Negative interest rates

[StdDeviant]

In 1927 the CPI dropped 1.7% and didn't turn positive until 1934 when it was 3.1%, a 7-year run without any inflation. (In 1929 it was 0.0%.) It went negative again for two years in 1938 & 1939. (But of course there's nothing like a world war to turn it positive.)

So we've had extended periods of US history with negative CPI. There are many other examples of a year or two, but certainly the Great Depression is the most well-known period of falling prices over the past century.

Between negative interest rates and negative CPI growth, my brain starts turning to mush. Makes me starts thinking about the Pablo Escobar School of Investing.

[mathjak107]

In 1927 the CPI dropped 1.7% and didn't turn positive until 1934 when it was 3.1%, a 7-year run without any inflation. (In 1929 it was 0.0%.) It went negative again for two years in 1938 & 1939. (But of course there's nothing like a world war to turn it positive.)

So we've had extended periods of US history with negative CPI. There are many other examples of a year or two, but certainly the Great Depression is the most well-known period of falling prices over the past century.

Between negative interest rates and negative CPI growth, my brain starts turning to mush. Makes me starts thinking about the Pablo Escobar School of Investing.

According to hulbert the Great Depression recovered in inflation adjusted terms in 4-1/2 years as the CPI fell a total of 18%

[dualstow]

Clarification/update per your PM:
I will not renew them, barrett, but will leave the proceeds from matured bills to buy stocks and, if I can find them, some more gold coins.

We had a bunch of T-Bills mature at Fidelity today. I replaced those will more T-Bills with maturities between six and 12 months out. The interest on these was ever so slightly positive. Has anyone else been buying individual treasuries as opposed to a fund like SHY?

Oh yes. Not since the market & yield crash, but fairly recently. Some are due next month.

[barrett]

I will not renew them, barrett, but will leave the proceeds from matured bills to buy stocks and, if I can find them, some more gold coins.

Thanks for posting that, dualstow. Can you clarify if it is the paltry rate of interest that is pushing you away from T-Bills? Would you just be buying something else because there is virtually no nominal return on T-Bills? Or is it because you need to buy stocks or gold to stay within a predetermined target assets allocation? Thanks in advance.

[dualstow]

The number one reason is that I pay attention to what people like jhogue are doing. I’m not smart enough to know what to do exactly, so I copy those with more experience even if they aren’t looking for followers.

I have never really worried about yield from the cash portion and I don’t think a mildly negative yield is anything terrible.
I wish i had more 30-year bonds to balance things out. That’s on me.
I do have a lot of dividend stocks in my VP. That’s fortunate.

I don’t have a pressing need to buy equities or other assets, but I’m anxious to buy some stocks in the VP. (PP stocks are still above 25% for me). My gold is at exactly 25% so buying more would mean making the PP a larger portion of my total. No rush at these prices, this scarcity and these spreads.

If my money market funds shrink a bit while I wait, that’s ok.

[barrett]

Thanks for that, d.

I am just using this thread to get myself used to this low-yield world. The six-month treasuries that I bought the other day will each pay less than 17 cents on a face value of $1,000 if held to maturity. The one-year treasuries bought at the same time will each pay 46 cents.

[Kbg]

Time to get rid of debt if you got it boys and girls.

[mathjak107]

Clarification/update per your PM:
I will not renew them, barrett, but will leave the proceeds from matured bills to buy stocks and, if I can find them, some more gold coins.

We had a bunch of T-Bills mature at Fidelity today. I replaced those will more T-Bills with maturities between six and 12 months out. The interest on these was ever so slightly positive. Has anyone else been buying individual treasuries as opposed to a fund like SHY?

Oh yes. Not since the market & yield crash, but fairly recently. Some are due next month.

shy is actually kind of long at 1-3 years ..shorter term instruments are like shv and bil.

be careful though when comparing rates on treasury money markets and etf's ... money markets are based on the last 7 days ... etf's are the yield the last 30 days ending with the last month ..etf's are way behind in other words in what they show as the yield