Seriously, it’s so damn obvious…
Global debt blew through $15 trillion of NEGATIVE yields and if that is not crazy enough in Denmark they just offered negative 0.5% mortgage rates.
In Europe, junk bonds are paying NEGATIVE yields – guaranteed losses. Lucky their economy is so strong… oops.
But hey, the US stock market is signaling confidence. The Fed chairman said, supply-side capital is not the issue. He said the Fed policy “seems” to work through “confidence channels” so he provided an insurance rate cut.
“Confidence channels” ?
Confidence in the Fed’s ability to print money out of thin air when confidence in US corporations to spend trillions on buybacks ends. Or is it confidence in the plunge protection team stepping in if everything else fails.
Look, the US economy is not the problem. The global credit bubble is the problem and they are dropping interest rates like a rock to keep it from imploding. So please ask this simple question.
“What do you get once interest rates hit zero or negative?”
You get no future returns. None. Zip.
If interest rates ever go up, then there will be capital losses on bonds. Everyone would sell at the same time. The markets would freeze… like what happened in 2008 and started to happen in late 2018.
We are entering the black hole of no returns in the global bond market steered here by the global central banker’s grand experiment.
The only way out, they will tell us, is to print more money (again) so the central banks can buy corporate bonds, stocks and everything else. You know to “help the economy” as in the top 1% locking in their wealth at high prices. For the economy, not so much. The economy grew faster during the great depression by this time in the cycle.
BTW, the top 1% own more that the bottom 90%. Our TSP funds are just along for the ride.
This should not be a surprise. Is it? Are you waiting on wall street to warn you like they did in 2008?
Or are you waiting on the Thrift Savings Plan administrators to tell you to lighten up on equities…
What’s Your Plan?
Umm, do you have a plan? Did your financial adviser warn you before the crash of 2008? Or did they just tell you no one saw it coming.
The Earth Looks Flat from Ground Level
Today, it is hard to see the bubbles when we are in the everything bubble created by the same policy-makers and wall street extractors that have been working it since 1987.
We are in a bubble and bubbles do not just pop. They grow larger and larger for longer than the rational person expects. Especially when the central banks are blowing them.
Closer to Home
The TSP fund’s 30 Day SEC Yield is 2.42% as of 8 August 2019. If US yields are pushed down to zero yield across the spectrum, then the TSP F fund has approximately 12% in capital gains built in based on its 5.2 year effective duration. At that point it would have no future returns.
If interest rates froze at today’s rates, you would have a 2.4% total annualized return for the next 5.2 years
The current rally in the TSP F fund is the direct result of plunging global interest rates. Rates may go lower than the 2016 low simply because overseas’ yields are already lower, the industrial recession is deeper than in 2016, and I do not see a resolution to the trade war in the foreseeable future and the flight-to-safety will continue.
I have not recommended jumping fully off the TSP F fund yet. But at some point, you may have to leave that ship if it hits the point of no returns or if rates rise again.
Don’t be fooled by short-term pops in price due to plunging interest rates. When it comes to fixed income funds, past performance can no longer be achieved again. We are simply accelerating to the point of no returns in the US bond market.
Expect worse in the stock market. But that’s another thread.
Invest safe, invest smart
TSP & Vanguard Smart Investor serving serious and reluctant investors.