Jamie Dimon: Higher rates are coming

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ReformedSpender
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Jamie Dimon: Higher rates are coming

Post by ReformedSpender » Mon Aug 06, 2018 8:10 am

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon says the U.S. should be prepared to deal with higher interest rates, including the benchmark 10-year bond yield at 5% or higher. “I think rates should be 4 percent today,” Jamie said Saturday at the Aspen Institute’s 25th Annual Summer Celebration Gala. “You better be prepared to deal with rates 5 percent or higher - it’s a higher probability than most people think.”

https://www.bloomberg.com/news/articles ... ce=twitter


Does anyone think the equity market is prepared?
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Re: Jamie Dimon: Higher rates are coming

Post by UpperNwGuy » Mon Aug 06, 2018 8:41 am

How would the equity market prepare itself?

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Re: Jamie Dimon: Higher rates are coming

Post by EddieGee » Mon Aug 06, 2018 9:28 am

All markets are aware of all public knowledge and have built anticipation of expected changes into prices. The idea that someone who doesn't have genuine insider knowledge can be "better prepared" for future events than the entire market as a whole is ludicrous. If you want to look deeper into this concept, read Malkiel's classic book, "A Random Walk Down Wall Street."

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Re: Jamie Dimon: Higher rates are coming

Post by AlohaJoe » Mon Aug 06, 2018 9:37 am

ReformedSpender wrote:
Mon Aug 06, 2018 8:10 am
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon says the U.S. should be prepared to deal with higher interest rates, including the benchmark 10-year bond yield at 5% or higher. “I think rates should be 4 percent today,” Jamie said Saturday at the Aspen Institute’s 25th Annual Summer Celebration Gala. “You better be prepared to deal with rates 5 percent or higher - it’s a higher probability than most people think.”
In 2013 Jamie Dimon bet $5 billion that rates were going to 3%. (They didn't.) So he clearly has no clue what rates are going to do. Why are you even listening to him? He's been wrong for years about rates. You think he's suddenly going to be right now?

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Re: Jamie Dimon: Higher rates are coming

Post by DartThrower » Mon Aug 06, 2018 9:46 am

He may or may not be right about the level of future interest rates. That's the point. His proclamation provides no new information.
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Re: Jamie Dimon: Higher rates are coming

Post by JoMoney » Mon Aug 06, 2018 9:55 am

Jan 1, 1956 10year Treasury yield: 2.90%
Jan 1, 1960 10year Treasury yield: 4.72%
http://www.multpl.com/10-year-treasury- ... le/by-year

How did the stock market do over that period? ... It grew 11% annualized

If interest rates are going up, it could be a sign of improving economic growth and demand for capital to be put to work.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Jamie Dimon: Higher rates are coming

Post by TomatoTomahto » Mon Aug 06, 2018 10:26 am

Some posters on this web site like to claim that Elon Musk is a huckster and snake oil salesman. Jamie Dimon.
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Re: Jamie Dimon: Higher rates are coming

Post by triceratop » Mon Aug 06, 2018 10:28 am

TomatoTomahto wrote:
Mon Aug 06, 2018 10:26 am
Some posters on this web site like to claim that Elon Musk is a huckster and snake oil salesman. Jamie Dimon.
Both can of course be true.
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Re: Jamie Dimon: Higher rates are coming

Post by Bir48die » Mon Aug 06, 2018 10:29 am

Jamie Dimon is the CEO of a major bank and would love for higher rates to come.

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Re: Jamie Dimon: Higher rates are coming

Post by 3funder » Mon Aug 06, 2018 12:23 pm

And this is supported by...sluggish wage growth? Yes, higher rates are coming, but maybe not as soon as he thinks. He may be a superstar investment banker, but he talks way too much.

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Re: Jamie Dimon: Higher rates are coming

Post by Ping Pong » Mon Aug 06, 2018 12:43 pm

AlohaJoe wrote:
Mon Aug 06, 2018 9:37 am
In 2013 Jamie Dimon bet $5 billion that rates were going to 3%. (They didn't.)
I thought rates went to 3% in 2014.

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Re: Jamie Dimon: Higher rates are coming

Post by WhiteMaxima » Mon Aug 06, 2018 1:03 pm

The market will decide where interest would go. 5% interest rate? what mortage rate would be? 7%. What a disaster. who would even consider investing in stock market? Investor would just buy CD and live on interest payment. Of course, the big banks are the beneficiary. They can always make money on rate difference. I could see another QE and interest cut because the next recession is close.

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Re: Jamie Dimon: Higher rates are coming

Post by WhiteMaxima » Mon Aug 06, 2018 1:09 pm

WhiteMaxima wrote:
Mon Aug 06, 2018 1:03 pm
The market will decide where interest would go. 5% interest rate? what mortage rate would be? 7%. What a disaster. who would even consider investing in stock market? Investor would just buy CD and live on interest payment. Of course, the big banks are the beneficiary. They can always make money on rate difference. I could see another QE and interest cut because the next recession is close. For interest to be 4%, the inflation rate should match this like 4%.

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What's your view on Treasuries?

Post by stryfer2999 » Mon Aug 06, 2018 2:43 pm

Hey there fellow Bogleheads!

Jamie Dimon was in a recent bloomberg article https://www.bloomberg.com/news/articles ... -5-warning in which he says that we should be looking out for treasury rates of 5% or higher. The whole article has a negative tone but I don't see it as a bad thing, I would love to have a 10 year treasury yielding 5-7%.

I understand that there is reinvestment risk, inflation risk, and that tying up your money for so long can be cumbersome, (and you'll get better returns on the stock market) but at the end of the ten years you would have received 70% of the treasury's face value (assuming a 7% yield).

For discussion purposes, at what yield would you be content with putting all your eggs into one basket? 7%, 10%, 15% or higher? Or would you stick to a bond / stock allocation based on age?

-
J.M

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Re: Jamie Dimon: Higher rates are coming

Post by LadyGeek » Mon Aug 06, 2018 4:29 pm

stryfer2999, Welcome! I moved your post into the on-going discussion.
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Re: Jamie Dimon: Higher rates are coming

Post by bondsr4me » Mon Aug 06, 2018 4:32 pm

I hope he’s right.

That would be just fine with me.

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Re: Jamie Dimon: Higher rates are coming

Post by hicabob » Mon Aug 06, 2018 4:36 pm

stryfer2999 wrote:
Mon Aug 06, 2018 2:43 pm
Hey there fellow Bogleheads!
For discussion purposes, at what yield would you be content with putting all your eggs into one basket? 7%, 10%, 15% or higher? Or would you stick to a bond / stock allocation based on age?
J.M
Depends on inflation - 7% would seem great now but back in the Carter days ..
" both inflation and short-term interest rates reached 18 percent in February and March 1980."
https://en.wikipedia.org/wiki/Presidenc ... er#Economy

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Re: What's your view on Treasuries?

Post by WhiteMaxima » Mon Aug 06, 2018 4:38 pm

stryfer2999 wrote:
Mon Aug 06, 2018 2:43 pm
Hey there fellow Bogleheads!

Jamie Dimon was in a recent bloomberg article https://www.bloomberg.com/news/articles ... -5-warning in which he says that we should be looking out for treasury rates of 5% or higher. The whole article has a negative tone but I don't see it as a bad thing, I would love to have a 10 year treasury yielding 5-7%.

I understand that there is reinvestment risk, inflation risk, and that tying up your money for so long can be cumbersome, (and you'll get better returns on the stock market) but at the end of the ten years you would have received 70% of the treasury's face value (assuming a 7% yield).

For discussion purposes, at what yield would you be content with putting all your eggs into one basket? 7%, 10%, 15% or higher? Or would you stick to a bond / stock allocation based on age?

-
J.M
if the FDIC insured CD yield is 5% and forecast equity return is just 4 to 5%, who is going to invest in equity? I believed Chase Bank forecast 4 to 5% return in the next decade and now saying interest should be 4% now or even higher. I can't see it from the same source. I do see short term interest go to 3.0 to 3.5%, but not 4% and higher.

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Re: Jamie Dimon: Higher rates are coming

Post by arcticpineapplecorp. » Mon Aug 06, 2018 4:46 pm

“Those who have knowledge don’t predict, and those who predict don’t have knowledge” - Lao Tzu

“It is very hard to predict, especially the future.” - Old Danish Proverb, but attributed to Niels Bohr

"Nobody knows Nuthin" - Jack Bogle

"Only predict what or when, but never both." - An economist
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Re: Jamie Dimon: Higher rates are coming

Post by WhiteMaxima » Mon Aug 06, 2018 4:53 pm

It looks like Jamie wants people to put their money into bank deposit. We know that put saving in bank is a losing game. Can't beat inflation. Does Jamie suggest future inflation is 4 or even 5%. If could but necessary.

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Re: Jamie Dimon: Higher rates are coming

Post by Elysium » Mon Aug 06, 2018 7:11 pm

WhiteMaxima wrote:
Mon Aug 06, 2018 1:03 pm
The market will decide where interest would go. 5% interest rate? what mortage rate would be? 7%. What a disaster. who would even consider investing in stock market? Investor would just buy CD and live on interest payment. Of course, the big banks are the beneficiary. They can always make money on rate difference. I could see another QE and interest cut because the next recession is close.
In the year 2000, mortgage rates hit 8%. Fed continued raising rates through '99 because umemployment rates were hitting a low 3% and stock market were returning 20%. Tech stocks were going crazy. People were buying houses even at 8% mortgage rates. Bank CDs were yielding 4% to 4.5% for 1 year and longer duration even more. I-Bonds were yielding 3.5% and 3%. Everything was doing well. Until the Tech stock crash, then rates started falling.

In short, it's a cycle. If the unemployment continues to be lower, and economy is over heating, then Fed has to raise rates to control inflation. What else tool do they have? Rates could hit 5%, possibly. Then the next recession cycle will begin. Bonds would be attractive again.

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Re: Jamie Dimon: Higher rates are coming

Post by Elysium » Mon Aug 06, 2018 7:11 pm

Duplicate deleted.

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Re: Jamie Dimon: Higher rates are coming

Post by pascal » Mon Aug 06, 2018 7:48 pm

There was a time when I used to read and listen to people like Jamie Dimon with trepidation. Now I think I really understand the meaning of "Nobody knows nothing".

I would have told you myself about 5%. Its coming - definitely - you can bet your house on it, until well.. it doesn't come and something else does. And I can blame that something and say if it weren't for that something - 5% was a sure shot. Everything is assured until it is not.

Japan(period of stagnation) can happen to USA until it does not. Conventional wisdom makes most sense until it does not.
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Re: Jamie Dimon: Higher rates are coming

Post by Artsdoctor » Tue Aug 07, 2018 5:19 pm

It's not exactly like Jamie Dimon is right all of the time. Remember the London Whale debacle?

https://www.newyorker.com/news/john-cas ... le-scandal

Take his comments as an interesting bit to think about then move on to things that are more important.

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Re: Jamie Dimon: Higher rates are coming

Post by WhiteMaxima » Tue Aug 07, 2018 5:33 pm

Higher rate could come but everything has to be repriced. Eps leveraged assect or company with heavy debt. Either way.

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Re: Jamie Dimon: Higher rates are coming

Post by Stormbringer » Tue Aug 07, 2018 5:53 pm

This sort of reminds me of 2009, when Warren Buffett warned that inflation was coming due to all the stimulus. Even for the brightest minds, these things can be difficult to predict. What are us mere mortals to do?
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Jamie Dimon: Higher rates are coming

Post by Toons » Tue Aug 07, 2018 5:55 pm

Good :thumbsup
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Re: Jamie Dimon: Higher rates are coming

Post by Engineer250 » Wed Aug 08, 2018 9:17 am

bondsr4me wrote:
Mon Aug 06, 2018 4:32 pm
I hope he’s right.

That would be just fine with me.
I would like to see higher rates as well. Every time the 10-year treasury yield drops back below 3% I am disappointed. Would like to see it comfortably above 3.
Where the tides of fortune take us, no man can know.

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Re: Jamie Dimon: Higher rates are coming

Post by garlandwhizzer » Wed Aug 08, 2018 1:52 pm

stormbringer wrote:
This sort of reminds me of 2009, when Warren Buffett warned that inflation was coming due to all the stimulus. Even for the brightest minds, these things can be difficult to predict. What are us mere mortals to do?
Agree but the full story of the QE stimulus is not yet written yet. Clearly IMO it was necessary at the time to avoid a wider catastrophe. But we won't know its ultimate result until QE is fully unwound and the FED's balance sheet is much smaller than now. The degree of monetary stimulus applied in QE, the amount of interest rate suppression, and the amount of stimulus as a backstop for risk assets, was larger by far than any in history. It helped the stock market. Investors got rich even as the main street economy struggled. Unwinding such a massive amount of stimulus has never before been done as Dimon pointed out. Can equity/real estate markets handle rising interest rates, rising mortgage rates, rising debt service payments, and increased inflation? We'll see in the long run, but where it will end up is not IMO accurately predictable beforehand.

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Re: Jamie Dimon: Higher rates are coming

Post by JoMoney » Wed Aug 08, 2018 5:55 pm

Engineer250 wrote:
Wed Aug 08, 2018 9:17 am
bondsr4me wrote:
Mon Aug 06, 2018 4:32 pm
I hope he’s right.

That would be just fine with me.
I would like to see higher rates as well. Every time the 10-year treasury yield drops back below 3% I am disappointed. Would like to see it comfortably above 3.
Higher 'real' interest rates might be nice, higher rates that are actually a negative real rate are problematic.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Jamie Dimon: Higher rates are coming

Post by Engineer250 » Wed Aug 08, 2018 9:23 pm

JoMoney wrote:
Wed Aug 08, 2018 5:55 pm
Engineer250 wrote:
Wed Aug 08, 2018 9:17 am
bondsr4me wrote:
Mon Aug 06, 2018 4:32 pm
I hope he’s right.

That would be just fine with me.
I would like to see higher rates as well. Every time the 10-year treasury yield drops back below 3% I am disappointed. Would like to see it comfortably above 3.
Higher 'real' interest rates might be nice, higher rates that are actually a negative real rate are problematic.
I agree. But anecdotally it feels like inflation is picking up faster than CDs/savings rates/treasury rates. I am too tired/lazy to look up rather my "feeling" has any connection with reality. But nonetheless, it's a concern. That inflation is going to pick up regardless, so I would kind of like treasury yields to catch up.
Where the tides of fortune take us, no man can know.

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Re: Jamie Dimon: Higher rates are coming

Post by AlphaLess » Wed Aug 08, 2018 9:40 pm

WhiteMaxima wrote:
Mon Aug 06, 2018 1:03 pm
The market will decide where interest would go. 5% interest rate? what mortage rate would be? 7%. What a disaster. who would even consider investing in stock market? Investor would just buy CD and live on interest payment. Of course, the big banks are the beneficiary. They can always make money on rate difference. I could see another QE and interest cut because the next recession is close.
5% 10-year rate would indeed imply a 7% 30-year mortgage rate (https://4.bp.blogspot.com/-gWj_3ofKdhk/ ... ug2018.PNG)

Q: Who would even consider investing in the stock market?
A: Everyone. Why would you change anything?

Banks are making money on the rate difference. They borrow at near zero (from deposit accounts), and lend at LIBOR plus spread.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: Jamie Dimon: Higher rates are coming

Post by cheesepep » Wed Aug 08, 2018 9:56 pm

I’m like Buffet — interest rates play no factor in my investing decisions.

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Re: Jamie Dimon: Higher rates are coming

Post by 2015 » Thu Aug 09, 2018 1:00 pm

From the mouth of an empty suit all manner of pronouncements will always come.

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Re: Jamie Dimon: Higher rates are coming

Post by Kevin M » Thu Aug 09, 2018 2:21 pm

Engineer250 wrote:
Wed Aug 08, 2018 9:23 pm
I agree. But anecdotally it feels like inflation is picking up faster than CDs/savings rates/treasury rates. I am too tired/lazy to look up rather my "feeling" has any connection with reality. But nonetheless, it's a concern. That inflation is going to pick up regardless, so I would kind of like treasury yields to catch up.
Year over year Inflation has been increasing faster than 5-year and 10-year Treasury yields the last few months, but 5-year and 10-year breakeven inflation rates have actually decreased a bit lately, and still aren't much above 2%, so market expectations for future inflation seem muted compared to year over year inflation in recent months.

Image

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Re: Jamie Dimon: Higher rates are coming

Post by Engineer250 » Fri Aug 10, 2018 1:22 pm

Kevin M wrote:
Thu Aug 09, 2018 2:21 pm
Engineer250 wrote:
Wed Aug 08, 2018 9:23 pm
I agree. But anecdotally it feels like inflation is picking up faster than CDs/savings rates/treasury rates. I am too tired/lazy to look up rather my "feeling" has any connection with reality. But nonetheless, it's a concern. That inflation is going to pick up regardless, so I would kind of like treasury yields to catch up.
Year over year Inflation has been increasing faster than 5-year and 10-year Treasury yields the last few months, but 5-year and 10-year breakeven inflation rates have actually decreased a bit lately, and still aren't much above 2%, so market expectations for future inflation seem muted compared to year over year inflation in recent months.

Image

Kevin
Thanks for actually doing the math. I guess this is one of those where all we can do is watch and see what happens. As an accumulator in relatively early years, I just worry about inflation. It feels like the last 10 years I've been saving could get made worthless by rampant inflation. But I suppose worrying doesn't do anything.
Where the tides of fortune take us, no man can know.

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Re: Jamie Dimon: Higher rates are coming

Post by Kevin M » Fri Aug 10, 2018 8:12 pm

Engineer250 wrote:
Fri Aug 10, 2018 1:22 pm
Thanks for actually doing the math. I guess this is one of those where all we can do is watch and see what happens. As an accumulator in relatively early years, I just worry about inflation. It feels like the last 10 years I've been saving could get made worthless by rampant inflation. But I suppose worrying doesn't do anything.
If you're really worried about inflation, consider TIPS and I Bonds.

Kevin
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Re: Jamie Dimon: Higher rates are coming

Post by Stormbringer » Sat Aug 11, 2018 6:12 am

Kevin M wrote:
Fri Aug 10, 2018 8:12 pm
If you're really worried about inflation, consider TIPS and I Bonds.
Aren't I-Bonds currently returning negative real returns when you factor in taxes?
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Jamie Dimon: Higher rates are coming

Post by AlohaJoe » Sat Aug 11, 2018 6:36 am

Stormbringer wrote:
Sat Aug 11, 2018 6:12 am
Kevin M wrote:
Fri Aug 10, 2018 8:12 pm
If you're really worried about inflation, consider TIPS and I Bonds.
Aren't I-Bonds currently returning negative real returns when you factor in taxes?
Yes but it is a known (& relatively slight) loss. With nominal bonds and stocks you could lose 10% a year, just to inflation. You'll never lose 10% a year to inflation even after taxes with TIPS.

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Re: Jamie Dimon: Higher rates are coming

Post by MnD » Sat Aug 11, 2018 12:21 pm

With inflation running now at 3%, unemployment under 4% and the FY18 federal budget deficit running 21% higher than the same 10 months a year ago, 3% on the 10-year Treasury seems well more than a bit behind the curve. 3% on the 13-week T-bill and 4% on the 10-year doesn't sound remarkable in the least bit nor does 3.X% on t-bills and 5% on the 10-year.

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Re: Jamie Dimon: Higher rates are coming

Post by bondsr4me » Sat Aug 11, 2018 12:53 pm

Engineer250 wrote:
Wed Aug 08, 2018 9:17 am
bondsr4me wrote:
Mon Aug 06, 2018 4:32 pm
I hope he’s right.

That would be just fine with me.
I would like to see higher rates as well. Every time the 10-year treasury yield drops back below 3% I am disappointed. Would like to see it comfortably above 3.
+1
Agreed.

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Re: Jamie Dimon: Higher rates are coming

Post by Kevin M » Sat Aug 11, 2018 12:55 pm

Stormbringer wrote:
Sat Aug 11, 2018 6:12 am
Kevin M wrote:
Fri Aug 10, 2018 8:12 pm
If you're really worried about inflation, consider TIPS and I Bonds.
Aren't I-Bonds currently returning negative real returns when you factor in taxes?
Could be, but we're getting negative real returns even before taxes on other safe, relatively short-term nominal fixed-income, and we've been getting negative nominal returns on fixed income with more term risk, so even more negative real returns even before taxes.

I'm not promoting I Bonds, just saying that they are a reasonable alternative for relatively small amounts of money, depending on portfolio size of course, for someone who's worried about inflation.

Kevin
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Re: Jamie Dimon: Higher rates are coming

Post by HomerJ » Sat Aug 11, 2018 1:42 pm

Stormbringer wrote:
Sat Aug 11, 2018 6:12 am
Kevin M wrote:
Fri Aug 10, 2018 8:12 pm
If you're really worried about inflation, consider TIPS and I Bonds.
Aren't I-Bonds currently returning negative real returns when you factor in taxes?
You can choose to tax-defer I-Bonds
The J stands for Jay

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