You are reading Ken's "Miscellaneous" category. There is nothing earthshaking or especially insightful here. I wish I could offer you something such as that, instead of these ramblings:
Ken likes to write about "three for five". I like that terminology, too. But at a time I hope we are in a rising interest rate environment, at least in the short term (next six months), my gut is telling me "three" needs to be a floor and not a ceiling. The Freedom deal turns turtle today. That "three for three" deal has been the best around IMO. For anyone unaware, it has always been possible to do the Freedom deal in one day, provided you have FAX access and are willing to wire funds. So at least theoretically, as I write this early Friday, there is still opportunity to do the Freedom thing right now.
I'm only writing about "three" (means 3% if that is not already clear) because that does seem for now about the best we can do on a CD. Looking back short term, Andrews was at three, Northwestern was at three, when Valor re-opened for a short while you could put money in at three. There are, of course, the current "three for five" deals, e.g., MACU, along with a few local deals. I don't have a high opinion of those, but I acknowledge they are right for some people. With interest rates possibly trending upward, a three percent CD for the next five years seems to me risky. Of course the shorter alternatives, now sadly ex Freedom, have their own drawbacks.
We think interest rates might re-commence seriously rising following the next Fed meeting a month from now. As always, there might be some CD rate increases in anticipation of the meeting. Those offerings will snag the anxious. But how long will it take before 3.5% becomes routine? 4%? Will it happen at all?
I was feeling much more optimistic about interest rate increases generally when the stock market was on a tear. Then the correction happened. Now we appear to be in a trading range. The current stock market is less supportive of higher interest rates IMO, than was the case before the correction. But there is positive economic news nearly everywhere. The tax cuts have stimulated our economy beyond any doubt. And rising economic activity should presage higher CD rates and higher interest rates in general.
So what to do with free cash? Do we go in now for five year CDs at only 3%? Do we go shorter for less interest, but still tie up our funds for, say, circa a year? Or do we remain in cash at a bit below 2% and await events in the short term (next several months)?
I'm not writing this to convince anyone else of what they should do. It's strictly an individual decision. I am leaning toward the third option based on little more that my gut and, I guess, a measure of hopefulness. I've always been a barbell sort of person, right or wrong. So I did Freedom and the others as my long stuff. And I'm content for now to accept (a bit below) 2% as the cost of having dry powder on the other side of my barbell. Will it work out? I wish I knew.
