Wednesday, November 3, 2021


Inflation protected savings bonds (I-bonds) have been one of my favorite zero friction savings vehicles since 2010. I've made monthly purchases since 2010 when inflation was thought to be vanquished for good. Now that it's back, at least temporarily, I-bonds are doing what they are supposed to do and preserving at least most of their purchasing power. I-bonds purchased between November 2021 and April 30, 2022 earn 7.21% interest. The rate is adjusted twice a year based on current inflation readings. Some of mine adjusted to 7.64% on November 1, and others will adjust higher than that at their mid-year mark. While I am happy to see the extra income, it's not really good news, since that interest will be taxed. Everyone except the federal government loses to inflation after taxes.

Still, it's better than high yield savings accounts that pay 0.4% and better than TIPS that have negative yields across the entire curve. Too bad you are limited in how much you invest in I-bonds in a year.

Friday, October 15, 2021

GDPNow craters

Well, that escalated quickly. A crash from 3.8% to 1.2% in the last two weeks. It's hard to believe trillions in stimulus has already run its course. Two more stimmy bills are waiting in the wings in Congress if they can get one or both passed. None of this has any impact on my allocations. Interest rates dictate where I invest, as always. Nowcast is downcast.

Thursday, August 26, 2021

Sin for the Win

I've been slowly adding dividend achievers to my portfolio as my bond ladder matures. The newest addition is British American Tobacco (BTI). It's a relatively small position for now, but the yield was a magnet. Also, some very smart people have made similar moves. Copying smart people, with smart, persuasive arguments, is generally a smart thing to do.

"Even though I'm full of sin, in the end, you'll let me in"

"Smokin' in the Boys Room"

Wednesday, May 19, 2021

Crypto is a zero, Crypto tech is not

Bitcoin as an asset is likely going to zero. Bitcoin technology, blockchain, and the innovation going on in the space is likely to be useful in certain applications. Bitcoin was born in the ashes of the 2008 Great Recession. It was a poke in the eye of "the man" that bailed out banks and let the little guy twist in the wind. It was a time of turmoil and the beef Bitcoin aimed to solve was a real one. The idea that people could bypass the banking system, and taxation, had broad appeal.

But think about the end game. Which nation state would willingly cede control of its currency and financial system to a group of anonymous programmers and foreign crypto mining operations? I can't think of one. In fact, China has banned use of cryptocurrencies for all financial transactions. Does that mean crypto is not traded inside China? I'm sure it is, but can it be used for large or legitimate purchases? No. And it seems inevitable that most nation states will come to the same conclusion and legal lockouts.

After the 2001 terror attacks on the World Trade Center, the US became very much interested in who was moving money around the banking system. Know Your Customer laws became strict, and those collide with the ideas behind cryptos. Beyond that, the market is mostly unregulated, uninsurable, and filled with cons, pumps and dumps, stolen tokens, hacked exchanges, owners of exchanges running off with coins in their custody. It's an unsafe and unreliable market. It doesn't help that many criminal gangs require Bitcoin as ransom for cryptolocker attacks.

Then there is the environmental issue. The impact of mining crypto is a real problem. So much so that Tesla reversed course and will no longer accept it as payment.

As I learned more about all the different implementations, it was obvious the Bitcoin version was crude. There were many other cryptos that solved a lot of problems without Proof of Work and the speed issues with Bitcoin. The issues caused fractures in the programming community that maintains Bitcoin and it forked into a couple dozen versions. So which one is the real Bitcoin?

I like blockchain and wrote glowingly about it ten years ago. I still like it and a lot of the ideas that are popping up in the bubbling stew of the crypto world. Steem had a good idea about changing incentives for social media. BAT had a good idea about changing incentives for ad tracking in a web browser. There are more good ideas in the space, but as investment assets or legal tender, I suspect 99% of all cryptos will go to zero.

Tuesday, May 18, 2021

Sold AT&T (T) on dividend cut news

AT&T (T) was the first stock I bought last year that was part of my new dividend stock strategy to replace income from low yielding bonds. The first rule of Dividend Club is you don't cut the dividend. I was wondering why the stock was down so much today, when I checked the news and read about the future cut. I locked in solid short term capital gains even after the sell off and had collected over $1,000 in dividends so it was still a winner. Note I did not sell because the price was dropping, but because it violated the no cut rule. It was unemotional rule following. I like that aspect of it, but it certainly requires paying more attention to the news, unlike the bond ladder which is pretty much set and forget.

Friday, May 14, 2021

Dividend stock 13% draw down stress test

Still being new to dividend stock investing, I had my first test this month when one of my stocks (CAH) dropped 13% after a disappointing earnings report. Coming from a hold-to-maturity bond ladder viewpoint, I never cared about price movements. I wondered how my emotions would fare when one of my dividend stocks took a 20% or 40% hit. Well, that test hasn't arrived yet, but the 13% draw down did not phase me. It helped that the other stocks I own held or even went up. The jury is still out on how I will deal with a larger draw down, and the ultimate test is when all of the stocks drop significantly at the same time. Only then will know if I have the fortitude for long term dividend stock investing. For now, I am counting down the days to the next dividend payday, which is tomorrow.

Monday, March 29, 2021

[Housing] Busta Rhymes

Despite interest rate angst in the air, until proven otherwise, I am sticking with the hypothesis that the US is following the trail blazed by Japan in the 1990s. Following Japan's housing bubble bust, they made one attempt to move rates off zero, but appear to have given up. Following the US housing bubbble bust, the Fed made one attempt to move rates off zero, but appear to have given up. Maybe the giant stimmies will change things for the US, but I am not counting on it. Woo-Hah! (or should it be Wu-Han!)

Wednesday, March 24, 2021

Rise of the Aristocrats

Part of my retirement plan was to maintain a 7-year bond ladder. This would throw off predictable low risk income as the third leg of my stool. Over the last two years, though, I have not been able to replace the top of my ladder with reasonable yields due to the Fed's zero interest policy. To reach for yield, I would have had to buy barely or below investment grade junk. As an adaptation to this environment, I created (well, borrowed from other smart people) an income strategy based on dividend aristocrats. It is a rung higher on the risk scale, but also provides some inflation protection that standard bonds don't. In addition, if I can achieve reliable income, I won't be concerned about price fluctuations in the stock prices, just like I don't care much about interest rate fluctuations holding bonds to maturity in a ladder. You still have to monitor, garden, and prune based on performance of the underlying businesses. It's my first big change in strategy in 10 years. We'll see how it works out.

Saturday, March 13, 2021

Average interest rate paid on Federal debt

Federal debt has exploded since 2008. It had already been on a fast upward trend since the early 1980s, with one slow down at the end of 1990s. Then, the mortgage crisis and pandemic provided quantum leaps up. The upward trend in debt was accompanied by a downward trend in the average interest rate paid on the debt, again starting in the early 1980s. The highest rate paid was just below 14%, and the average interest rate paid now is about 2.5% across all durations. With current levels of debt, I am not sure we can afford higher interest rates or whether higher rates will be allowed by the Federal Reserve. I am not betting on higher rates.

Monday, March 8, 2021

Schrödinger's Cash

Illusion of Prosperity blog had an interesting post about GDP/M2 and how that measure dropped sharply after 2008 and fell off a cliff in 2020. It is far outside the bounds of what we have seen since 1960. That got me thinking about the velocity of money. The Illusion chart almost matches the M2 chart. The narratives in finance land have recently swung toward higher inflation expectations. You can see the effect of that swing in rising interest rates on the longer end of the curve. The textbooks say there are two types of inflation, cost-push and demand-pull. But, prices can't change without money being spent. Cash in a bank or brokerage account is inert, in an indeterminate state until it's wave function collapses when it is spent. It's Schrödinger's Cash! So far, I'd say that velocity is a drag on inflation. It may all change as the pandemic is brought under control and the stimulus money starts flowing.

Wednesday, February 3, 2021

Chase cracking the interest rate whip

The 30-year Treasury bond is yielding 1.87% today. That's not a lot of interest for locking your money up for 30 years. Enterprising banks have a better sourcce of interest: their customers. I got this notice via email from Chase regarding my Amazon credit card. In ancient history (1970s), banks had hard limits on the amount of interest they could charge on credit cards, now, not so much. If you miss ONE MINIMUM PAYMENT, Chase will penalize you with a 29.99% interest rate on the balance. If you catch up on all payments, they might reduce it, or the penalty APR could potentially remain in effect INDEFINITELY. Whatever they feel like at the time. I cringe at these harsh terms and laugh at the same time because I always pay the balance to zero between one and three times a month, whatever I feel like at the time. Still, it's like a one-strike death penalty.

They altered the terms of the deal. Pray they don't alter them further.