Originally Posted by scho63: I'm really hoping that the Fed raises rates .5% and the market is satisfied then takes off higher.
I hope it's not a .75% and the market is spooked and bonds spike a lot higher since the Fed would be saying they fucked up and are now trying to play catch up.
Originally Posted by DaFace:
So far, you appear to be correct.
Fed was dovish. The market has spent the last 6 months pricing rate increases sooner and sooner and then when it could no longer do that in proceeded to price them larger and larger. The Fed essentially took 75bp hikes off the table which is as dovish as they've been since last fall. That's the good news for equities as the Fed is less likely to prematurely choke off the recovery.
The bad news may be that inflation all else equal will be set to run higher and longer end yields could potentially shift higher as a result (the next week is a gauntlet of events that might push that way). Typically higher long end yields are bad for sectors like tech.
Originally Posted by TwistedChief:
Fed was dovish. The market has spent the last 6 months pricing rate increases sooner and sooner and then when it could no longer do that in proceeded to price them larger and larger. The Fed essentially took 75bp hikes off the table which is as dovish as they've been since last fall. That's the good news for equities as the Fed is less likely to prematurely choke off the recovery.
The bad news may be that inflation all else equal will be set to run higher and longer end yields could potentially shift higher as a result (the next week is a gauntlet of events that might push that way). Typically higher long end yields are bad for sectors like tech.
That's all I've got.
They got really nervous with the negative GDP number... I think they decided it is better to have inflation with any positive GDP for the next quarter compared to having stagflation. In my opinion, neither option is very palatable. It will be an interesting 6 months with tons of uncertainty. Many folks have never seen 5% mortgage let alone 7%+ of the 10 year and up shift higher. [Reply]
Originally Posted by IowaHawkeyeChief:
They got really nervous with the negative GDP number... I think they decided it is better to have inflation with any positive GDP for the next quarter compared to having stagflation. In my opinion, neither option is very palatable. It will be an interesting 6 months with tons of uncertainty. Many folks have never seen 5% mortgage let alone 7%+ of the 10 year and up shift higher.
No, this isn't right. The negative GDP number meant nothing. It was impacted in a major way by trade (imports over exports) and inventories. Final demand was incredibly strong. The Fed understands the composition and this wouldn't have concerned them at all (and the markets understood this as well and the GDP figure had no major impact).
The Fed isn't dovish by any stretch but there's a limit to the neverending hawkishness that the market needed to subscribe to. [Reply]
Originally Posted by Rain Man:
Inflation is a bad deal and a negative stock market year is a bad deal, and both of them in combination really stinks.
I announced earlier this year that I was cutting to part-time with a plan to retire fully in probably 2 or 3 years. At the time, the market was rolling and I was in really good shape to do that. Pretty much the day I made the announcement, the market started falling and inflation started spiking, and I've now lost five years of retirement funding based on my financial model. (The odds are that we'll still okay, but the current situation has things getting dicey for me in my 90s.)
More specific to your question, I've built some assumptions into my financial model that drive a lot. I used a long-term average of 3.29 percent for inflation, which if I remember right was the 40-year average when I built the model. I also assumed a conservative-but-invested 3.5 percent return on non-IRA savings as my short and intermediate term funding, and a 5.5 percent return on my IRAs, which I'm hoping to avoid tapping for another 20+ years so I'll be a little more aggressive there.
My financial model is really sensitive to those three numbers. Minor changes in any of those things changes my projected financial solvency date up or back by years. So from that standpoint it's kind of scary to think about retirement at all. Those things are pretty much outside my control, and they can either ruin me or make me rich.
I think, though, that I'm comfortable with the assumptions in the long term. The 3.29 inflation is an average, so some years will be higher than that. And I think the 3.5 percent and 5.5 percent estimates on returns are conservative enough that they'll be reasonable to hit as a long-term average. And I'll never be able to eliminate the risks of those things outside my control, so at some point I either stomach the risk or I work until I die, and I don't want to work until I die.
The only thing that stinks about the current situation is that I read an article a while back that talked about how important the first couple of years are after retirement. If your money gets drawn down faster those first couple of years due to a bad market, it makes a big difference on your long-term finances. You have less money to grow long-term. But I guess on a positive note, it's happening early enough that I can keep working part-time a little longer while I still have momentum in my career.
The bottom line for me is that I'll assume that the high inflation is just a walk on the high side of the average and will level back out. It's just occurring at a bad time.
Thanks for the thoughtful response.
While I haven't made a model or even done any math on what my retirement would look like, I know what those numbers would do to wreck a projected budget. Especially over the course of 30 years. That's why I would be terrified if I was wanting to retire in the midst of this inflation.
My Dad was saying this whole time that this was going to be like the 70s. I called bullshit because the fed lived through the 70s and learned from it. But as much inflation as there was I am surprised that they haven't been more aggressive. Now, I've been all the way wrong on a bunch of Fed policy so I'll certainly admit to being a dumbass. Nonetheless, there is risk of a protracted inflation/recession cycle.
I would urge anyone contemplating retirement to factor in a LOT of "in case shit" money and extra inflation to conserve capital in your retirement plan before you let go of your full time gig, especially if it is a good one.
I still see myself as a young dude, but I'm starting to believe I've lived through a lot of shit.
I was paying attention, not in the professional workforce, but I was paying attention through the .com bubble, was trying to find a job after the 08 crash, I've managed people through the COVID environment and subsequent sellers market in labor. And that's 20 years. If you're going to need to save for 30 years of retirement, the only thing I can guarantee is change.
As far as a risk assessment, a recession and subsequent retraction of the labor market would be the worst possible thing for a recent retiree. Today, a retiree could probably get about any job they want, but if a recession happens and we enter a labor market like 08, it would then be harder for them to re-enter the labor market.
So my advice to anyone considering retirement is to make sure you have shit locked the hell down because uncertainty can make life hard.
Just my $.02
[/unsolicited advice from an admitted moron] [Reply]
Originally Posted by ChiliConCarnage:
I don't think so. I posted several months ago I felt bad for retirees and wasn't sure what they were doing. The performance for total market bond funds like BND/AGG is brutal now
Bonds have sucked for a decade, at best you treaded water with inflation. That's hard to have a big chunk of your portfolio produce nothing. Now with inflation up so high, your real yields are terribly negative. There's really nowhere safe to hide anymore.
I think about this because I would like to at least semi-retire early. Covid, inflation, the war. Rainmain's post does a great job summarizing that you have to make assumptions you don't know what will happen and have no control. The last couple of years have definitely highlighted that fact.
Agreed.
That's another reason I'd be terrified to retire.
The one benefit from this noise is if we have inflation and fight it with higher interest rates, the bond market may once again be a viable low-risk investment instrument. [Reply]
Originally Posted by TwistedChief:
No, this isn't right. The negative GDP number meant nothing. It was impacted in a major way by trade (imports over exports) and inventories. Final demand was incredibly strong. The Fed understands the composition and this wouldn't have concerned them at all (and the markets understood this as well and the GDP figure had no major impact).
The Fed isn't dovish by any stretch but there's a limit to the neverending hawkishness that the market needed to subscribe to.
I disagree to some extent as the Fed also tempered future increases to 25 basis points, maybe higher, but ruled out 75. First quarter GDP may have been effected mostly by trade and inventories, but the economy is showing signs that high ticket items, and housing, both leading indicators are heading down. Housing starts are down for the third month in a row. Also, with stimulus funds drying up and inflation, specifically food and energy, reducing purchasing power, we definitely are at risk for an economic pullback. I think the fed realized while the economy is not terribly bad, there are indications it starting to weaken, and the negative GDP tempered their original glide path... [Reply]
