The Investment Thread

[nate82]

8 hours ago, BrewerFan said:

Does anyone actually want them back down to 3-3.5%? 

I don’t think anyone was thinking that low but sub 6% is what some were thinking.  I don’t think they will get below 5.7%.  I think that will be the bottom for mortgage rates and it will stick around 6% even with more rate cuts.

 

8 hours ago, BrewerFan said:

Great week with the Jobs report revised up, CPI was solid. 

If this stays steady then rates will stay where they are there won’t be another cut by the Fed.

[BrewerFan]

On 10/13/2024 at 10:17 AM, nate82 said:

If this stays steady then rates will stay where they are there won’t be another cut by the Fed.

I think we get one more of 25 basis points...

And then...who knows what 2025 will look like. How drastically the autonomy the Fed has could change. So I won't predict what will happen there, but this week, 25 basis points. 

The economy is certainly humming along pretty well and the markets going strong despite the most consequential election of my lifetime. 

[nate82]

Mortgage rates are set to increase over the next couple of months.  

[yourout]

I was going to move some retirement money into the market but I think I am going to hold off.

For sure in about 2 1/2 years everything is moving to T-Bills and somewhere as safe as possible.

Pretty much every Republican President in the last 40 years has a crash in the second half of their term and I am too close to the finish line to get hammered like the 401s did at the end of GWB. I knew a bunch of people that basically got wiped out by that one.

[owbc]

 

On 11/6/2024 at 12:00 PM, nate82 said:

Mortgage rates are set to increase over the next couple of months.  

2025 should be an interesting year. I think the public is expecting Bernie Sanders populism and what they are going to get is tax cuts favoring the wealthy. People are saying they expect prices to go down. How exactly is that going to happen? 

Personally I was hoping for a refinance on our investment property that is in the low 7s but that's clearly not going to happen. 

12 minutes ago, yourout said:

I was going to move some retirement money into the market but I think I am going to hold off.

For sure in about 2 1/2 years everything is moving to T-Bills and somewhere as safe as possible.

Pretty much every Republican President in the last 40 years has a crash in the second half of their term and I am too close to the finish line to get hammered like the 401s did at the end of GWB. I knew a bunch of people that basically got wiped out by that one.

Even if the election had gone the other way, it's clear that the current growth in stocks is not sustainable. How many years in a row can you expect 30% gains in the S&P 500? We're due for a correction anyway, but it would suck to miss out on this bubble getting inflated even more in the first year or two of the next presidency. 

For now just playing wait and see. 

[nate82]

3 hours ago, owbc said:

2025 should be an interesting year. I think the public is expecting Bernie Sanders populism and what they are going to get is tax cuts favoring the wealthy. People are saying they expect prices to go down. How exactly is that going to happen? 

Any tax cut will favor the wealthy.

Prices will fluctuate and it doesn't really matter who won or lost the election.  There are probably a few sectors (Oil) that will have a better outlook but that would be a few years later and won't be instant.  Housing and groceries are probably going to increase and neither candidate has a good plan in reducing either. 

3 hours ago, owbc said:

Personally I was hoping for a refinance on our investment property that is in the low 7s but that's clearly not going to happen. 

Yeah mortgage rates are not going to drop all that much if at all.  Even with the most recent rate cut today I don't expect mortgage rates to dip.  We may see a small dip back down to sub 7% but it will then go back up again.

 

[LouisEly]

4 hours ago, yourout said:

I was going to move some retirement money into the market but I think I am going to hold off.

For sure in about 2 1/2 years everything is moving to T-Bills and somewhere as safe as possible.

Pretty much every Republican President in the last 40 years has a crash in the second half of their term and I am too close to the finish line to get hammered like the 401s did at the end of GWB. I knew a bunch of people that basically got wiped out by that one.

Yep, we're looking at a giant 2-3 year pump-and-dump scheme.

My financial advisor likes BBB-rated short-term bonds.  Right now yielding around 8%.  He likes LSYAX from Lord Abbett.  I can't get access to that in any of my accounts (Fidelity, Schwab), so I go with FFRHX from Fidelity.  Price is flat YTD but yielding 8.4%.

[yourout]

On 11/7/2024 at 6:33 PM, LouisEly said:

Yep, we're looking at a giant 2-3 year pump-and-dump scheme.

My financial advisor likes BBB-rated short-term bonds.  Right now yielding around 8%.  He likes LSYAX from Lord Abbett.  I can't get access to that in any of my accounts (Fidelity, Schwab), so I go with FFRHX from Fidelity.  Price is flat YTD but yielding 8.4%.

I'm interested. Not willing to risk $60k in the stock market right now.

[wallus]

The market keeps going up and up. I am more bullish than most on here but even I am starting to get uncomfortable. I have a nice end of year bonus that I was planning on plowing into the market but now I think I will wait until February on a hunch.

[owbc]

19 hours ago, wallus said:

The market keeps going up and up. I am more bullish than most on here but even I am starting to get uncomfortable. I have a nice end of year bonus that I was planning on plowing into the market but now I think I will wait until February on a hunch.

I was reading Reddit this morning about how $MSTR is about as clear cut of a Ponzi scheme as you can get. 

But there’s also reason to believe the market will keep chugging on a little longer…depends on what policies the next administration go with and nobody knows what they will do… 

[Samurai Bucky]

Broadcomm for the win 👍

[nate82]

Mortgage rates unlikely to drop below 6% in 2025 regardless of what the FED does or doesn’t do.  The rate of 6-7% looks to be permanent for now until the 10 year treasury starts to go down but I don’t believe this will happen anytime soon.

[LouisEly]

13 hours ago, nate82 said:

Mortgage rates unlikely to drop below 6% in 2025 regardless of what the FED does or doesn’t do.  The rate of 6-7% looks to be permanent for now until the 10 year treasury starts to go down but I don’t believe this will happen anytime soon.

The 10-year is artificially inflated because of fears that tariffs, deporting millions of illegals, and increased insurance rates due to the California wildfires are going to cause inflation to spike back up, causing the Fed to raise rates.  Just fears.

The reality is that tariffs don't cause inflation and that deporting a million illegals might cost an estimated $80+ billion dollars, which is unlikely to happen with an administration focusing on government efficiency.  And the California wildfires have affected a small fraction of the number of people affected by the recent hurricanes in Florida.

The Fed didn't start raising interest rates until inflation got to almost 8%; they' re not going to start raising rates if inflation crosses over 3%.  To your point though, it may take a year before the institutional investors realize this. 

The Fed has said that current rates are "restrictive", and as I've learned the hard way, don't fight the Fed.

[owbc]

1 hour ago, LouisEly said:

The 10-year is artificially inflated because of fears that tariffs, deporting millions of illegals, and increased insurance rates due to the California wildfires are going to cause inflation to spike back up, causing the Fed to raise rates.  Just fears.

The reality is that tariffs don't cause inflation and that deporting a million illegals might cost an estimated $80+ billion dollars, which is unlikely to happen with an administration focusing on government efficiency.  And the California wildfires have affected a small fraction of the number of people affected by the recent hurricanes in Florida.

The Fed didn't start raising interest rates until inflation got to almost 8%; they' re not going to start raising rates if inflation crosses over 3%.  To your point though, it may take a year before the institutional investors realize this. 

The Fed has said that current rates are "restrictive", and as I've learned the hard way, don't fight the Fed.

Inflation is clearly sticky for a number of reasons and the economic agenda for the next administration is to remove the debt ceiling and extend tax cuts. Unclear if Congress will allow it but that’s the goal. The fed wants 2% inflation, so to me the odds favor rate increases in 2026 unless a recession is triggered. 
 

Your suggestion that fighting trade wars, deportation, and climate-related pressures won’t cause inflationary pressures is wishful thinking. The question is again, how much is talk and how much will actually become policy? 

[LouisEly]

3 hours ago, owbc said:

Your suggestion that fighting trade wars, deportation, and climate-related pressures won’t cause inflationary pressures is wishful thinking

That's not what I said. 

I said that tariffs don't cause inflation (sources cited), the administration will not deport millions of illegals due to the cost, and that the California wildfires specifically will not affect inflation any more than the recent hurricanes in Florida.

[homer]

18 hours ago, LouisEly said:

That's not what I said. 

I said that tariffs don't cause inflation (sources cited), the administration will not deport millions of illegals due to the cost, and that the California wildfires specifically will not affect inflation any more than the recent hurricanes in Florida.

I don't think your source proves the point that tariffs don't cause inflation. Tariffs may impact one sector differently than another. So, just because steel prices didn't rise due to the tariffs in 2019 doesn't mean they won't rise for a different sector. What those tariffs did show is that tariffs don't ALWAYS cause prices to spike. Also, it's estimated that up to 50% of construction workers in Austin, TX, are undocumented. That's a big hint as to why they aren't going to do any kind of mass deportation.

[LouisEly]

I think you're confusing "price increase" with "inflation"..  They're not the same thing.  Price increase is a one-time thing, which tariffs may cause.  Inflation is the rate of change over time, which tariffs don't affect because tariffs don't keep increasing over time.

[nate82]

On 1/17/2025 at 8:57 AM, LouisEly said:

The 10-year is artificially inflated because of fears that tariffs, deporting millions of illegals, and increased insurance rates due to the California wildfires are going to cause inflation to spike back up, causing the Fed to raise rates.  Just fears.

Not entirely true.  Insurance rates tend to be more local than they are national and wouldn't have much of an impact on the 10-year.  The biggest gripe with investors has been the sluggish economy which outperformed the metrics but it went from a turd sandwich to the turd being removed from the bread. 

The economy still being a bit sluggish is the main factor the 10-year hasn't moved down.  There is still a fear that inflation is not in check yet.  I don't expect the FED to raise rates but I don't think they are going to do any more cuts for at least the first 2 quarters of 2025.  If inflation rises above what they are expecting there may be a round of rate hikes which will send the 10-year even higher. 

The only way I see the 10-year going down is if we see expected growth rates around 3.5-4% then I will fully expect rates to come down for the 10-year.  It really is all going to depend on the economic growth rates so Q1 will be extremely important.  If we only see something around 3% I don't think that is enough to encourage the market to bring down those rates.

[homer]

On 1/18/2025 at 12:06 PM, LouisEly said:

I think you're confusing "price increase" with "inflation"..  They're not the same thing.  Price increase is a one-time thing, which tariffs may cause.  Inflation is the rate of change over time, which tariffs don't affect because tariffs don't keep increasing over time.

Well right that's why a single tariff on a single sector doesn't necessarily cause inflation because even if the price spikes it's only affecting that one sector. If you tariff everything from multiple countries that could price spike all kinds of things (e.g. gas, cars, car parts, food) which impacts the CPI, the inflation measure. At the end of the day, I don't think they will go through with it or if they do it will be short-lived.

[owbc]

3 hours ago, homer said:

Well right that's why a single tariff on a single sector doesn't necessarily cause inflation because even if the price spikes it's only affecting that one sector. If you tariff everything from multiple countries that could price spike all kinds of things (e.g. gas, cars, car parts, food) which impacts the CPI, the inflation measure. At the end of the day, I don't think they will go through with it or if they do it will be short-lived.

Yes and the impact is far from instantaneous, the changes reverberate through the marketplace. 
 

Right now what is being proposed is blanket tariffs on everything from Canada and Mexico. Whether they go through with it or not is anyone’s guess. 
 

In other news, the S&P 500 had a good week. Early signs are that big tech is going to benefit tremendously from this administration. 

[LouisEly]

On 1/22/2025 at 7:11 AM, homer said:

Well right that's why a single tariff on a single sector doesn't necessarily cause inflation because even if the price spikes it's only affecting that one sector. If you tariff everything from multiple countries that could price spike all kinds of things (e.g. gas, cars, car parts, food) which impacts the CPI, the inflation measure. At the end of the day, I don't think they will go through with it or if they do it will be short-lived.

How much is it really going to affect the CPI?

https://www.pewresearch.org/short-reads/2022/01/24/as-inflation-soars-a-look-at-whats-inside-the-consumer-price-index/

Shelter - 32% - no/minimal impact (small effect on home repairs for goods, but no effect on labor; houses aren't imported)
Food - 14% - minimal impact, most food is domestically produced
Energy - 7.5% - minimal impact, most energy is domestically produced
Medical care services- 7% - minimal impact, products/devices may be affected but most is labor (doctors) which has no impact on
Education/communication services - 6% - no/minimal impact
Transportation services (or any other services) - 5% - impact on products/goods, but no impact on labor cost
Transportation commodities - 8% - yes for new cars, but new cars are only purchased about every five years and 2.5x as many used cars are purchased as new cars and won't affect used car prices; if new car prices rise, people will shift to used cars

So yes, tariffs may cause some prices to rise, but for a vast majority of the CPI it they will have no impact.
 

[owbc]

36 minutes ago, LouisEly said:

How much is it really going to affect the CPI?

https://www.pewresearch.org/short-reads/2022/01/24/as-inflation-soars-a-look-at-whats-inside-the-consumer-price-index/

Shelter - 32% - no/minimal impact (small effect on home repairs for goods, but no effect on labor; houses aren't imported)
Food - 14% - minimal impact, most food is domestically produced
Energy - 7.5% - minimal impact, most energy is domestically produced
Medical care services- 7% - minimal impact, products/devices may be affected but most is labor (doctors) which has no impact on
Education/communication services - 6% - no/minimal impact
Transportation services (or any other services) - 5% - impact on products/goods, but no impact on labor cost
Transportation commodities - 8% - yes for new cars, but new cars are only purchased about every five years and 2.5x as many used cars are purchased as new cars and won't affect used car prices; if new car prices rise, people will shift to used cars

So yes, tariffs may cause some prices to rise, but for a vast majority of the CPI it they will have no impact.
 

30% of our lumber comes from Canada which will be 25% more expensive on Feb 1 if the tariffs go through. So that’s a third of the CPI that is potentially affected, but it would probably take a year or two for that to start affecting inflation. 
 

Food prices are in trouble because of bird flu. Maybe we’ll change the policy to stop culling infected animals? That will surely end well. 

Medical services are going to increase due to the ending of various price caps that were put in place by the previous administration. 

If new cars go up and people shift to used cars, that causes used car prices to increase. Again, likely 1-2 years for that to start filtering through the market. 
 

Not to mention that the fed will be watching this and will be more likely to raise rates as a result. Unless Trump finds a way to intervene there and force lower rates…then we’ll have bigger problems on our hands. 

[LouisEly]

55 minutes ago, owbc said:

30% of our lumber comes from Canada which will be 25% more expensive on Feb 1 if the tariffs go through. So that’s a third of the CPI that is potentially affected, but it would probably take a year or two for that to start affecting inflation. 

Lumber is a very, very small part of the cost of building a house.  And new homes are a small percentage of the housing market.

And the tariffs haven't been enacted yet.

[owbc]

1 hour ago, LouisEly said:

Lumber is a very, very small part of the cost of building a house.  And new homes are a small percentage of the housing market.

And the tariffs haven't been enacted yet.

Right, nobody knows what they will follow through on and to what scale. But overall the policies and current events will lead to upward price pressures in my opinion. There certainly doesn’t appear to be much if any effort to lower prices. 

[LouisEly]

On 1/24/2025 at 12:27 PM, owbc said:

But overall the policies and current events will lead to upward price pressures in my opinion. There certainly doesn’t appear to be much if any effort to lower prices. 

There's always inflation.  If we don't have at least some inflation, that usually means there's a big problem on the horizon.  It's just a matter of how much inflation and what the balance is among the entire PCE/CPI.  Some things go up, some things go down, but it usually nets around 2-3%.  The "current events" things are not anything new; they've been around for years and yet we are still under 3% inflation.  Trump threatened tariffs in 2016; they didn't amount to any spike in inflation from 2017-2020.

There's recency bias in the market right now.  People are scared that the slightest little thing will lead to 8% inflation again, because we haven't had that type of inflation in over 40 years (and the inflation in the 70's and early 80's was higher than 8%).  What people forget is that what drove most of that inflation in 2021-2023 was supply, not demand.

The reality is that the Fed didn't start raising interest rates until inflation got to almost 8%; they're not going to raise rates if inflation crosses back over 3%.  The Fed has said that current rates are "restrictive", and as I've learned the hard way, don't fight the Fed.