Complacency Getting Steamrolled by Rising Interest Rates

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It’s a whole new investment landscape out there, and the sooner investors catch on, the better.

But it’s hard to change, especially when the “trend is your friend” play has been in place for 40+ years.

The one that Paul Kiker and I discussed this week is the 40+ year regime of ‘steadily falling interest rates’ in the US.

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Everything has changed now. What worked before won’t work as easily or at all. Buying and holding US Treasury paper for one.

Buying real estate as an investment for another. Achieving positive cash flow during a falling interest rate environment is a completely different beast from making gains in a rising interest rate environment.

Thirdly, the buy-every-dip stock crowd has yet to have their complacency shredded, but that’s coming.

So what can and should the average investor be thinking about now?

Listen in to find out.

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This is a companion discussion topic for the original entry at https://peakprosperity.com/complacency-getting-steamrolled-by-rising-interest-rates/

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Mmf

Money market funds specifically not boring today.
https://www.zerohedge.com/markets/money-market-fund-assets-crash-most-lehman

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I have an uncomfortable gut feeling that many people are trying to figure out a way to assign the losses to others. When you see such large losses on bond portfolios, it is not possible to hide it.
You can ignore the law of economics, but you can’t ignore the consequences of ignoring the laws of economics.
Sometimes losing the least amount is the best outcome. I do think the bankruptcy lawyers are going to do well compared to our average experience in the near term.

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Great Charts

I especially liked the DGS2 vs Fed Funds rate. Here’s my copy. You can see that the 2-year (red line) moves in advance of the Fed actions. It is almost as if “word leaked out” somehow, and Big Money was able to jump in and take advantage.
The 2-year is not showing any sort of drop right now.
https://peakprosperity.com/wp-content/uploads/2023/10/ff-dgs2-1697870651.1556.png
Here’s a zoomed in one that shows the 2-year seemed to be predicting the pandemic back in 2018. It kinda makes me go “hmmmmm.”
https://peakprosperity.com/wp-content/uploads/2023/10/ff-dgs2-2018-1697870607.9354.png

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Erleichterung

I think the German word you are looking for is Erleichterung.

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Bond Vigilanties

Are they back? The great Marty Zwieg used to say the we don’t need the Fed to set rates, just let the market decide and use the two year interest rate.

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What are people’s thoughts on this ZH article?
Will the 2 year and 30 year continue to un-invert?
Will the 2 year dropping this week lead to a move by the Fed shortly?
Will this un-inversion (upcoming recession) continue to put pressure on the markets?
Keen to hear people’s thoughts.
https://www.zerohedge.com/markets/no-all-clear-bitcoin-bullion-jump-stocks-dump-week-yield-curve-un-inverts

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Geography To No Where

One of Jim Kunstler’s best books with deep insight into what a valued and valuable community would look like and how it would function.
We need to go centuries back and adopt the most simplistic and redundant systems that we know worked. Cisterns under the buildings. A garden and/or orchard in every front and back yard. Community Fields of Grains. Walkable communities. Extremely energy efficient dwellings under ground or under cob. Trades and industries further from town and away from treasured resources. Preferable near navigable rivers, ports, and RR stations, and defendable.
If only we could have an adult conversation about our energy predicament. We could have transitioned. We could have instituted public policies that promoted physical and mental wellness, strong characters, a multi-skilled work force, a moral population and a small carbon footprint that enhanced the quality of the public’s life.
But somebody thought it would be a good idea to go the complete opposite route.
Bummer.
Although I saw the bumper sticker “Collapse Now, Avoid the Rush” years ago, it still resonates with me today.
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There was discussion here a while back about the Fed rate changes basically trailing the 2-year rate, with data going back to 1971 IIRC.

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Very much interested in thinking through not the losses (they already exist as I see it), but as you mentioned, the reassignment of them.
When people have a clear agreement, there’s not a lot of things quite as demoralizing or world view pivoting as someone suddenly reworking the deal.
That pension you paid into for 30 years? Yeah, we aren’t going to be paying out.
Things like that.

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Bond Chart

It would be interesting to see this chart from the 1970s instead of 1986 when money market interest rates were in the double digits compared to the stock market