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A Lower I Bond Rate

In a bear market, it’s hard to find bullish economic indicators. We’re always searching for silver linings to live better during difficult times. Thus, the good news is that I’ve found the most positive economic indicator yet!

This week, the Treasury Department announced Series I Bonds will pay an annualized interest from November 1, 2022 through April 2023 of 6.89%, down from the 9.62% rate offered since May 2022. A 2.73% decline is massive.  

What does this really mean? Most people seeing the news will just look at the rate for what it is. However, as a Financial Samurai, you think in derivatives. You try to connect the dots to improve your finances.  

The lower Series I Bond interest rate means the government believes inflation has peaked and is heading down. It is based on the historical CPI rate, which is also gathered and reported by the government.

As a result, this is a bullish economic indicator for risk assets. But I don’t think investors have fully recognized the significance of the I Bond rate decline just yet.

Government Must Act Consistently With The Data

Given one of the goals of government is to be fiscally responsible. The government isn’t willing to pay a higher interest than it has to. If you know inflation, and therefore interest rates are coming down, you aren’t going to pay a higher interest rate for the next six months on your debt.

At the same time, the Series I Bond interest rate has to be competitive enough to attract capital over the next six months. If the interest rate is not high enough, then the government won’t be able to meet its capital raising target from Series I Bonds to fund whatever it plans to fund.

The government has shown us its cards! Its action must be consistent with the data.

Can you imagine playing poker and seeing all your opponents’ hole cards? You can make higher expected value bets as a result.  

Bullish Economic Indicator And Its Implications

From the latest Series I Bond interest rate , we can assume inflation figures coming out on November 10, December 13, January 12, Feb 14, March 14, April 12, and May 10 will either be below inflation expectations or have a blended overall inflation rate below expectations.  

Therefore, if inflation comes down quicker than current estimates, we should see an increase in risk appetitive for stocks, real estate, and other risk assets.

After all, the net present value of future cash flows increases when interest rates go down. So does the relative desirability of risk assets. When government bonds are high, it crowds out capital that would have gone to private companies.

The Bottom Has Been Reached For Stocks In This Cycle

Of course, nobody knows how well risk assets will perform in the future. One of the biggest challenges an investor has is figuring out exactly how much existing beliefs are baked into asset values.

However, the new Series I Bond interest rate makes me more confident the worst is over. In other words, 3,577 was most likely the bottom of the S&P 500 on October 17, 2022 during this bear market.

If the S&P 500 dips below 3,600 again I would be an aggressive buyer. I’m also going to be buying under 3,700 and nibbling under 3,800 as well.

Chances are higher now the Fed will begin to telegraph a moderation in future rate hikes within the next six months, if not by year end.

Time To Make Low-Ball Real Estate Offers Now

The other implication of a lower Series I Bond rate is that you want to strategically make low-ball real estate offers for 10% – 20% off now BEFORE mortgage rates start coming down by 2-3% by April 2023.  

That’s right, the Series I Bond interest rate offer is literally telling us mortgage rates will start heading south as well. The average 30-year fixed-rate mortgage may decline to 4.5% – 5% by April 2023. If so, the demand for real estate will pick back up.

If you get a new purchase mortgage in the short term, strategically, it is better to get an ARM at a lower rate and hopefully a lower fee. The reason why is because you expect to refinance to a lower rate within the next 12-24 months.

Winter is my favorite time of the year to hunt for real estate deals. Anybody listing during the holidays and difficult weather conditions is likely more motivated than those listing during the spring. Thus, if you can get a panic seller to sell for 10-20% below April 2022 comps, I think you are going to do great.

You don’t have to buy an entire property and take on debt either. Instead, you can buy a public REIT, a private real estate fund, or invest in individual private real estate deals to more slowly leg in.

Stay The Course With Your Investments

Remember, risk assets are priced off risk-free rates. And the Series I Bond can be considered a type of risk-free rate, albeit not the best one given the purchase limit per person. The best risk-free rate is the 10-year Treasury bond yield.

Higher Treasury bond yields crowd out private capital. Personally, I gladly bought Treasury bonds yielding between 4.2% – 4.6% at various durations. However, as Treasury yields come back down, the attractiveness of risk assets goes back up.

If you own stocks and real estate, I wouldn’t sell now. If you aren’t willing to nibble on risk assets now, I would at least hold on. Feel better knowing we are unlikely to fall into a similar abyss like the one during the 2008-2009 global financial crisis

What’s great about writing on Financial Samurai is that I can revisit my thesis in six months and see whether I was right or wrong! I understand most people aren’t willing to publicly make forecasts out of fear of looking like an idiot.

However, I’m used to feeling and looking like an idiot, so it doesn’t matter! What matters is that I take action based on my beliefs. Otherwise, many of my investing thoughts will be rendered pointless.

Related post: It’s Easier To Generate More Passive Income In A Bear Market

Reader Questions

Readers, did you connect the dots about the latest Series I Bond rate and expectations for inflation and risk assets? Are there any other bullish economic indicators you are looking at that gives you hope for the future? What type of action are you taking today?

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Disclaimer: This article is not my investment advice to you. Please do your own due diligence and invest at your own risk. There are no guarantees when it comes to investing in risk assets.

To gain an unfair competitive advantage in building wealth, read Buy This, Not That. It was written exactly for volatile times like these. I synthesize my 27+ years of investing experience to help you make better financial and life choices.

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

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A Lower I Bond Rate is written by Financial Samurai for www.financialsamurai.com

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IRS Out For Blood More Than Doubling Penalty Interest

IRS taxes increase

In a blatant act of financial tyranny, the IRS is intensifying its assault on hardworking Americans by shamelessly jacking up the interest penalty on underpaid taxes from a pitiful 3% to an exorbitant 8%. This calculated move, recalibrated quarterly, serves as a stark reminder of the insatiable appetite of the IRS, an oppressive behemoth relentlessly extracting every last penny from citizens already shackled by burdensome taxation.

Specifically targeting non-corporate taxpayers, the IRS demands the federal short-term rate plus an additional three percentage points, a blatant money grab that directly targets struggling self-employed individuals, independent contractors, and gig economy workers. These individuals, already grappling to make ends meet, find themselves in the crosshairs of a government voraciously hungry for more of their hard-earned wages.

For those daring to resist this blatant financial coercion and falling short on their payments, brace for the punitive underpayment penalty. There’s a meager concession – if the amount due is under $1,000 after begrudgingly considering credits and other tax factors, citizens might receive a temporary reprieve from the claws of the taxman.

This audacious maneuver puts the self-employed and independent contractors in the IRS’s oppressive grip, coercing them to make quarterly estimated tax payments under the looming threat of severe financial retribution. The January 16, 2024 deadline for the fourth quarter of 2023 is fast approaching – a date that casts a dark shadow over those grappling with the suffocating weight of government overreach.

While the regular W-2 employees might momentarily sigh with relief as taxes are conveniently siphoned from each paycheck, tax experts issue a stern warning against such complacency. Joseph Doerrer, a CPA and financial planner from New Jersey, challenges individuals to scrutinize their tax situation, posing the provocative question, “Are you where you should be?” A question that echoes as a stark reminder of the government’s overreach into the pockets of hardworking Americans.

One taxpayer, Sameet Durg, found himself blindsided by an underpayment penalty reaching into the thousands – an unwelcome surprise that serves as a chilling testament to the relentless demands of the IRS. Durg, a marketing executive, now watches his finances with unwavering vigilance, refusing to endure a hefty hit come April.

As the IRS unabashedly cranks up the interest penalty, taxpayers are left grappling with the heavy-handed tactics of an agency that seems insatiable in its quest to confiscate more of their hard-earned money. This move underscores the urgent need for citizens to vehemently resist the oppressive tax regime, actively defy the IRS’s overreach, and reclaim sovereignty over their wages.

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GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

(ConcernedPatriot.com) – Sam Bankman-Fried has been found guilty of all charges related to the collapse of his Bitcoin exchange, FTX.

“A New York jury in Manhattan federal court agreed with prosecutors that Bankman-Fried defrauded investors, customers and lenders in connection with the collapse of his crypto empire,” reported Fox Business.

“Prosecutors accused Bankman-Fried, who founded and controlled both FTX and sister hedge fund Alameda research, of misappropriating and embezzling billions of dollars in FTX customer deposits, scheming to mislead investors, and instructing other executives at his businesses to do the same,” it added.

Bankman-Fried was charged with five charges of conspiracy and two counts of wire fraud in the first two criminal trials.

The maximum sentence for each crime was 110 years in prison.

The hearing for Bankman-Fried’s sentence has been scheduled for March 28.

The Southern District of New York’s U.S. attorney, Damian Williams, commended the decision and said that Bankman-Fried “perpetrated one of the biggest financial frauds in American history.”

“The cryptocurrency industry might be new, the players like Bankman-Fried might be new,” Williams said. “But this kind of fraud, this kind of corruption, is as old as time.”

NBC News gave some background information and historical context before the decision:

“FTX and Alameda quickly collapsed in November 2022 after some of their financial liabilities were exposed.

The fact that Alameda had taken billions of dollars from FTX’s customers and that much of Alameda’s balance sheet was comprised of digital currency assets it had created was central to the case against Bankman-Fried.

Unnerved by disclosures about the firm’s financial position, many of FTX’s customers tried to get their money back. That set off the equivalent of a bank run.

The value of Alameda’s investments crashed, and FTX couldn’t return much of that money because it had been given to Alameda. Some went to the fund’s lenders, and billions were spent on sponsorships, commercials, and loans to top executives. That, too, was a major part of the case against Bankman-Fried.”

Following the collapse, more FTX and Alameda executives were prosecuted, including former CEO of Alameda Caroline Ellison, co-founder of FTX Gary Wang, and chief technology officer of FTX Nishad Singh.

All three pleaded guilty, agreed to cooperate, and testified against Bankman-Fried.

In exchange for their cooperation, they will receive less severe punishments.

In his defense, Bankman-Fried stated that he never intended to deceive anyone and that, following the failure of FTX and Alameda, the government had been searching for someone to blame.

“Mr. Bankman Fried maintains his innocence and will continue to vigorously fight the charges against him,” Mark S. Cohen, counsel to Bankman-Fried, said in response to the verdict.

Williams stated that he hoped the conviction would be an example for others.

“It’s a warning, this case, to every single fraudster out there who thinks that they’re untouchable, or that their crimes are too complex for us to catch, or that they’re too powerful for us to prosecute, or that they could try to talk their way out of it when they get caught,” Williams said. “Those folks should think again.”

Copyright 2023. ConcernedPatriot.com

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Brutal ‘Bidenflation’ Has 1 in 6 Retirees UNRETIRING

Brutal 'Bidenflation' Has 1 in 6 Retirees UNRETIRING

(ConcernedPatriot.com) – According to an analyst, “Bidenflation” may be a long-term issue, leading one out of every six pensioners to contemplate retiring early.

It will undoubtedly persist if Biden wins re-election.

In the far-left USA Today, Patrice Onawunka laments the possibility that the “financial insecurity” brought on by inflation—which was brought on by “reckless federal spending”—will last forever.

More:

“People have connected the dots between ill-advised government policies and harsh economic outcomes. Spending nearly $2 trillion on government transfers to almost every household during supply-chain disruptions and exacerbated labor shortages caused inflation to accelerate. Putin’s invasion of Ukraine and other production disruptions worsened it.

The Biden administration and congressional Democrats passed a climate change bill that they falsely labeled the Inflation Reduction Act in hopes of fooling Americans, especially seniors.

The bill never addressed rising food, housing, or energy prices — households’ most basic and critical needs. Any climate savings would take years to come to fruition and could be offset by new costs for families — tens of thousands of dollars — on new electric vehicles.

Meanwhile, the green subsidies cost more than three times what the law’s supporters claimed.”

What could be crueler than adopting a law that does the exact opposite and is titled the Inflation Reduction Act?

55 percent of those who have already had to un-retire claim it was because they needed more money.

The White House and corporate media continue to lie to us by promising that the inflation issue will pass quickly, yet nothing ever appears to change.

Everything’s cost is skyrocketing especially housing. Meanwhile, Joe Biden is exerting every effort to keep inflation high. The federal government spends like a drunken sailor, which cheapens money.

Even worse, Biden has permitted countless millions of illegal immigrants to enter our nation, which raises the price of housing by increasing demand for limited items like housing.

Housing is a necessity, Onwuka tells us, unlike other discretionary expenses. Rent costs in America are rising, disproportionately affecting older folks and those with low incomes, especially those on fixed budgets.

In addition, she states that “10 million households headed by people aged 65 or older spend more than a third of their income on housing, and half of these pay more than 50%.”

See what happens when you factor millions of illegal immigrants into the housing problem.

Biden punishes Americans who have lived by the book, paid their taxes, saved money, and worked hard. He is putting the interests of millions of illegal aliens—who raise demand for everything and drive up prices for everything—above the interests of those Americans.

“In a little over four years, I intend to retire. I’ll never be wealthy, but since I started my first 401K in 1994, I’ve been setting money aside for that moment. I enjoy both my job and my coworkers.”

That isn’t the problem. The dream is the problem… the desire to live out your third act with the freedom and resources to do whatever you want.

Similar actions are taken by many working Americans who save money and forgo immediate enjoyment to prepare for their elderly years. As a result, I find it difficult to understand what it must be like to enter a dream before having it destroyed.

The anguish of coming out of retirement, returning to the grind, and facing Monday mornings all over again escapes me.

The only idiots, child abusers, and masochists vote Democrat.

Copyright 2023, ConcernedPatriot.com

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