenspan was roundly criticized by government officials for suppressing economic expansion.  At the time, I think inflation was around 2.5-3.5%, and Greenspan indicated he initiated the rate hike to prevent what appeared to be a rebounding economy from overheating.  The overall rate increases by Greenspan were relatively short-lived (about a year) and the Fed was able to keep inflation in check even after lowering the rates.

Since May 2021, the monthly inflation rate has progressively increased from 5.0% in May 2021 to 8.6% in May 2022, with little sign of dramatically dropping in the coming months.  This time around, what the Fed is doing is hardly proactive, and they are going to be forced to be punitively reactive to try put a stopper on the inflation spigot they've let run largely uncontrolled for more than a year.

As for student loan repayments, my final loan payment will be made next billing cycle roughly 19 years after I graduated...so that definitely means that huge swaths of student loan debt are going to be forgiven in next 2-3 months.  

[LouisEly]

Keep in mind that when prices started rising a year ago the unemployment rate was still 6%.  The unemployment rate actually rose slightly from April to May of last year and was mostly stagnant from March-June, so there was concern that raising rates would cause an increase in unemployment. The government needed to get people back to work so that they didn't have to have another stimulus. In 1994 it was an easier call because the unemployment rate had been steadily declining and the peak unemployment rate after the 1991-1992 recession was half of the peak unemployment rate in 2020.

Oil prices also started falling in October of last year, so there was reason to believe that inflation would subside.  Then Russia.

[Fear The Chorizo]

Oil prices also started falling in October of last year, so there was reason to believe that inflation would subside.  Then Russia.

In general, oil prices always slide in the fall of the year after peak demand most summers - so that really isn't a surprise or should have been viewed as a sign that inflation would actually not be a problem after printing trillions of dollars for the heck of it.  IMO there shouldn't have been a stimulus in either 2021 or the ones they doled out in 2020 - we are reaping the after effects of all of that right now.

The roadblocks set up for banks and other financial institutions to invest in expanded oil exploration and oil distribution infrastructure projects (pipelines/refining capacity, etc) coupled with essentially throwing a proverbial wet blanket on any and all new leases/drilling permits has been far more destructive to the global oil market than Russia invading Ukraine.   It's not nearly as simple as yelling at oil companies to "pump faster or pump more".

The brief unemployment rate increase a little more than a year ago was a product of the government finally pointing to a stop on the extended unemployment benefits and a glut of workers actually trying to rejoin the workforce.  The US labor force still isn't close to where it was pre COVID in terms of the number of people actually working - despite that really low unemployment rate...it's because a smaller percentage of the country is actually in the workforce.

 

[igor67]

I've been struggling for a good medical metaphor, but couldn't find one that didn't sound overly ridiculous. Trying to fight inflation with primarily interest rates is not ridiculous but it is incredibly imprecise at best when most of the causes are well removed from immediate lending. On the positive side a lot of fake pure inflation inducing value has gone out the window with the crypto collapse, so that a helpful little deflationary piece. Now wouldn't be the ideal time, but speculation tied to excessive stock market valuations is a perpetual inducer of end of cycle inflation spikes and looking at increasing taxes or fees on high income or capital gains would be helpful in the future. Ultimately though the lesson of the last couple of years is that the free market isn't particularly adept at adapting on the fly. Which is on some level a fair reflection that change is challenging regardless. I do look forward to some different types of calculus going forward that think more about robustness both on the business side and on the policy side.