Posted on 02/13/2023 2:23:36 PM PST by Fido969
That’s my name, don’t wear it out.
My answer...
You have surrounded yourself with idiots friends, They deserve it.
I think perhaps, this comment best posts to the heart of the matter.
Then displays it to the crowd while still beating, to be sacrificed in a fiery pit.
LOL.
Last year I was up 2.6% on my liquid investments. Side note: I have about half in rental real estates and half in liquid investment accounts. My real estate investments are buy and hold for life. I frankly prefer to not have the headaches of being a landlord but the idiotic fiscal madness in DC makes it a necessity if I’m ever going to be independent of needing paychecks. My liquid investments are more fluid.
When I saw the S&P 500 hit 4800 in late 2021 I thought the market had gone crazy because I saw the 80% optimism case being 240 SP500 2022 earnings and 9% growth per annum expectations until some recession comes along to bring a day of reckoning to the overleveraged and the 20% pessimism case being 180 SP500 2022 earnings and 5% growth per annum under same parameters. My projected FPE was 15.5 to 17.5 for that range so we’re talking about 2790 to 4200 as that 20% to 80% range. I just couldn’t fathom being very long with there being at least 80% odds of the market falling 12.5%. So, I got out of the market for the most part. I still kept some positions in value stocks and made adjustments as the Sharpe Ratio indicators directed.
With FDIC limit concerns I decided I needed to park the money somewhere that could be safe. And I made the wrong decision that’s now cost me 7% on my largest holding - SHY (1 to 3 year Treasuries) - when I should’ve bought BIL (1 to 3 month Treasuries). If I would’ve put the money in BIL then I’d be up 4% for 2022.
And then this got me thinking about the real situation for the largest investors in US Treasuries, particularly the ones in long-term Treasuries. If I got a 7% hit on the 1-3 year Treasuries then how have those with 10-30 year Treasuries fared? I ran some numbers (using their own data) and saw that the Federal Reserve got to at least 1 trillion USD in the hole. Why we don’t hear about this is because they hold Treasuries until maturity so they mark these holdings at whatever value they decide to mark them until they mature. And the same thing is happening with lots of other institutions.
I’ve decided for now to stick with my SHY position (and slowly reduce it by a third over the rest of 2023) because if the Federal Reserve gets back to lowering interest rates then it should go back up a few percentage points and in the meantime I’m now going to be getting dividends of over 3%. But every time I open my brokerage account I see that large loss in bright red staring at me on my list of active positions and I’m reminded of what a blood bath it must truly be on the real balance sheets of so many large institutions who hold long-term bonds of any type. Its not just US Treasuries. There are Japanese and European sovereign debt bonds where trillions of USD equivalent were negative interest yielding before the pandemic. There are mortgage backed securities, car loan backed securities, and numerous other types of debt-backed securities & the ones that are long-term have taken huge losses. And this isn’t counting the risks that come when you have some consumer lose their job and they have 20K of credit card debt, 50K loan on 30K car, 500K loan on 300K house, student loans in the six figures, and other debts who just simply won’t be able to pay their debts.
These institutions don’t have a liquidity problem. They have a severe solvency problem. And when the “experts” say that there are liquidity risks they need to shut up, stop lying, and face the facts that there’s a severe solvency problem going on.
No wonder Jay Powell is insistent that Inflation must be beat. He knows very well that long-term bond investors are only going to buy bonds when the interest yields on these bonds exceed inflation + cost of taxes + cost of risks/management; and that the Fed’s survival (and that of many other institutions) now depends upon the market believing that Inflation is going to be kept down. The Federal Reserve would never be in this mess now if it hadn’t foolishly gotten into the business of buying long-term mortgage backed securities and long-term Treasuries. But it did so that’s why it’s in a fight for its own survival.
The Fed’s problem is well over 2 million times worse than the problem of this guy in this article linked to at the top of this thread.
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