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?

Going Long

Made some big moves in retirement accounts in the last couple of months. The boldest, and luckiest, was going 100% SP500 in one of my accounts at the end of October. Stocks have had a giddy run since then. Gave me the vapors. In January, I will reallocate that back to a more reasonable mix.

In my other account, I started nibbling on EDV a month ago as the inflation related data started to show real signs of cooling. This week, the Fed all but declared victory by suggesting rate cuts could happen next year. That ignited another boom in all assets. I started to flesh out my bond ladder again in the 2-3 year range with treasury notes, added more EDV, and also picked up some TLT. I expect my bond weighting to be slightly heavier next year compared to 2023.

Corporate bonds have been an anomoly this year. New issues for investment grade bonds are usually at a slight premium over treasuries but that hasn't been the case in a while. Most of the stuff I see from AAA to A is trading at a lower yield than treasuries of the same duration. I still have one corporate issue on my ladder, but it will roll off in 2026. The premium may be back by then.

Juicy Interest Rates Juiced

I pulled the trigger on a 3 year agency yielding 6.000%. I have some other T-bills maturing soon so I might commit a little more in the 2-3 year duration range. Money markets still look great short term until we get a definitive signal from the Fed that the hikes are over. I plan to follow the fattest part of the curve as it eventually moves out. EDV has been slaughtered over the last three years and is near all time lows. It's a riskier play, but could be a nice booster when it is clear the rate environment has changed. That may not be clear until next summer or later.

Juicy Interest Rates are Juicy

Six month T-bills are yielding 5.41% and I can lock in 5.858% on 5 year agencies. Surprisingly, you have to drop down to barely investment grade corporates to get that kind of yield. With inflation coming down at a moderate clip, Fed watchers expect one or two more quarter point hikes before rates settle. These aren't the once in a lifetime yields on treasuries that could be had in the 1980s, but they look pretty darn good compared to stocks that feel a little toppy. I don't plan to change my portfolio allocations much, maybe lean in a little more on the short end as the bottom of the bond ladder matures.

Champion of the Dollar

Dollar Death Spiral was started during the 2008 financial crisis to explore alternatives to fiat currency with an early focus on precious metals. The 2008 crisis exposed mismanagement and abuse by the banking sector and failures to regulate perverse incentives. While enormous damage was done to the global economy during that crisis, the mismanagement looks almost trivial when compared to the crypto ecosystem and the joke term "web3". Crypto has no management, no principles, and no regulation. It's really worse than the wild west because it is actively pernicious.

The ecosystem thrives on theft, lies, money laundering, ponzi schemes, and anything to cheat people out of their valuable fiat money. Ironically, Dollar Death Spiral has become a champion of the dollar and government run fiat money. That doesn't mean there isn't ongoing mismanagement and mistakes in the fiat system. But by comparison, the fiat system is a rock of stability and competency. There is a reason the wildcat banks didn't last and crypto should not last either. It is a much bigger threat and deserves as much derision as I can pour on it.

Long live the Dollar.

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