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Stick a fork in it. She's done!
Bloomberg: Rates & Bonds
5-Year 2.000 04/15/2012 108-07 / .00 0-17 / -.127 13:53
0.0%! We hit bottom. Congrats to all of you that made this possible: Bush, Greenspan, Bernanke, Paulson, Snow, China, India, and Iraq. We couldn't have done it without you!
Next up, the 10-Year? Or are we all still convinced that this downturn is a mere temporary speed bump on our way to even more prosperity?
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12 comments:
I think the yield on the 5-year TIPS could go negative, in which case I think the Treasury would either cancel the upcoming 5-year TIPS auction, or revise the rules to deal with this situation.
Otherwise you would end up with a breakdown in the auction with all bids at 0.00%.
Stag,
5-Year 2.000 04/15/2012 108-12 / -.04 0-22 / -.163 15:51
Talk about low expectations! Dead as fried chicken.
What's next, a repeal of the laws of gravity? Maybe I'll finally be able to be like Mike!
StagMark,
Good to see you posting regularly again, I missed you on my regular blogroll...you might enjoy an interesting plot I ginned up from the Fed's statistics page https://www.federalreserve.gov/releases/ - the charge off and delinquency rates for real estate loans plotting up the YoY change...
Anonymous,
http://www.treasurydirect.gov/forms/sec5382.pdf
Note About TIPS: Should the accepted auction yield be 0% or less, the security will not have regular semiannual interest payments. The yield will be adjusted for inflation throughout its lifetime, thus posting changes at maturity (or sale). In this case, where the accepted auction yield is 0% or less, the interest rate will automatically be set at 0% (never anything lower) for all buyers.
Zero is the floor. However, it is possible that since the government doesn't offer an infinite supply of TIPS during the auction, investors could conceivably bid them up higher in the secondary market (meaning they'd have a lower yield).
MAB,
The laws of gravity will be replaced by a faith based luck system. For small objects or objects not directly above your head, this shouldn't pose a problem, lol.
Hey Energyecon,
I would be interested. Link?
As shown, using the upper level of the Fed's inflation comfort zone (2%), $1,000 today is worth only $603 in twenty-five years. This translates to nearly a 40% reduction in value.
You think that's bad? When we use the current values of the CPI and PPI, the value of money declines substantially faster. At an inflation rate of 4.3% (the current y/y CPI), our $1,000 loses two thirds of its value over a twenty-five year period. While that may seem like a big haircut, let's just hope inflation doesn't rise to the current level of the PPI, which most recently stood at 7.4%. If that rate were to become the norm, our "cool grand" today would be a much less cool $146 in 25 years.
http://seekingalpha.com/article/66657-inflation-s-power-the-dollar-in-25-years?source=wildcard
Ahhhhhhhhhhhhh
Kevin
All right StagMark, now you have gone and done it...
http://energyecon.blogspot.com/
the requested plot
Energyecon,
For some reason your chart reminds me of the 1970s. Perhaps it has a "Towering Inferno" (1974 disaster movie) look about it.
How the heck are we going to get all those people down to safety?
Kevin,
I've got good news and bad news.
First the good news. You can earn 1.61% on the 2-Year treasury note though. Since the rate is so low, you won't owe much in taxes. Woohoo!
Now the bad news. You can earn 1.61% on the 2-Year treausury note!
Don't even get me started on the current -0.05% yield on the 5-Year TIPS. If this keeps up, this agnostic might need to resort to religion.
Does holy water repel undead interest rates?
What about the blood of first born (presumably since we borrow from our grandchildren to keep the party going)?
No easy answers!
Stag,
Some perspective. The Vanguard S&P 500 Index fund has a pre-tax annual return of 3.99% over the ten year period ending 2/29/08. This assumes re-investment of all dividends. Not great by any means, but not the end of the world either. However, I suspect the actual returns for most are much worse.
For "fun", I calculated a typical 401K scenario whereby an investor puts $10,000 into his S&P 500 fund each year during the 2nd week of March. The 2nd week of March is random, but is a common company match period. The results are disturbing.
From March 1998 thru Feb. 2008, my typical investor would have invested $100,000 ($10,000/yr*10yrs) and ended up with about $123,000 in his account after gains/losses & dividends. Mind you, this is in a fund with a 0.18% annual expense ratio. The average large blend mutual fund carries an expense ratio of 1.5%, which would have eaten about half of the $23,000 in total returns.
I'm not sure of the best way to annualize dollar cost returns with quartely dividends, but on a purchasing power basis, these results are awful.
At high valuations, even dollar cost averaging is of little value. This sure looks a lot like a "lost decade" to me (or stagflation).
The results in a taxable account would be much worse. In a taxable account with high turnover and high fees, I suspect the returns are about break even or negative. On an inflation adjusted basis, there is no doubt about the negative returns.
A 401K investor who reached retirement during this ten year period and started withdrawals would be slapped with ordinary state & federal income taxes of up to 40% on ALL . On an early withdrawal (as many are now doing) the tax rate could reach 50%.
The lack of a financial education is very expensive indeed. I don't see how anybody can afford to trust wall street. At a 1.5% fee rate, I figure wall street skimmed over two trillion in fees from equitites during this ten year period (15T*1.5%*10yrs). Likely, more money than the investors made during the period.
Investors in growth funds as well as the ever gullible performance chasers have fared even worse if you can imagine.
In response to this lost decade, we get cdo^2, negative interest rates and a housing bubble. But its ok, hedge funds & private equity will save the day with higher fees.
The greatest story never told!
MAB,
The greatest story never told!
You are starting to sound a bit like an optimist (scary thought, huh?) and we just can't have that on my site! I therefore have a more pessimistic/realistic addendum to your rant, lol.
The Hidden Fees in the 401(k)
http://www.bloomberg.com/news/marketsmag/mm_0308_story3.html
What most of these workers don't know is that fees, rebates and revenue-sharing agreements among employers, 401(k) administrators and mutual funds--many of them buried in the fine print or not disclosed at all--are slowing the growth of their nest eggs. The U.S. Department of Labor lists 17 distinct 401(k) fees, including ones for record keeping, legal services and toll-free telephone numbers.
Emphasis mine!
Oh well, it really isn't unexpected. We live in a society with free checking. Yet bank employees obviously get paid by someone (said somewhat tongue in cheek).
Stag,
Sorry about the rant. I'll try to mute my optimism in the future. That kind of stuff can start a bubble if you're not careful.
If you don't mind, I'm interested in knowing what you use to make your killer charts. Best I've found on the web.
BTW, I bought a used guitar 30 years ago and it has appreciated very nicely. It was a damaged Martin. I think I paid about $40 and am told it is worth about 10 times that now. You may be surprised in the future. Too bad my skills didn't appreciate at the same rate. I can still annoy people with Stairway though.
I also have over a hundred Marvel comic books which I bought for between $0.20 & $0.30 each. Low digit X-men issues, Fantastic Four vs. Galactus issues, Iron Man, Spiderman, Captain America, Avengers, Thor, etc. They've also increased in value and are again back in vogue. Just more stuff returning from the 1970s I suppose.
MAB,
I use Excel 2000 to do the charts (stuck in the past because I'm too cheap to upgrade!).
Toilet paper investing had a fantastic month. *sarcastic eye rolls* Costco just increased the price of their 45 roll Marathon brand from $19.99 to $20.99. That's a 5% increase. My "hoard" has risen in price (but not in value unfortunately). My toilet paper hoarding ways are temporarily on hold though. I figure the odds of another price increase within the next six months are rather low. Further, since I have 450 rolls there isn't a lot of need to acquire more in the short-term!
They say a cynic knows the price of everything but the value of nothing. I guess that means I'm not a cynic. There's no way I can know the price of everything. I can say we're paying a high price for "helicopter drops" of money/credit and I see very little value in the activity. Each dollar dropped appears to push up the price of oil similarly these days.
I've helped your comic book collection indirectly in recent years I suspect. I've got the Marvel Masterworks compilations of Doctor Strange. The first volume was given to me as a gift and I felt the need to semi-complete the set (since that's what I remember reading in my youth). Fortunately, I'm seemingly able to stop with just one set (three volumes) and not start down the path of buying all the sets (would be very expensive).
And lastly, I feel the need to comment on the strength of sales at Costco. I think that's just me hoarding. Sorry about that!
http://ap.google.com/article/ALeqM5hFnG9DEPzspeBLtLbA4wZZyXbpBAD8V7F6MG2
"I'm cautiously optimistic and very naive, but I hope the economy doesn't die, and all I can feel most confident about is that whatever is happening out there in retail, we'll tend to do a little better than that," Costco's chief financial officer, Richard Galanti, said in a conference call with analysts.
Don't we all.
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