This 3rd Week of April 2022 Thoughts: Bonds & Rates & Bonds
Updated: 5 hours ago
The April 18, 2022, deadline for filing your 2021 return, or requesting an extension, is fast approaching. It is also the deadline for contributions to your IRAs and Roth IRAs. The IRS contribution limit to an IRA $6,000. However, anyone over age 50 and eligible to contribute can make an additional "catch-up" contribution of up to $1,000, for a total of $7000.
Tax Year 2021 IRA and Roth IRA contributions can be made via the Schwab Mobile Ap until 4 p.m. ET on April 18, 2022. Check deposits transacting after 4 p.m. ET on April 18, 2022, will not be eligible for 2021 contributions.
This Week’s Fund Profile: My favorite bond fund is Zeo…low duration, higher yielding bonds. Wall Street Cries Wolfe
The Fed has created a sugar mountain of liquidity in markets that will be hard to unravel. Get out the popcorn and watch this unfold
You will not see many 40-year bull markets in a lifetime so witnessing one that is ENDING is an historical investment and economic event: do not overlook the enormity of this year. Interest rates have been trending downward for 40 years and this has led to a very favorable bond market…one that ended abruptly during the 1st quarter of 2022.
Most bond investors opened quarterly statements showing losses for the first time in 40 years: Muni-bonds have experienced the worst quarter since 1980. We have the lowest inflation adjusted yields in 60 years and now, higher interest rates will impact not only bond returns, but every other asset class. While I’ve been writing my 9th Inning Investing series since 2019, it is no consolation to have been right about how the end of 0% interest rates would be. If only the Fed had started with .25% here, and .25% there, but that was not to be.
The 10-year treasury rate, which I watch like a hawk, hit .56 basis points (½ of 1%) during Covid and six times as the 2008 housing crisis unfolded. Ponder this equation: $5 trillion in stimulus + Zero interest rates = Financial Sugar aka inflation. The FED faces unraveling a 40-year sugar mountain in the midst of a war, supply chain shortages and sanctions: the timing could not be worse.
Your high levels of cash will be what helps you exit this time feeling very pleased: we will put that cash to work when the timing is more in your favor. There is a difference between a stock market correction and an economic recession: 10% - 15% stock corrections are commonplace and, in most cases, they are buying opportunities. Recessions are -35% corrections that last 18-24 months: it is important to know the difference between these two!
The good news? Rising interest rates mean the economy is doing well: we have 5 million more jobs than people willing to fill them and contrary to media commentary, rising interest rates do not mean an immediate end to a favorable market. I do not envy Fed Chairman Jerome Powell: inflation is a monetary, fiscal, political, and social hot potato that no one wants to own so expect for the Fed to predict a mild recession. The next negative event could most likely be a recession but predicting the timing is not easy: let’s all hope the Fed lands this bird as smoothly as possible.
The 2008 bail-out went to Wall Street versus the Covid rescue going to Main Street. Families and small businesses got the majority of pandemic stimulus and this enhanced our ability to survive the pandemic.
😊Why does this matter to you? There is some consolation that our neighbors, our state and local governments and yes, businesses, are the ones who have been able to get through the pandemic as well as we did. Feel grateful!
I don’t know how I feel about this pie-chart: part of why we have the deficit spending is because we have spent billions and billions more than the rest of the world, on military spending.
☹ 😊 Why does this matter to you? Each of us will have to decide if we feel safer today…and if this is the right way to have driven our Nation into debt. I can’t help but wonder where we would be if we had not spent this much on guns…and a little bit more on butter.