Greenspan says Bond 'bubble' about to burst

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BlackStrat
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Greenspan says Bond 'bubble' about to burst

Post by BlackStrat » Fri Aug 04, 2017 9:53 am

While I wouldn't put him in the same category as the chicken-littles over at Market Watch, I get a little fearful of stories like this as I prepare to pull the trigger and modify my AA by increasing my bond portfolio by 10+%.

https://www.cnbc.com/2017/08/04/greensp ... rates.html

Should I worry or just 'set it and forget it'?

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midareff
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Re: Greenspan says Bond 'bubble' about to burst

Post by midareff » Fri Aug 04, 2017 10:16 am

If you have carefully established your written investment plan and you are following it that would be one consideration. If you are re-balancing in accordance with your AA plan that is one thing, if you are thinking of timing the market by doing this that is another.

There is a fresh set of talking heads babbling daily. If only they had a significant track record of being right!

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siamond
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Re: Greenspan says Bond 'bubble' about to burst

Post by siamond » Fri Aug 04, 2017 10:27 am

Well, nothing new here, bonds certainly do not look great for the coming decade, and I think it's legitimate to be cautious.

Why would you change your asset allocation by a sudden 10% chunk? Is it because you're planning to retire soon? It might be more cautious to proceed small step by small step, and adjust by 1% or 2% per year for a period of time. This should minimally reduce any tracking regret you might have of being unlucky with your timing. And also possibly help with taxes.

CnC
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Re: Greenspan says Bond 'bubble' about to burst

Post by CnC » Fri Aug 04, 2017 10:30 am

I'm sure the bond bubble will burst...

But, what exactly is the point?

Say it is an absolute blood bath and bonds lost an unheard of 10% in 3-5 years you are at break even all but guaranteed. The majority of bond value derives from it's dividend growth not market growth so say you bought your bonds then they dropped in value. You won't actually lose money just lost potential growth assuming you stick it out.

Correct me if I am wrong regardless of what your portfolio's value is, it will still be paying you the same dividends per year. Example say it takes $1mil to provide you $30,000 a year today and tomorrow it only takes $900,000. You will still get the $30,000 per year and with rising rates you will begin earning more in the future. Sure it would have been very nice to have that extra $100,000 free to do something else with it but if you wait it out you are spending $30,000 a year to wait.


Just my view
Last edited by CnC on Fri Aug 04, 2017 10:33 am, edited 1 time in total.

BlackStrat
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Re: Greenspan says Bond 'bubble' about to burst

Post by BlackStrat » Fri Aug 04, 2017 10:31 am

siamond wrote:Why would you change your asset allocation by a sudden 10% chunk? Is it because you're planning to retire soon?
Yes - I pretty much kept a 100% equity AA throughout most of my investing career (before I discovered Bogleheads) and am now at 25% bond. I'm most likely (forcibly) retiring in the next couple of years.

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Tyler Aspect
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Re: Greenspan says Bond 'bubble' about to burst

Post by Tyler Aspect » Fri Aug 04, 2017 10:32 am

Greenspan was not able to forecast the 2008 mortgage crisis. I believe the effect of globalization has put a check on the American labor cost. Witness the fact that the Feds had trouble to get the inflation above 2%.

These articles are always trying to push you to make a change, then the brokerage houses benefit by doing more buying and selling.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

BlackStrat
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Re: Greenspan says Bond 'bubble' about to burst

Post by BlackStrat » Fri Aug 04, 2017 10:32 am

that's reassuring CnC and a great way to look at it.

chrisdds98
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Re: Greenspan says Bond 'bubble' about to burst

Post by chrisdds98 » Fri Aug 04, 2017 10:39 am

http://www.businessinsider.com/alan-gre ... ble-2015-8

he has been worrying about a bond bubble for a few years now...

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siamond
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Re: Greenspan says Bond 'bubble' about to burst

Post by siamond » Fri Aug 04, 2017 10:43 am

BlackStrat wrote:
siamond wrote:Why would you change your asset allocation by a sudden 10% chunk? Is it because you're planning to retire soon?
Yes - I pretty much kept a 100% equity AA throughout most of my investing career (before I discovered Bogleheads) and am now at 25% bond. I'm most likely (forcibly) retiring in the next couple of years.
Well, you know, life doesn't stop because you retire. You hopefully will have multiple decades in front of you once this happens. During which keeping a solid engine of growth (i.e. stocks) in your portfolio is NOT a bad idea, far from it. There is really no reason to change your AA that abruptly. I would reiterate my advice to go little step by little step... There will be enough changes in your life when you pull the plug, no need to add regrets due to unfortunate timing of an AA change.

CantPassAgain
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Re: Greenspan says Bond 'bubble' about to burst

Post by CantPassAgain » Fri Aug 04, 2017 10:47 am

I may be wrong in my thinking about this but I'm not really sure how a bond bubble could "burst." In my mind a see it as an overinflated balloon that will slowly deflate to a more "normal" size over a period of years or maybe decades. How will this affect intermediate bond funds and what will the magnitude of such effect be? Not sure....but I'm not changing my plan.

BlackStrat
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Re: Greenspan says Bond 'bubble' about to burst

Post by BlackStrat » Fri Aug 04, 2017 10:48 am

siamond wrote:
BlackStrat wrote:
siamond wrote:Why would you change your asset allocation by a sudden 10% chunk? Is it because you're planning to retire soon?
Yes - I pretty much kept a 100% equity AA throughout most of my investing career (before I discovered Bogleheads) and am now at 25% bond. I'm most likely (forcibly) retiring in the next couple of years.
Well, you know, life doesn't stop because you retire. You hopefully will have multiple decades in front of you once this happens. During which keeping a solid engine of growth (i.e. stocks) in your portfolio is NOT a bad idea, far from it. There is really no reason to change your AA that abruptly. I would reiterate my advice to go little step by little step... There will be enough changes in your life when you pull the plug, no need to add regrets due to unfortunate timing of an AA change.
true - at 56 I'll be retiring young as things are so I'll need that growth.

North Texas Cajun
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Re: Greenspan says Bond 'bubble' about to burst

Post by North Texas Cajun » Fri Aug 04, 2017 10:50 am

No one should react to an Alan Greenspan prediction. Even market timers.

When Greenspan first warned about irrational exuberance in December 6, 1996, the S&P 500 was at 739. It peaked nearly 4 years later over 1500. Although it subsequently dropped far below this level, it never dropped down to 739.

IMO, Alan Greenspan did more to wreck the U.S. economy than any other Fed chairman. The wild gyrations of interest rates over the last 15 years he was in office helped cause both of the last two recessions - especially the mortgage crisis one.

Yes, when Greenspan had the power to ruin the economy, it was probably wise to listen to his misinformed opinions. But he no longer has that power and should be ignored.
Last edited by North Texas Cajun on Fri Aug 04, 2017 12:33 pm, edited 1 time in total.

rkhusky
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Re: Greenspan says Bond 'bubble' about to burst

Post by rkhusky » Fri Aug 04, 2017 10:52 am

He said that he can't predict when, just that interest rates will go up significantly at some point and it will happen quickly. Good luck with that, market timers.

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