Bonds: What Are They Doing? Are They Doing Things?? Let's Find Out!

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Robot Monster
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Re: Bonds in free fall

Post by Robot Monster »

theac wrote: Sat Jan 08, 2022 9:52 pm OK, maybe I'll start looking into Tips and reconsider them. Thanks

If I did decide to go with the Tips, how would you handle that?
Gradually do exchanges, or just do them all at once and be done with it?

And what if inflation were to drop off in the near future, like a year or two?
At that point would Tips still be the better choice?
From further up you mention you are "approx 80% holding in Total Bond Market at Vanguard". My parents are also heavily invested in nominals. There's a 10yr TIPS auction this month, and I'm discussing the idea with them of investing a big chunk of their money in it. They happen to be in cash. The Fed is now maybe looking to raise rates to combat inflation, but it's an unknown how high they'll go, and what inflation will be. Jeremy Siegel does not expect yields on cash or bonds to go above inflation and he predicts "cumulative inflation of 20% to 25%. I'm not talking about one year. I'm talking about a period of three to four years. It could be 7%, 7%, 7%, or 5%, 5%, 5%, 5%." article link

Basically, we don't know what kind of negative real yields cash or nominal bonds might experience. If my parents buy the 10yr TIPS they'd know what real yield they're going to get. They would eliminate that risk. We don't know how out of control inflation will get, and no one can say for sure what the Fed will do. TIPS protect you against this uncertainty. TIPS allow you to not worry about the Fed.

I think of TIPS like fire insurance. Imagine there's a fire raging in your neighborhood. You don't know if it's gonna head your way, so you buy insurance in case it does. The insurance doesn't necessarily pay off. The fire could go the opposite direction. Likewise, inflation could come down next year, and the investment in TIPS doesn't pay off, but this will be no different from any other time insurance doesn't pay off. Most of the time insurance doesn't pay off, but that doesn't mean it didn't make sense to have it.

Speaking personally, my own portfolio is roughly 65% TIPS, 25% stocks, 10% cash. My portfolio is heavily influenced by Vineviz (see below).
Speaking very generally, it usually makes sense to hold some TIPS when your portfolio is is less than 70% stocks.

If your portfolio is less than 50% stocks it could make sense to have most of your bonds as TIPS.

A very rough rule of thumb, in table form:

Code: Select all

Stocks	LTT	TIPS	STIG
100%	0%	0%	0%
90%	10%	0%	0%
80%	20%	0%	0%
70%	20%	10%	0%
60%	20%	20%	0%
50%	20%	30%	0%
40%	10%	40%	10%
30%	0%	50%	20%
LTT = Long-term Treasuries
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
link to original post

Whether to go all at once into TIPS, or slowly, I think all at once. You wouldn't add fire insurance incrementally, after all.
Last edited by Robot Monster on Sun Jan 09, 2022 10:20 am, edited 1 time in total.
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willthrill81
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Re: Bonds in free fall

Post by willthrill81 »

Robot Monster wrote: Sun Jan 09, 2022 10:12 am
theac wrote: Sat Jan 08, 2022 9:52 pm OK, maybe I'll start looking into Tips and reconsider them. Thanks

If I did decide to go with the Tips, how would you handle that?
Gradually do exchanges, or just do them all at once and be done with it?

And what if inflation were to drop off in the near future, like a year or two?
At that point would Tips still be the better choice?
From further up you mention you are "approx 80% holding in Total Bond Market at Vanguard". My parents are also heavily invested in nominals. There's a 10yr TIPS auction this month, and I'm discussing the idea with them of investing a big chunk of their money in it. They happen to be in cash. The Fed is now maybe looking to raise rates to combat inflation, but it's an unknown how high they'll go, and what inflation will be. Jeremy Siegel does not expect yields on cash or bonds to go above inflation and he predicts "cumulative inflation of 20% to 25%. I'm not talking about one year. I'm talking about a period of three to four years. It could be 7%, 7%, 7%, or 5%, 5%, 5%, 5%." article link

Basically, we don't know what kind of negative real yields cash or nominal bonds might experience. If my parents buy the 10yr TIPS they'd know. They would eliminate that risk. We don't know how out of control inflation will get, and no one can say for sure what the Fed will do. TIPS protect you against this uncertainty. TIPS allow you to not worry about the Fed.

I think of TIPS like fire insurance. Imagine there's a fire raging in your neighborhood. You don't know if it's gonna head your way, so you buy insurance in case it does. The insurance doesn't necessarily pay off. The fire could go the opposite direction. Likewise, inflation could come down next year, and the investment in TIPS doesn't pay off, but this will be no different from any other time insurance doesn't pay off. Most of the time insurance doesn't pay off, but that doesn't mean it didn't make sense to have it.

Speaking personally, my own portfolio is roughly 65% TIPS, 25% stocks, 10% cash. My portfolio is heavily influenced by Vineviz (see below).
Speaking very generally, it usually makes sense to hold some TIPS when your portfolio is is less than 70% stocks.

If your portfolio is less than 50% stocks it could make sense to have most of your bonds as TIPS.

A very rough rule of thumb, in table form:

Code: Select all

Stocks	LTT	TIPS	STIG
100%	0%	0%	0%
90%	10%	0%	0%
80%	20%	0%	0%
70%	20%	10%	0%
60%	20%	20%	0%
50%	20%	30%	0%
40%	10%	40%	10%
30%	0%	50%	20%
LTT = Long-term Treasuries
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
link to original post

Whether to go all at once into TIPS, or slowly, I think all at once. You wouldn't add fire insurance incrementally, after all.
Great post and analogy. The only thing I would add is that the cost of the 'insurance' component of TIPS has been very low for a long time, arguably close to zero.
The Sensible Steward
DB2
Posts: 1396
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Re: Bonds in free fall

Post by DB2 »

canadianbacon wrote: Sun Jan 09, 2022 10:04 am I spent the same on food in 2021 that I did in 2020 ($100 less actually). It definitely hits different people different ways. I would imagine if we get sustained 6% inflation it will be harder to avoid.
How did you do this when every commodity went up? Or did you just eat less?
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Bonds in free fall

Post by Robot Monster »

willthrill81 wrote: Sun Jan 09, 2022 10:14 am
Robot Monster wrote: Sun Jan 09, 2022 10:12 am
theac wrote: Sat Jan 08, 2022 9:52 pm OK, maybe I'll start looking into Tips and reconsider them. Thanks

If I did decide to go with the Tips, how would you handle that?
Gradually do exchanges, or just do them all at once and be done with it?

And what if inflation were to drop off in the near future, like a year or two?
At that point would Tips still be the better choice?
From further up you mention you are "approx 80% holding in Total Bond Market at Vanguard". My parents are also heavily invested in nominals. There's a 10yr TIPS auction this month, and I'm discussing the idea with them of investing a big chunk of their money in it. They happen to be in cash. The Fed is now maybe looking to raise rates to combat inflation, but it's an unknown how high they'll go, and what inflation will be. Jeremy Siegel does not expect yields on cash or bonds to go above inflation and he predicts "cumulative inflation of 20% to 25%. I'm not talking about one year. I'm talking about a period of three to four years. It could be 7%, 7%, 7%, or 5%, 5%, 5%, 5%." article link

Basically, we don't know what kind of negative real yields cash or nominal bonds might experience. If my parents buy the 10yr TIPS they'd know. They would eliminate that risk. We don't know how out of control inflation will get, and no one can say for sure what the Fed will do. TIPS protect you against this uncertainty. TIPS allow you to not worry about the Fed.

I think of TIPS like fire insurance. Imagine there's a fire raging in your neighborhood. You don't know if it's gonna head your way, so you buy insurance in case it does. The insurance doesn't necessarily pay off. The fire could go the opposite direction. Likewise, inflation could come down next year, and the investment in TIPS doesn't pay off, but this will be no different from any other time insurance doesn't pay off. Most of the time insurance doesn't pay off, but that doesn't mean it didn't make sense to have it.

Speaking personally, my own portfolio is roughly 65% TIPS, 25% stocks, 10% cash. My portfolio is heavily influenced by Vineviz (see below).
Speaking very generally, it usually makes sense to hold some TIPS when your portfolio is is less than 70% stocks.

If your portfolio is less than 50% stocks it could make sense to have most of your bonds as TIPS.

A very rough rule of thumb, in table form:

Code: Select all

Stocks	LTT	TIPS	STIG
100%	0%	0%	0%
90%	10%	0%	0%
80%	20%	0%	0%
70%	20%	10%	0%
60%	20%	20%	0%
50%	20%	30%	0%
40%	10%	40%	10%
30%	0%	50%	20%
LTT = Long-term Treasuries
TIPS = Broad TIPS fund (or Series I Savings Bonds or individual TIPS ladder)
STIG = Short-term investment grade corporate bond fund
link to original post

Whether to go all at once into TIPS, or slowly, I think all at once. You wouldn't add fire insurance incrementally, after all.
Great post and analogy. The only thing I would add is that the cost of the 'insurance' component of TIPS has been very low for a long time, arguably close to zero.
Thank you! And yes, that's a very good point. Depending on what happens, TIPS could get a lot more expensive.
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canadianbacon
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Re: Bonds in free fall

Post by canadianbacon »

DB2 wrote: Sun Jan 09, 2022 10:17 am
canadianbacon wrote: Sun Jan 09, 2022 10:04 am I spent the same on food in 2021 that I did in 2020 ($100 less actually). It definitely hits different people different ways. I would imagine if we get sustained 6% inflation it will be harder to avoid.
How did you do this when every commodity went up? Or did you just eat less?
Not entirely sure. Clearly must have been a different mix of food items, but I eat fine.
Bulls make money, bears make money, pigs get slaughtered.
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BlueEars
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Re: Bonds in free fall

Post by BlueEars »

willthrill81 wrote: Sat Jan 08, 2022 9:35 pm
theac wrote: Sat Jan 08, 2022 9:27 pm
willthrill81 wrote: Sat Jan 08, 2022 9:01 pm
theac wrote: Sat Jan 08, 2022 6:56 pm
Firefly80 wrote: Sat Jan 08, 2022 5:41 pm
Higher yields will be good for bond holders in the future but it's not good for bondholders now!
And on that note, with an approx 80% holding in Total Bond Market at Vanguard
(fairly hefty dollar amount but separate from I-Bonds and cash held elsewhere),
if I have no need for this money, and it will just be going to my heirs eventually,
can I just let it sit FOR THE LONG TERM, beyond it's "maturity date" and not worry about it since interest rates will rise and eventually "level things out" in time?

It's taken quite a drop just recently, and it has done so in the past too,
but has eventually recovered.

So let's say this does turn out to be the big bear market in bonds,
as has been predicted for many years now, but that just never seemed to materialize...

well, if this IS IT, "and this time is different,"
in the long term, is there really any harm in my just letting it sit where it is?
The threat to bonds is not rising interest rates. As nisiprius has shown, it won't take that long for bondholders to benefit from higher rates.

The real enemy to fixed income has been and continues to be inflation, particularly unexpected inflation, as we saw last year.
OK, so if I'm not interested in buying equities at this time, what option is there?
I already max out on I-Bonds every year, which isn't much, but it adds up.

I've considered a Tips fund in the past but the reviews never sounded very good so dropped that idea.

Maybe I should have mentioned all of my Vanguard account is in a ROTH.
About the only reason that a long-term investor wouldn't like TIPS is if (1) they don't understand how they work or (2) they understand how they work but have a hard emotional time buying an investment that's guaranteed to lose out to inflation but which you still have to pay taxes on. But just because nominal bonds don't come with an express statement that they will lose out to inflation does not mean that they won't; in truth, they are completely exposed to inflation. TBM's real return in 2021 was -8%. That makes the -1% real yield of 10 year TIPS look downright fantastic.
This made me go back to my experience with TIPS. The bond market shows expected inflation over the next 5 years to be about 2.8%. That fluctuates quite a bit as seen here in the break even chart:
https://fred.stlouisfed.org/series/T5YIE

So will inflation exceed 2.8% over the next 5 years? That I think is the question for us as bond investors. Perhaps one can mitigate this a bit by going with short term bonds or even short term investment grade. I really hate the idea of buying 5 year TIPS at -1.3% rates. My last TIPS purchase was at +1.0%.

The situation is even more unclear because right now we have a horrible Covid surge. Will that bring about a recession or will we all happily take to our computers until this peters out? Will another variant come along? Ugh.

I would guess that the bond market knows best and that the inflation of 2021 is transitory in that we get 2.8% annual inflation over the next 5 years.
stocknoob4111
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Re: Bonds in free fall

Post by stocknoob4111 »

What decisions is everyone here making with their bond allocation? Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).

I would like to know under what circumstances could bonds have an inflation adjusted positive return in the next 10 years? I can't see any case this would be true unless the interest rates are increased tremendously on the long end - i.e. Fed completely exiting asset purchases which seems far fetched as that would collapse the economy in a heartbeat. So, assuming that most likely 10 year forward real returns are going to be negative then why hold them?
Elysium
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Re: Bonds in free fall

Post by Elysium »

stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am What decisions is everyone here making with their bond allocation? Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).

I would like to know under what circumstances could bonds have an inflation adjusted positive return in the next 10 years? I can't see any case this would be true unless the interest rates are increased tremendously on the long end - i.e. Fed completely exiting asset purchases which seems far fetched as that would collapse the economy in a heartbeat. So, assuming that most likely 10 year forward real returns are going to be negative then why hold them?
People get confused here. They read financial press headlines. They extrapolate information from it, they speculate, they are afraid, they don't know basics, or forget the basics out of panic, fear, and greed.

No one knows short term what bonds or stocks will do, no one knows what they'll do long term either. Best approach is still to hold diversified portfolio of stocks and bonds. The most important driver of long term returns is your stocks to bonds allocation, nothing else. You can slice & dice a portfolio into a thousand pieces and still your long term returns will be largely driven by your stock/bond allocation.

Stock market wealth creation is not linear, this is what most of these folks getting twisted up on bonds are forgetting. Stock market will enter a correction, this is going to happen, that correction could end up in a large multi year drawdown. No matter what happens to bond rates in short term, when this correction happens you'd always want more bonds in your portfolio, by then it's too late. If you hold high quality government bonds then the non linear nature of stock wealth creation would lead to bonds returning better than stocks, for a while, that's when you re-balance. Until then you keep buying bonds that are selling at discount. That's the key to long term success. Those who ignore these fundamentals will earn less in the long run, while they may be feeling good temporarily for a year or two by staying in the sidelines on bonds.
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Beensabu
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Re: Bonds in free fall

Post by Beensabu »

stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).
Total US Bond has had a positive real return since 2019. So have TIPS. Cash has not.
stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am why hold them?
To mitigate equity risk, for some nominal return, and as deflation protection.

Take a look at the "US 10-Year Treasury Yield vs. US CPI (1948-2021)" chart here: https://compoundadvisors.com/2021/the-g ... ds-is-over

There have been times when the 10-year yield was higher than the year over year CPI and times when it was lower. It has been pretty consistently higher most of the time, other than for some temporary CPI spikes. Spikes in inflation are going to happen sometimes. They might even last a few years.

We've had a whole decade (and more) of negative real bond returns before. You know Benjamin Graham's 75:25 rule? No more than 75% or less than 25% in stocks (i.e. never bear too much or too little risk)? He was recommending that all the way through several decades of negative real bond returns. That should tell you something.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Wannaretireearly
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Re: Bonds in free fall

Post by Wannaretireearly »

I’ve been increasing my CA muni bond (long term) position.
Part of my AA plan, moving the needle towards 75/25 & building up ‘safe’ taxable funds for ER in about 5 years.

Question:
Should I change what I’m investing in for taxable bonds given above assumptions?

1. Move to CA medium or short term munis?
2. Build my cash savings position rather than buy any more munis?
3. Continue to buy CA long term munis (monthly, automated) until I hit my rough goal of 1-2 expenses in taxable?

Thoughts? Thank you
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
hudson
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Re: Bonds in free fall

Post by hudson »

Wannaretireearly wrote: Sun Jan 09, 2022 12:16 pm I’ve been increasing my CA muni bond (long term) position.
Part of my AA plan, moving the needle towards 75/25 & building up ‘safe’ taxable funds for ER in about 5 years.

Question:
Should I change what I’m investing in for taxable bonds given above assumptions?

1. Move to CA medium or short term munis?
2. Build my cash savings position rather than buy any more munis?
3. Continue to buy CA long term munis (monthly, automated) until I hit my rough goal of 1-2 expenses in taxable?

Thoughts? Thank you
According to W. Bernstein, one should: viewtopic.php?p=5160087#p5160087
Wannaretireearly
Posts: 4847
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Re: Bonds in free fall

Post by Wannaretireearly »

hudson wrote: Sun Jan 09, 2022 12:36 pm
Wannaretireearly wrote: Sun Jan 09, 2022 12:16 pm I’ve been increasing my CA muni bond (long term) position.
Part of my AA plan, moving the needle towards 75/25 & building up ‘safe’ taxable funds for ER in about 5 years.

Question:
Should I change what I’m investing in for taxable bonds given above assumptions?

1. Move to CA medium or short term munis?
2. Build my cash savings position rather than buy any more munis?
3. Continue to buy CA long term munis (monthly, automated) until I hit my rough goal of 1-2 expenses in taxable?

Thoughts? Thank you
According to W. Bernstein, one should: viewtopic.php?p=5160087#p5160087
Thanks. So I get this Bill quite below for emergency funds:
‘Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.’

Let’s say I build up 6 months to one year of expenses per above guidance. Where should the rest of the taxable bonds go (in CA) if planning for ER in 5 years?
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
rockstar
Posts: 6308
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Re: Bonds in free fall

Post by rockstar »

BlueEars wrote: Sun Jan 09, 2022 10:47 am
willthrill81 wrote: Sat Jan 08, 2022 9:35 pm
theac wrote: Sat Jan 08, 2022 9:27 pm
willthrill81 wrote: Sat Jan 08, 2022 9:01 pm
theac wrote: Sat Jan 08, 2022 6:56 pm

And on that note, with an approx 80% holding in Total Bond Market at Vanguard
(fairly hefty dollar amount but separate from I-Bonds and cash held elsewhere),
if I have no need for this money, and it will just be going to my heirs eventually,
can I just let it sit FOR THE LONG TERM, beyond it's "maturity date" and not worry about it since interest rates will rise and eventually "level things out" in time?

It's taken quite a drop just recently, and it has done so in the past too,
but has eventually recovered.

So let's say this does turn out to be the big bear market in bonds,
as has been predicted for many years now, but that just never seemed to materialize...

well, if this IS IT, "and this time is different,"
in the long term, is there really any harm in my just letting it sit where it is?
The threat to bonds is not rising interest rates. As nisiprius has shown, it won't take that long for bondholders to benefit from higher rates.

The real enemy to fixed income has been and continues to be inflation, particularly unexpected inflation, as we saw last year.
OK, so if I'm not interested in buying equities at this time, what option is there?
I already max out on I-Bonds every year, which isn't much, but it adds up.

I've considered a Tips fund in the past but the reviews never sounded very good so dropped that idea.

Maybe I should have mentioned all of my Vanguard account is in a ROTH.
About the only reason that a long-term investor wouldn't like TIPS is if (1) they don't understand how they work or (2) they understand how they work but have a hard emotional time buying an investment that's guaranteed to lose out to inflation but which you still have to pay taxes on. But just because nominal bonds don't come with an express statement that they will lose out to inflation does not mean that they won't; in truth, they are completely exposed to inflation. TBM's real return in 2021 was -8%. That makes the -1% real yield of 10 year TIPS look downright fantastic.
This made me go back to my experience with TIPS. The bond market shows expected inflation over the next 5 years to be about 2.8%. That fluctuates quite a bit as seen here in the break even chart:
https://fred.stlouisfed.org/series/T5YIE

So will inflation exceed 2.8% over the next 5 years? That I think is the question for us as bond investors. Perhaps one can mitigate this a bit by going with short term bonds or even short term investment grade. I really hate the idea of buying 5 year TIPS at -1.3% rates. My last TIPS purchase was at +1.0%.

The situation is even more unclear because right now we have a horrible Covid surge. Will that bring about a recession or will we all happily take to our computers until this peters out? Will another variant come along? Ugh.

I would guess that the bond market knows best and that the inflation of 2021 is transitory in that we get 2.8% annual inflation over the next 5 years.
No idea if the market knows best about inflation. But my take away from buying 5 year TIPS in the December auction is that I really want to wait for positive yielding TIPS before buying anymore.

Now, I do know that we'll have another variant. That seems likely. But will it cause a recession? I doubt it. Instead, I think, it will prolong higher inflation as it creates worker shortages that will impact the supply chain. We've already seen this with previous variants, so it seems likely with this one.

The big question here is: what's the best bonds to buy at what duration given what that they cost today?
rockstar
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Re: Bonds in free fall

Post by rockstar »

stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am What decisions is everyone here making with their bond allocation? Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).

I would like to know under what circumstances could bonds have an inflation adjusted positive return in the next 10 years? I can't see any case this would be true unless the interest rates are increased tremendously on the long end - i.e. Fed completely exiting asset purchases which seems far fetched as that would collapse the economy in a heartbeat. So, assuming that most likely 10 year forward real returns are going to be negative then why hold them?
I've been mostly out of bonds since March 2020. I did buy the max I Bonds last year. I start buying them up this year. I'll max out before reprice. I did buy some 5 year TIPS to better understand them. But I'm mostly in equities.

My plan seems to be to follow through on maxing I Bonds for 2022.. And then I plan to start buying TIPS out to 10 years once they have a positive real yield. The cash will come from selling my QQQ position in tax deferred if it crosses the 200 day moving average for more than a couple of days. I'm willing to go up to 30% in bonds.
MattB
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Re: Bonds in free fall

Post by MattB »

I'm confused. You seem to be writing the same thing twice and pretending it's different.
willthrill81 wrote: Sun Jan 09, 2022 9:52 am Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on something like fairly broad expectancies derived from extensive historical analysis that are believed to continue to exist going forward.
That's no different than writing: Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on a prediction of the future.
Marseille07
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Re: Bonds in free fall

Post by Marseille07 »

rockstar wrote: Sun Jan 09, 2022 2:05 pm I've been mostly out of bonds since March 2020. I did buy the max I Bonds last year. I start buying them up this year. I'll max out before reprice. I did buy some 5 year TIPS to better understand them. But I'm mostly in equities.

My plan seems to be to follow through on maxing I Bonds for 2022.. And then I plan to start buying TIPS out to 10 years once they have a positive real yield. The cash will come from selling my QQQ position in tax deferred if it crosses the 200 day moving average for more than a couple of days. I'm willing to go up to 30% in bonds.
I think you tweak your holdings quite a bit. Why not just hold cash / I-bonds and call it a day? That's what I do.
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willthrill81
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Re: Bonds in free fall

Post by willthrill81 »

Beensabu wrote: Sun Jan 09, 2022 12:00 pm
stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).
Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
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willthrill81
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Re: Bonds in free fall

Post by willthrill81 »

MattB wrote: Sun Jan 09, 2022 2:07 pm I'm confused. You seem to be writing the same thing twice and pretending it's different.
willthrill81 wrote: Sun Jan 09, 2022 9:52 am Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on something like fairly broad expectancies derived from extensive historical analysis that are believed to continue to exist going forward.
That's no different than writing: Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on a prediction of the future.
Many misunderstand this crucial but big difference.

If we're playing a game with a die, and I win if 3, 4, 5, or 6 come up, and the gain from winning is equal to the loss from losing, I should play that game all day long because the odds are stacked 2 to 1 in my favor. Note that I do not have to predict what any given roll will be, and I know that I will lose one-third of the time over the long run. But playing is still in my long-term best interests. This is what's known as expectancy investing.

That's very different from saying that the next die roll will be 5, which would be a prediction.

Most BHs practice expectancy investing. They know that losses are always possible, but they expect, in large part on the basis of history, that their long-term outcome will be better by investing than not.
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Re: Bonds in free fall

Post by MattB »

willthrill81 wrote: Sun Jan 09, 2022 2:11 pm
MattB wrote: Sun Jan 09, 2022 2:07 pm I'm confused. You seem to be writing the same thing twice and pretending it's different.
willthrill81 wrote: Sun Jan 09, 2022 9:52 am Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on something like fairly broad expectancies derived from extensive historical analysis that are believed to continue to exist going forward.
That's no different than writing: Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on a prediction of the future.
Many misunderstand this crucial but big difference.

If we're playing a game with a die, and I win if 3, 4, 5, or 6 come up, and the gain from winning is equal to the loss from losing, I should play that game all day long because the odds are stacked 2 to 1 in my favor. Note that I do not have to predict what any given roll will be, and I know that I will lose one-third of the time over the long run. But playing is still in my long-term best interests. This is what's known as expectancy investing.

That's very different from saying that the next die roll will be 5, which would be a prediction.

Most BHs practice expectancy investing. They know that losses are always possible, but they expect, in large part on the basis of history, that their long-term outcome will be better by investing than not.
I'm still confused. You wrote the same thing twice, just using different words.

Market timing is market timing. And it's hard to do because you have to be right twice, about when to get into the market, and about when to get out.

Investing consistently with the expectation that markets move up and to the right over the long term is not market timing.
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Re: Bonds in free fall

Post by willthrill81 »

MattB wrote: Sun Jan 09, 2022 2:22 pm
willthrill81 wrote: Sun Jan 09, 2022 2:11 pm
MattB wrote: Sun Jan 09, 2022 2:07 pm I'm confused. You seem to be writing the same thing twice and pretending it's different.
willthrill81 wrote: Sun Jan 09, 2022 9:52 am Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on something like fairly broad expectancies derived from extensive historical analysis that are believed to continue to exist going forward.
That's no different than writing: Many erroneously believe that all market timing is based on a prediction of the future, but that's false. It can rather be based on a prediction of the future.
Many misunderstand this crucial but big difference.

If we're playing a game with a die, and I win if 3, 4, 5, or 6 come up, and the gain from winning is equal to the loss from losing, I should play that game all day long because the odds are stacked 2 to 1 in my favor. Note that I do not have to predict what any given roll will be, and I know that I will lose one-third of the time over the long run. But playing is still in my long-term best interests. This is what's known as expectancy investing.

That's very different from saying that the next die roll will be 5, which would be a prediction.

Most BHs practice expectancy investing. They know that losses are always possible, but they expect, in large part on the basis of history, that their long-term outcome will be better by investing than not.
I'm still confused. You wrote the same thing twice, just using different words.

Market timing is market timing. And it's hard to do because you have to be right twice, about when to get into the market, and about when to get out.

Investing consistently with the expectation that markets move up and to the right over the long term is not market timing.
I'm not sure how to better explain things. Prediction is NOT the same as expectancy. One can time the market without trying to predict which direction the market is about to take. That's all. It seems impossible to many, but that doesn't make it false. Most people think electricity flows through wires, but that's false too.
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Re: Bonds in free fall

Post by MattB »

willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
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Re: Bonds in free fall

Post by willthrill81 »

MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.

The BH philosophy assumes that risks and rewards are equal over time or at least that they cannot be managed by varying one's AA over time. IMHO, history is quite clear that that is not true. Hence, I invest according to an expectancy driven by significant history that there are times when the risks outweigh the rewards and vice versa. I am not trying to predict the market's future movements, merely assuming that over the long-term, the future will continue to resemble the past in this regard. And so far, it's worked well for me.
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Re: Bonds in free fall

Post by MattB »

willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
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Re: Bonds in free fall

Post by rockstar »

Marseille07 wrote: Sun Jan 09, 2022 2:08 pm
rockstar wrote: Sun Jan 09, 2022 2:05 pm I've been mostly out of bonds since March 2020. I did buy the max I Bonds last year. I start buying them up this year. I'll max out before reprice. I did buy some 5 year TIPS to better understand them. But I'm mostly in equities.

My plan seems to be to follow through on maxing I Bonds for 2022.. And then I plan to start buying TIPS out to 10 years once they have a positive real yield. The cash will come from selling my QQQ position in tax deferred if it crosses the 200 day moving average for more than a couple of days. I'm willing to go up to 30% in bonds.
I think you tweak your holdings quite a bit. Why not just hold cash / I-bonds and call it a day? That's what I do.
There is a limit for how much I Bonds I can buy each year. TIPS are still negative real. BND barely returned a real return before taxes over the last ten years. After taxes, you're negative real. The going forward is tough right now.
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Re: Bonds in free fall

Post by Beensabu »

willthrill81 wrote: Sun Jan 09, 2022 2:08 pm
Beensabu wrote: Sun Jan 09, 2022 12:00 pm
stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).
Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Bonds in free fall

Post by willthrill81 »

MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
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Re: Bonds in free fall

Post by Robot Monster »

BlueEars wrote: Sun Jan 09, 2022 10:47 am The bond market shows expected inflation over the next 5 years to be about 2.8%...I would guess that the bond market knows best and that the inflation of 2021 is transitory in that we get 2.8% annual inflation over the next 5 years.
Jim Bianco says the Fed ruined those break evens as an inflation indicator.

(You'll need to click this Twitter link to see the charts he refers to.) He says:
What about TIPS and narrowing break evens?

As the right chart shows, the Fed took over this market. They now own 25% of this market, up from less than 10% pre-pandemic.

The left chart shows the Fed has bought more TIPS than the Treasury issued the last two years!!

TIPS are no longer a market signal about inflation expectations, the Fed ruined this with its big footprint.

TIPS are flow driven and flows are dominated by expectations of the speed of the Fed printer.
The entire Twitter thread is worth reading. It's about what happened in the bond market this past week. Twitter link
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Re: Bonds in free fall

Post by willthrill81 »

Beensabu wrote: Sun Jan 09, 2022 3:10 pm
willthrill81 wrote: Sun Jan 09, 2022 2:08 pm
Beensabu wrote: Sun Jan 09, 2022 12:00 pm
stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).
Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
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Re: Bonds in free fall

Post by Northern Flicker »

DB2 wrote: Sun Jan 09, 2022 10:17 am
canadianbacon wrote: Sun Jan 09, 2022 10:04 am I spent the same on food in 2021 that I did in 2020 ($100 less actually). It definitely hits different people different ways. I would imagine if we get sustained 6% inflation it will be harder to avoid.
How did you do this when every commodity went up? Or did you just eat less?
People did that by going to the store and buying food that costed about the same in aggregate. It is not true that every commodity went up. In 2021, housing, energy, and meat prices rose more than the average inflation rate-- alot more in the case of housing and energy. If some things rise more than average inflation, other things must rise less than annual inflation.
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Re: Bonds in free fall

Post by Triple digit golfer »

willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
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Re: Bonds in free fall

Post by willthrill81 »

Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm

Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
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Re: Bonds in free fall

Post by Triple digit golfer »

willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm

I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
How is that timing the market?
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Re: Bonds in free fall

Post by willthrill81 »

Triple digit golfer wrote: Sun Jan 09, 2022 3:33 pm
willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm

Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
How is that timing the market?
Please answer my question first. If card counters don't know which card will be dealt next, then how can they win?
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Re: Bonds in free fall

Post by Northern Flicker »

MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
He does. He also understands the difference between stochastic and deterministic predictions. I don't recommend this, but you could for instance increase your stock allocation when you believe the expected return for stocks is higher than some predicted value, and lower your stock allocation when you believe the expected return for stocks is below some value. Both expected return thresholds may be positive numbers, but there is no prediction about the actual outcome.
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Re: Bonds in free fall

Post by willthrill81 »

Northern Flicker wrote: Sun Jan 09, 2022 3:35 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm
MattB wrote: Sun Jan 09, 2022 2:42 pm
willthrill81 wrote: Sun Jan 09, 2022 2:24 pm One can time the market without trying to predict which direction the market is about to take. That's all.
Please explain how you can time the market without trying to predict which direction that market is about to take?
I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
He does. He also understands the difference between stochastic and deterministic predictions. I don't recommend this, but you could for instance increase your stock allocation when you believe the expected return for stocks is higher than some predicted value, and lower your stock allocation when you believe the expected return for stocks is below some value. Both expected return thresholds may be positive numbers, but there is no prediction about the actual outcome.
Very accurately said.
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Re: Bonds in free fall

Post by Triple digit golfer »

willthrill81 wrote: Sun Jan 09, 2022 3:34 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:33 pm
willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm

I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
How is that timing the market?
Please answer my question first. If card counters don't know which card will be dealt next, then how can they win?
I have no idea. I don't gamble and don't know anything about counting cards.

You made the claim that one does not have to know which direction the market will move in order to time the market.

Did you mean they don't have to know which direction the market will move next?

Edit: I see you said which direction the market is "about to take."

Technicality. Yes, one can time the market without making a very short term prediction. I can time the market based on X going up in 1 year, but X can go down tomorrow or next week and I can still be successful.

Is this what you meant?
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Re: Bonds in free fall

Post by BlueEars »

Regarding market timing being a prediction there are all kinds of market timing. What I am most familiar with is using some sort of trend analysis (could be moving averages of all sorts) to choose between assets. Thus it proposes that a momentum that is built into the way people think and react to news events (faster or slower) exists. So it chooses between asset A or asset B based on those averages.

That kind of MT does not predict but it does rely on a degree of momentum persisting. When the trends shift as they always do, that is based on new information entering the market which establishes a new trend. There is no real prediction of future events involved here. It is just formulaic. It is based on something that has a history of working in the past and the hope that it will continue in the future.

Note I am not suggesting one engage in MT, just trying to say why prediction of events is not necessarily involved.
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Re: Bonds in free fall

Post by hudson »

Wannaretireearly wrote: Sun Jan 09, 2022 1:02 pm
hudson wrote: Sun Jan 09, 2022 12:36 pm
Wannaretireearly wrote: Sun Jan 09, 2022 12:16 pm I’ve been increasing my CA muni bond (long term) position.
Part of my AA plan, moving the needle towards 75/25 & building up ‘safe’ taxable funds for ER in about 5 years.

Question:
Should I change what I’m investing in for taxable bonds given above assumptions?

1. Move to CA medium or short term munis?
2. Build my cash savings position rather than buy any more munis?
3. Continue to buy CA long term munis (monthly, automated) until I hit my rough goal of 1-2 expenses in taxable?

Thoughts? Thank you
According to W. Bernstein, one should: viewtopic.php?p=5160087#p5160087
Thanks. So I get this Bill quite below for emergency funds:
‘Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.’

Let’s say I build up 6 months to one year of expenses per above guidance. Where should the rest of the taxable bonds go (in CA) if planning for ER in 5 years?
I think that Bernstein was talking about overall fixed.
If the CA muni fund was available for me over here on the east coast, I would go for it. But it's not.
I can't really speak for CA investors. Sometimes grabiner and others have an opinion.

Vanguard California Long-Term Tax-Exempt Fund Admiral Shares (VCLAX): Note, the average duration is 5.6 years. That's close to fitting your 5 year time line. That could work. It paid out 2.28% annualized on Jan. 3d.


Bottom line: If my fixed income fit Bill Bernstein's minimum standard, I would have no problem buying almost any high quality muni fund. VWIUX paid out around 2% at the beginning of January.
Last edited by hudson on Sun Jan 09, 2022 3:54 pm, edited 2 times in total.
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Re: Bonds in free fall

Post by willthrill81 »

Triple digit golfer wrote: Sun Jan 09, 2022 3:38 pm
willthrill81 wrote: Sun Jan 09, 2022 3:34 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:33 pm
willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm

How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
How is that timing the market?
Please answer my question first. If card counters don't know which card will be dealt next, then how can they win?
I have no idea. I don't gamble and don't know anything about counting cards.

You made the claim that one does not have to know which direction the market will move in order to time the market.

Did you mean they don't have to know which direction the market will move next?

Edit: I see you said which direction the market is "about to take."

Technicality. Yes, one can time the market without making a very short term prediction. I can time the market based on X going up in 1 year, but X can go down tomorrow or next week and I can still be successful.

Is this what you meant?
You're on the right track. IMHO and that of many others, the ratio of risk to reward is not at all independent of other a priori data. For instance, over the last 60 years, stocks have had much higher returns and lower volatility when they were priced above their 200 day moving average than below it; during times of the latter, returns have trailed inflation and been much more volatile. Making the admittedly significant assumption that those odds will persist going forward to the extent that they will continue to be worthwhile, an application of expectancy investing (of which there are many) would be to only own stocks when they are above the 200 DMA. This does not mean that one who did so would actually be predicting anything in a deterministic sense; rather, they expect that over the long-term, their downside risk will be lower by using this strategy than buy-and-hold. Note that this does not mean that this investor would necessarily expect higher returns unless the out-of-stocks investment was expected to earn higher returns than stocks would be expected to. In other words, this would be likely be more about risk mitigation than achieving outsized returns.
Last edited by willthrill81 on Sun Jan 09, 2022 10:03 pm, edited 2 times in total.
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Re: Bonds in free fall

Post by willthrill81 »

BlueEars wrote: Sun Jan 09, 2022 3:43 pm Regarding market timing being a prediction there are all kinds of market timing. What I am most familiar with is using some sort of trend analysis (could be moving averages of all sorts) to choose between assets. Thus it proposes that a momentum that is built into the way people think and react to news events (faster or slower) exists. So it chooses between asset A or asset B based on those averages.

That kind of MT does not predict but it does rely on a degree of momentum persisting. When the trends shift as they always do, that is based on new information entering the market which establishes a new trend. There is no real prediction of future events involved here. It is just formulaic. It is based on something that has a history of working in the past and the hope that it will continue in the future.

Note I am not suggesting one engage in MT, just trying to say why prediction of events is not necessarily involved.
Good post, and investing based on momentum is what I have chosen to do, though I am not here nor do I ever recommend it to anyone else. All investment strategies carry behavioral risk, but I believe that the behavioral risk of any timing strategy is higher for most investors than for buy-and-hold.
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Re: Bonds in free fall

Post by Angst »

willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm
willthrill81 wrote: Sun Jan 09, 2022 2:43 pm

I already did via the die game example.
Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
I think one has to know the total number of cards for that to work, otherwise it's meaningless. And no one knows how many market up and market down cards are out there, we just have recent history to base our odds upon. That's kinda night and day, market games vs card games
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Re: Bonds in free fall

Post by Beensabu »

willthrill81 wrote: Sun Jan 09, 2022 3:22 pm
Beensabu wrote: Sun Jan 09, 2022 3:10 pm
willthrill81 wrote: Sun Jan 09, 2022 2:08 pm
Beensabu wrote: Sun Jan 09, 2022 12:00 pm
stocknoob4111 wrote: Sun Jan 09, 2022 10:50 am Given that Bonds have been a unmitigated disaster for a couple of years (0 real returns since 2019, and a staggering NEGATIVE 8.50% real return for 2021, the worst in Bond Market history (even worse than all of the 70s).
Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
The Fed is clearly saying that one particular rate (FFR) will rise (slightly). It's not the same thing.

Rates can come up on the short end but stay the same or come down on the mid to long end at the same time. Or they can stay low on the short end and go up and down and up and down on the mid to long end. Everything doesn't have to go up all together, just like it doesn't have to go down all together. That's why they have terms like "flattening" and "inversion".

You don't think we can do 2016-2021 over and over and over again? Who's to say agg bond doesn't just give ~1% real CAGR for the next few decades? That's honestly more likely to me than anything else, and probably why I'm not scared of bonds.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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willthrill81
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Re: Bonds in free fall

Post by willthrill81 »

Beensabu wrote: Sun Jan 09, 2022 3:56 pm
willthrill81 wrote: Sun Jan 09, 2022 3:22 pm
Beensabu wrote: Sun Jan 09, 2022 3:10 pm
willthrill81 wrote: Sun Jan 09, 2022 2:08 pm
Beensabu wrote: Sun Jan 09, 2022 12:00 pm

Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
The Fed is clearly saying that one particular rate (FFR) will rise (slightly). It's not the same thing.

Rates can come up on the short end but stay the same or come down on the mid to long end at the same time. Or they can stay low on the short end and go up and down and up and down on the mid to long end. Everything doesn't have to go up all together, just like it doesn't have to go down all together. That's why they have terms like "flattening" and "inversion".

You don't think we can do 2016-2021 over and over and over again? Who's to say agg bond doesn't just give ~1% real CAGR for the next few decades? That's honestly more likely to me than anything else, and probably why I'm not scared of bonds.
I don't know what will happen, and neither does anyone else. But I do know that the preponderance of the evidence is decidedly not in favor of 10 year Treasuries returning +1% over the next decade. 10 year Treasuries are yielding below the Fed's targeted inflation rate and far below the current inflation rate. I also know that the market has priced 10 year TIPS with a -1% real yield.
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Re: Bonds in free fall

Post by willthrill81 »

Angst wrote: Sun Jan 09, 2022 3:54 pm
willthrill81 wrote: Sun Jan 09, 2022 3:31 pm
Triple digit golfer wrote: Sun Jan 09, 2022 3:29 pm
willthrill81 wrote: Sun Jan 09, 2022 3:20 pm
MattB wrote: Sun Jan 09, 2022 2:48 pm

Then you don't know what market timing is.

Thank you for clarifying the issue.
I know precisely what it is.
How can one time the market without predicting which direction the market will go?
By playing the odds. Does a card counter know what card will be dealt next?
I think one has to know the total number of cards for that to work, otherwise it's meaningless. And no one knows how many market up and market down cards are out there, we just have recent history to base our odds upon. That's kinda night and day, market games vs card games
It's not a 'night and day' difference, but it's true that the rules of card games are known in advance, and that's not true of the market. That's why any investment strategy involves risk.
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Re: Bonds in free fall

Post by Beensabu »

willthrill81 wrote: Sun Jan 09, 2022 4:00 pm
Beensabu wrote: Sun Jan 09, 2022 3:56 pm
willthrill81 wrote: Sun Jan 09, 2022 3:22 pm
Beensabu wrote: Sun Jan 09, 2022 3:10 pm
willthrill81 wrote: Sun Jan 09, 2022 2:08 pm

And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
The Fed is clearly saying that one particular rate (FFR) will rise (slightly). It's not the same thing.

Rates can come up on the short end but stay the same or come down on the mid to long end at the same time. Or they can stay low on the short end and go up and down and up and down on the mid to long end. Everything doesn't have to go up all together, just like it doesn't have to go down all together. That's why they have terms like "flattening" and "inversion".

You don't think we can do 2016-2021 over and over and over again? Who's to say agg bond doesn't just give ~1% real CAGR for the next few decades? That's honestly more likely to me than anything else, and probably why I'm not scared of bonds.
I don't know what will happen, and neither does anyone else. But I do know that the preponderance of the evidence is decidedly not in favor of 10 year Treasuries returning +1% over the next decade. 10 year Treasuries are yielding below the Fed's targeted inflation rate and far below the current inflation rate. I also know that the market has priced 10 year TIPS with a -1% real yield.
You do remember that we've just been through a fairly significant stretch of years where we weren't coming in anywhere near the targeted inflation rate? But whatever... As you said, nobody knows what will happen, even if the starting 10-year treasury yield has been a fairly accurate indicator of the 10-year return (+/- 1-2% or so) thus far.

I guess we'll see. :)
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Wannaretireearly
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Re: Bonds in free fall

Post by Wannaretireearly »

hudson wrote: Sun Jan 09, 2022 3:48 pm
Wannaretireearly wrote: Sun Jan 09, 2022 1:02 pm
hudson wrote: Sun Jan 09, 2022 12:36 pm
Wannaretireearly wrote: Sun Jan 09, 2022 12:16 pm I’ve been increasing my CA muni bond (long term) position.
Part of my AA plan, moving the needle towards 75/25 & building up ‘safe’ taxable funds for ER in about 5 years.

Question:
Should I change what I’m investing in for taxable bonds given above assumptions?

1. Move to CA medium or short term munis?
2. Build my cash savings position rather than buy any more munis?
3. Continue to buy CA long term munis (monthly, automated) until I hit my rough goal of 1-2 expenses in taxable?

Thoughts? Thank you
According to W. Bernstein, one should: viewtopic.php?p=5160087#p5160087
Thanks. So I get this Bill quite below for emergency funds:
‘Readers of my recent books will know that I favor short Treasuries and CDs for emergency money, upcoming consumption needs, and dry powder.’

Let’s say I build up 6 months to one year of expenses per above guidance. Where should the rest of the taxable bonds go (in CA) if planning for ER in 5 years?
I think that Bernstein was talking about overall fixed.
If the CA muni fund was available for me over here on the east coast, I would go for it. But it's not.
I can't really speak for CA investors. Sometimes grabiner and others have an opinion.

Vanguard California Long-Term Tax-Exempt Fund Admiral Shares (VCLAX): Note, the average duration is 5.6 years. That's close to fitting your 5 year time line. That could work. It paid out 2.28% annualized on Jan. 3d.


Bottom line: If my fixed income fit Bill Bernstein's minimum standard, I would have no problem buying almost any high quality muni fund. VWIUX paid out around 2% at the beginning of January.
Thank you, Hudson. Appreciate your response. It’s tough to stay the course sometimes! Good to validate once in a while…
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Re: Bonds in free fall

Post by rockstar »

Beensabu wrote: Sun Jan 09, 2022 3:56 pm
willthrill81 wrote: Sun Jan 09, 2022 3:22 pm
Beensabu wrote: Sun Jan 09, 2022 3:10 pm
willthrill81 wrote: Sun Jan 09, 2022 2:08 pm
Beensabu wrote: Sun Jan 09, 2022 12:00 pm

Total US Bond has had a positive real return since 2019.
And the reason is because 2019 had good returns due to falling interest rates. Unless they go negative, interest rates cannot fall further. The short-term tailwind of falling interest rates is gone. Now, bonds are potentially facing the short-term headwind of rising interest rates to tamper inflation.
In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
The Fed is clearly saying that one particular rate (FFR) will rise (slightly). It's not the same thing.

Rates can come up on the short end but stay the same or come down on the mid to long end at the same time. Or they can stay low on the short end and go up and down and up and down on the mid to long end. Everything doesn't have to go up all together, just like it doesn't have to go down all together. That's why they have terms like "flattening" and "inversion".

You don't think we can do 2016-2021 over and over and over again? Who's to say agg bond doesn't just give ~1% real CAGR for the next few decades? That's honestly more likely to me than anything else, and probably why I'm not scared of bonds.
The Fed is tapering their purchases with a follow-up to run down their balance sheet. They've bought along the entire treasury yield curve. What they're saying is that all rates will go up, but that they prefer the short end to go up first because they're not planning to run-off the balance sheet until they raise the Fed Funds rate. The fact that the entire curve is already rising with them still purchasing says a lot. Rates will be much higher by the end of the year. What we don't know is how much higher. I wouldn't buy any fixed asset that one doesn't expect to hold to maturity.
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Re: Bonds in free fall

Post by xraygoggles »

This is a great thread which nicely explains what happened last week:

https://twitter.com/biancoresearch/stat ... 52513?s=20
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Re: Bonds in free fall

Post by Marseille07 »

xraygoggles wrote: Sun Jan 09, 2022 4:49 pm This is a great thread which nicely explains what happened last week:

https://twitter.com/biancoresearch/stat ... 52513?s=20
This is excellent, thanks.

I was always wondering why the bond market questioned inflation & hikes & QT when the data was obviously out there for months by now. They're slow I guess...
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Re: Bonds in free fall

Post by willthrill81 »

Beensabu wrote: Sun Jan 09, 2022 4:25 pm
willthrill81 wrote: Sun Jan 09, 2022 4:00 pm
Beensabu wrote: Sun Jan 09, 2022 3:56 pm
willthrill81 wrote: Sun Jan 09, 2022 3:22 pm
Beensabu wrote: Sun Jan 09, 2022 3:10 pm

In 2019, the 5-year treasury went from 2.49% Jan 2nd to 1.69% Dec 31st.

As of Jan 7, 2022, the 5-year treasury is at 1.50%.

In 2019, the 10-year treasury went from 2.66% Jan 2nd to 1.92% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 1.76%.

In 2019, the 30-year treasury went from 2.97% Jan 2nd to 2.39% Dec 31st.

As of Jan 7, 2022, the 10-year treasury is at 2.11%.

Interest rates can definitely fall further on the intermediate to long end. Total US Bond isn't all short-term bonds.
Interest rates could fall further, but that doesn't mean that they are at all likely to. Rather, the Fed is clearly saying that rates will rise.
The Fed is clearly saying that one particular rate (FFR) will rise (slightly). It's not the same thing.

Rates can come up on the short end but stay the same or come down on the mid to long end at the same time. Or they can stay low on the short end and go up and down and up and down on the mid to long end. Everything doesn't have to go up all together, just like it doesn't have to go down all together. That's why they have terms like "flattening" and "inversion".

You don't think we can do 2016-2021 over and over and over again? Who's to say agg bond doesn't just give ~1% real CAGR for the next few decades? That's honestly more likely to me than anything else, and probably why I'm not scared of bonds.
I don't know what will happen, and neither does anyone else. But I do know that the preponderance of the evidence is decidedly not in favor of 10 year Treasuries returning +1% over the next decade. 10 year Treasuries are yielding below the Fed's targeted inflation rate and far below the current inflation rate. I also know that the market has priced 10 year TIPS with a -1% real yield.
You do remember that we've just been through a fairly significant stretch of years where we weren't coming in anywhere near the targeted inflation rate? But whatever... As you said, nobody knows what will happen, even if the starting 10-year treasury yield has been a fairly accurate indicator of the 10-year return (+/- 1-2% or so) thus far.

I guess we'll see. :)
I agree that it seems that the bond market has not done a good job at estimating inflation of late, though it's difficult to determine if it's because of the market's shortcoming or the Fed's interference by buying trillions of dollars of Treasuries.

But I cannot purge from my mind the fact that bonds returned -1.6% real from 1941-1981 and wonder whether something akin to that might happen again. It certainly doesn't seem impossible.

However, we don't know what will happen, and the best we can do is to prepare as best we can for those scenarios which we personally deem to be both likely enough to warrant consideration and impactful to us as individual investors in our unique situations.
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