Dr. Strange Move or How I Learned to Love the Bill

After a couple of years of disinflation, the Fed changed directions and started lowering rates. By most measures, the economy had been humming along near a Goldilocks level. No recession in sight. In November, 2023, I made my first frontrunning the Fed trade. I bought a little EDV and TLT and sold a few months later with a loss of -$148.33 when it proved volitile. Long bond rates fluctuated in a range with no clear direction. Not what I expected. In September, 2024, I made a larger long bond trade in VGLT just before the Fed officially did their first half point rate cut. I sold two weeks later for a loss of $-329.04 when rates moved the opposite direction. Not only was the rate cut priced in, but the inflation expectations for the future took precedence over the start of a rate cut cycle. These are small losses, so I can't complain. It's been a fantastic year for stocks and T-bills. For the last year, I've been mostly happy collecting over 5% on T-bills. With the second Fed cut announced today, I pushed some cash into bills in the 18-24 month range. The long end has befuddled me twice so I'm sticking close to shore, body surfing the tiny crest.

Going Short

Well, that escalated quickly. I had already positioned defensively for 2024, overweight cash in a federal money market paying 5.2% (now 5.3%). I still have positions in SP500 and a high quality dividend fund. When inflation data started feeling sticky again in February/March, I closed out my EDV and TLT positions with small losses. I also sold most of my single stock positions for profits. All proceeds are sitting in the federal money market and I am happy to collect interest on it all year if cuts don't materialize. My older bond ladder goes through 2026. I'll be looking to lock in medium or longer term rates and slowly increasing my stock allocation if and when interest rate policy changes. For now, there is nothing wrong with a pile of cash. The irony of Dollar Death Spiral investing mostly in dollars is not lost on me. Who is that idiot in the mirror?