Saturday, January 18, 2014

The Pulp Fiction of Rising Interest Rates

The following chart shows the annual average of the 5-year CD rate at national banks.


Click to enlarge.

I'm not a religious person, but I do believe Jules would summarize this "rising interest rate" environment best.

The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. Blessed is he who, in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy My brothers. And you will know My name is the Lord when I lay My vengeance upon thee.

I'm certainly not a sarcastic god by any stretch of the imagination, but I am fully prepared to strike down upon Forbes with great sarcastic vengeance and furious sarcastic anger! It certainly wouldn't be the first time.

January 13, 2014
Forbes: Rising Interest Rates: Are They Good Or Bad For Retirees?

Allow me to pull the 10 key points from the article for you (including the title).

1. "...rising interest rates..."
2. "...rising rates..."
3. "...rising interest rates..."
4. "...rising interest rates..."
5. "...rising interest rates..."
6. "...rising interest rate..."
7. "...rising interest rates..."
8. "...rising rates..."
9. "...rising mortgage rates..."
10. "...rising rates..."

And finally, here is one of the true "Jules" of the article. It is the example that set all of this rant in motion.

For example, investors might finally be able to go to the bank and get CDs at 5-6 percent, which is impossible now, offering higher potential income for retirees.

Hahaha! Good motherf@#$ing luck on that motherf@#$ing miracle happening any time soon! The average 5-year CD at national banks currently pays just 0.48% (as of January 8, 2014). That is definitely the lowest rate I have ever personally seen (and I was born in 1964).

This is not investment advice. They are just the free motherf@#$ing opinions (in the spirit of Jules and Pulp Fiction of course) of an anonymous blogger on the Internet. Do with them what you will. :)

Source Data:
St. Louis Fed: Custom Chart

14 comments:

Stagflationary Mark said...

Investors can limit their interest rate risk by sticking with shorter-term bonds that expose investors to less risk of rising interest rates.

There is no mention of the risk of sticking in shorter-term bonds if rates don't rise. For some reason, that risk is almost always ignored.

I find it odd since that is the very risk that I was most worried about as a long-term saver (and still am). That's also the outcome that keeps happening over and over again.

You'd think that with the yield curve so steep, there would be at least some mention that it might be worth the risk to be out further on the yield curve, especially if you don't need the money in the short-term.

In my opinion, the money you need in 1 year should probably be in one year instruments, the money you need in 5 years should probably be in 5 year instruments, the money you need in 10 years should probably be in 10 year instruments, and so on.

It's just another way of saying that I believe that bond ladders are a pretty good idea for those who want to invest in bonds.

The alternative theory is called sitting in shorter-term instruments and trying to time the markets. That seems a lot riskier to me, especially if you are relying on hope. Might work out. Might not. (I expect it to not work out but that's just an opinion.)

Mr Slippery said...

LOL!

Say "rising interest rates" one more time, motherf@#$r!

Luke Smith said...

Do those rates (chart and article) reflect FDIC insured CDs?

Say what again. I dare you.

Stagflationary Mark said...

Mr Slippery,

Say "rising interest rates" one more time, motherf@#$r!

You absolutely nailed the spirit of this post! Hahaha!

Stagflationary Mark said...

Luke Smith,

If the rates don't reflect FDIC, then only one word could possibly apply here.

Motherf@#$er!!! ;)

Stagflationary Mark said...

For example, investors might finally be able to go to the bank and get CDs at 5-6 percent, which is impossible now, offering higher potential income for retirees.

If we see actually do see 5-6 percent then how hot would motherf@#$ing inflation have to be?

Higher potential *real* income for retirees?

Motherf@#$er!!!!

Troy said...

I've seen lower.

'course I was living in Tokyo at the time.

Troy said...

On my iPad so I can't make a Fred graph, but cmdebt / wascur is still plateaued really really high.

Too much money pooling at the top, not enough in the middle.

Stagflationary Mark said...

Troy,

'course I was living in Tokyo at the time

'course ;)

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=r6n

blue is Non-TBTF debt / wages

red is 5 year UST

Clearly when rates were going to the moon in the Volcker regime, he was fighting the hunger for more leverage.

But when rates were oscillating at 5-8% in the 1990s, leverage was 2/3 what it is now.

http://research.stlouisfed.org/fred2/series/FYGFGDQ188S

Debt held by the public (and Fed) / GDP

Stagflationary Mark said...

Troy,

If we want serious inflation, then I think we just need to entice women to work 2 jobs each *and* raise large families. Perhaps we can succeed where Japan has failed!

Women Employment-Population Ratio vs. 10-Year Treasury Yield

Alternatively, we can just all give up and play video games with our free time. I'm not even remotely joking of course. I'm a gaming addict and the games of the distant future have little chance of curing me!

Troy said...

all give up and play video games with our free time.

http://news.nationalgeographic.com/news/energy/2013/12/131217-four-theories-why-teens-drive-less-today/

the virtualization of the economy should leave some good niches for wanna-be indie game devs like me.

$60 for a game is gonna be tough this decade, but the $1 price point will work for me fine if I can get a thousand or three sales a month.

Troy said...

Speaking of which (indie game dev), the good news is the OpenTK project is again being maintained.

OpenTK is mainly OpenGL bindings for C#.

C# itself is an interesting beast, as a Java knock-off it's a pretty good place to code games as Microsoft has done a lot of heavy lifting on it these past 10+ years.

The mobile market is segmented evenly between iOS and Android, and Xamarin's story is to position their C#/Mono platform as the neutral meeting ground, with both the iOS and Android APIs exposed to C# via "bindings" shim projects that translate the non-C# stuff into C# objects and idioms.

Xamarin's code editor is actually pretty damn good now.

Anyhoo, the OpenGL blitter and game code I write on my Mac should translate pretty effortlessly to PC, iOS, Android, and perhaps even PS4 (Mono already exists there).

Plus the C# work I'm doing is pretty compatible with Unity, which is also a strong porting layer.

http://blogs.unity3d.com/2014/01/15/playstation-vita-deployment-is-here/

Stagflationary Mark said...

Troy,

If "ifs" and "buts" were candy and nuts then I'd already be finished making a Dai Senryaku style epic role playing game instead of playing it. D'oh! ;)

I'm more than a bit concerned that the genre is dying. Never found its match on the PS3. Sigh.