I'm calling a bond bottom.

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fredflinstone
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I'm calling a bond bottom.

Post by fredflinstone » Sun Nov 27, 2016 2:31 pm

I see that iShares Barclays 20+ Yr Treas.Bond ETF [TLT] is down 8.3 percent since November 8. It is down 14 percent since July 29. Yet all the factors that have been driving down prices and buoying bonds during the last few decades are still operative (e.g., globalization, offshoring, outsourcing, diffusion of technology). If and when the real estate bubble in China bursts, that will presumably reinforce global deflationary trends.

There is plenty of slack in labor markets throughout the industrialized world. The official unemployment rate in France is 10 percent; in Spain, 22 percent; in Italy, 12 percent; in Sweden, 8 percent; in Poland, 8 percent; in Greece, 24 percent; in Portugal, 13 percent; in Croatia, 18 percent; in Brazil, 11 percent; in Turkey, 11 percent; in Ukraine, 10 percent; in Slovakia, 10 percent; in Belgium, 8 percent; in Canada, 7 percent. In the U.S., the unemployment rate is 5 percent, but the underemployment rate is 13 percent, with many part-time workers unable to find full-time jobs.All of these numbers could get worse as automation really starts to take off (see, e.g., self-driving vehicles).

It feels to me like the bond market is overreacting to the election. I'm using this bond market massacre as an opportunity to move some assets from stocks to bonds (rebalancing). I'm also moving some assets from short-term bond funds to long-term bond funds.

stlutz
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Re: I'm calling a bond bottom.

Post by stlutz » Sun Nov 27, 2016 2:35 pm

I think the last couple of years the peak in interest rates has been right around January 1st. So perhaps you should wait another month. :moneybag

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Flymore
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Re: I'm calling a bond bottom.

Post by Flymore » Sun Nov 27, 2016 2:45 pm

Some news media and stock analyst are forecasting at least two more interest rate hikes in 2017.

Bonds will continue to go down if this happens.

Some of next years interest rate increase may be priced into the bond sell-off we've seen. For example, VOHIX - has lost all it's gain for 2016, about 5.5% that seems excessive for the small amount the fed's expected to raise. But it is a long term bond fund.

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patrick013
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Re: I'm calling a bond bottom.

Post by patrick013 » Sun Nov 27, 2016 2:58 pm

fredflinstone wrote:It feels to me like the bond market is overreacting to the election. I'm using this bond market massacre as an opportunity to move some assets from stocks to bonds (rebalancing). I'm also moving some assets from short-term bond funds to long-term bond funds.
Using the 10 year TRSY as a benchmark I think the market has moved from the
lowest yield in recorded history to surprisingly a buyer comfy almost 2% spread
over the FFR. Not unexpected. Most people have intermediate term funds which
should stay the course with small FFR increases at best expected. If it was up
to me I'd start making contributions to a ST bond fund in case rate hikes turn
aggressive, at least for better liquidity. But, I have a 4 year CD ladder I don't plan
on changing. Good advise ? :)
age in bonds, buy-and-hold, 10 year business cycle

Explorer
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Re: I'm calling a bond bottom.

Post by Explorer » Sun Nov 27, 2016 3:11 pm

Flymore wrote:Some news media and stock analyst are forecasting at least two more interest rate hikes in 2017.

Bonds will continue to go down if this happens.

Some of next years interest rate increase may be priced into the bond sell-off we've seen. For example, VOHIX - has lost all it's gain for 2016, about 5.5% that seems excessive for the small amount the fed's expected to raise. But it is a long term bond fund.
Interest rate forecasts (including the Fed guidance) have not been correct for a very long time.

I tend to agree with that we are seeing a great opportunity in buying bonds right now..

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MEA
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Re: I'm calling a bond bottom.

Post by MEA » Sun Nov 27, 2016 3:46 pm

I enjoyed this interview with Alan Greenspan. You can actually understand what he is talking about. He gives his thoughts on future inflation at 10:30.

http://www.bloomberg.com/news/videos/20 ... -and-rates
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Ricola
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Re: I'm calling a bond bottom.

Post by Ricola » Sun Nov 27, 2016 3:53 pm

Fred, I think your on to something. We are also due for a cyclical recession anytime now. A rise in interest rates may be the catalyst for the recession. I walked through a Walmart on Black Friday and there were no crowds. Stacks of so called super bargain items remained pretty much untouched. Maybe everyone is buying online.

livesoft
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Re: I'm calling a bond bottom.

Post by livesoft » Sun Nov 27, 2016 3:55 pm

I think a lot of bond fund holders are going to look at the end of the month see what happened to their holdings. Then they are going to panic and sell. Then the Fed is going to raise interest rates. Then the year-end statements come along with more panic and selling in January.

So yes, there will be a bond bottom, but not for a few weeks.
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aqan
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Re: I'm calling a bond bottom.

Post by aqan » Sun Nov 27, 2016 9:15 pm

Explorer wrote:
Flymore wrote:Some news media and stock analyst are forecasting at least two more interest rate hikes in 2017.

Bonds will continue to go down if this happens.

Some of next years interest rate increase may be priced into the bond sell-off we've seen. For example, VOHIX - has lost all it's gain for 2016, about 5.5% that seems excessive for the small amount the fed's expected to raise. But it is a long term bond fund.
Interest rate forecasts (including the Fed guidance) have not been correct for a very long time.

I tend to agree with that we are seeing a great opportunity in buying bonds right now..
if I were Yellen I'd try to get at least one rate increase in before the new government comes in and tries to change the market balance (and probably replace me)

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Re: I'm calling a bond bottom.

Post by Deaconfan » Sun Nov 27, 2016 9:59 pm

Fredflinstone,

I like to buy assets on the cheap as much as the next guy. So I do like your contrarian instincts, and the fact that you have gone on the record with your call for all to see. That takes guts. Good for you.

But your call is likely premature, for many of the reasons Livesoft correctly (at least to my eyes) points out. Sorry, but any post that calls for a bottom in bonds without anticipating TLH and other selling into year end really doesn't have much credibility and seems to have a lot to learn about the inner dynamics of how markets really work and what drives asset prices (namely, buying and selling.)

One thing I learned in 2008-2009: asset prices can go much, much lower than anyone ever imagined. After a multi decade bull market, there's no reason why bonds can't go much lower from here, at least that I can see.

Incidentally, I don't really have a stake in this debate as I moved all my bond holdings into TIAA Traditional earlier this year before the bond correction began. That was mostly luck. As a personal decision, and as an exercise in "knowing thyself," I realized I am okay with stock volatility and declines, but am less okay with seeing losses on fixed income instruments like bonds whose yields aren't all that impressive to begin with. TIAA Traditional goes up everyday like clockwork, and I don't have to worry about whether this is a buying opportunity or the start of a longer bear market in bonds.

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Re: I'm calling a bond bottom.

Post by WolfgangPauli » Sun Nov 27, 2016 11:19 pm

The one key item which is being priced in is the expected high spending Trump is going to initiate. He has committed to an incredibly high defense spend along with a very large public works project to improve infrastructure. Combined with that, he plans on reducing taxes dramatically. Sound familiar? Can you spell Keynsian economics?

The expectation is this huge deficit spending will drive the economy, drive inflation and therefore interest rates.

Remember, the Fed has always been very active because they saw the fiscal side of the equation doing nothing - so the Fed took charge. If Trump does what he says in the economic side (forget all the social stuff)then the Fed will no longer need to be so active - Fiscal will take over and interest rates can be far more market driven.

So, I think we are in for a heck of a ride. No bottom yet.
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sabhen
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Re: I'm calling a bond bottom.

Post by sabhen » Mon Nov 28, 2016 12:35 am

interest rate trends take decades not just months or years to form. there is always intermediate tops and bottoms in this long trend which are hard to predict.

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Re: I'm calling a bond bottom.

Post by in_reality » Mon Nov 28, 2016 12:50 am

WolfgangPauli wrote:The one key item which is being priced in is the expected high spending Trump is going to initiate. He has committed to an incredibly high defense spend along with a very large public works project to improve infrastructure. Combined with that, he plans on reducing taxes dramatically. Sound familiar? Can you spell Keynsian economics?

The expectation is this huge deficit spending will drive the economy, drive inflation and therefore interest rates.
Sure worked great in Japan! Spend on infrastructure!!! Didn't move the needle on inflation and rates much though.
WolfgangPauli wrote:Remember, the Fed has always been very active because they saw the fiscal side of the equation doing nothing - so the Fed took charge. If Trump does what he says in the economic side (forget all the social stuff)then the Fed will no longer need to be so active - Fiscal will take over and interest rates can be far more market driven.

So, I think we are in for a heck of a ride. No bottom yet.
I agree. And even without inflation or changes in rates, the markets could be pricing in more credit risk as ...well no comments on why the market may be doing this but I will just say that inflation alone does not determine rates - credit risk is a component as well.

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Re: I'm calling a bond bottom.

Post by Northern Flicker » Mon Nov 28, 2016 2:10 am

It is not possible to time the bond markets.

malabargold
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Re: I'm calling a bond bottom.

Post by malabargold » Mon Nov 28, 2016 6:32 am

Nope - long, long drawn out grind downward IMO
that will be the mirror image of the last few decades.

Govt debt and central bank engineering to keep rates
low as long as possible is your best hope

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Re: I'm calling a bond bottom.

Post by fundseeker » Mon Nov 28, 2016 7:12 am

fredflinstone wrote:It feels to me like the bond market is overreacting to the election. I'm using this bond market massacre as an opportunity to move some assets from stocks to bonds (rebalancing). I'm also moving some assets from short-term bond funds to long-term bond funds.
Just wondering, since you tossed out this prediction, how much of your portfolio are you betting? Are you really committed to this idea, or just a little committed?

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Re: I'm calling a bond bottom.

Post by fredflinstone » Mon Nov 28, 2016 8:48 am

fundseeker wrote:
fredflinstone wrote:It feels to me like the bond market is overreacting to the election. I'm using this bond market massacre as an opportunity to move some assets from stocks to bonds (rebalancing). I'm also moving some assets from short-term bond funds to long-term bond funds.
Just wondering, since you tossed out this prediction, how much of your portfolio are you betting? Are you really committed to this idea, or just a little committed?
I'm making only modest changes. I am well aware that I could be wrong. But I think I am right.

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Re: I'm calling a bond bottom.

Post by White Coat Investor » Mon Nov 28, 2016 9:49 am

I positioned my bond portfolio to do pretty well in a period of rising interest rates with half of it in the TSP G Fund...10 years ago. Needless to say, it's about time I was right.

Seriously though, I'd just write down your predictions. Keep doing that for a couple of years. Go back and look at the old ones occasionally. You'll quickly convince yourself of just how cloudy your crystal ball is.
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Re: I'm calling a bond bottom.

Post by livesoft » Mon Nov 28, 2016 9:55 am

White Coat Investor wrote:Seriously though, I'd just write down your predictions. Keep doing that for a couple of years. Go back and look at the old ones occasionally. You'll quickly convince yourself of just how cloudy your crystal ball is.
More seriously, don't just write down predictions, publish them on the internet at a location that you cannot later edit for everyone to see and check on.

Here is an example: viewtopic.php?f=10&t=173980
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Re: I'm calling a bond bottom.

Post by David Jay » Mon Nov 28, 2016 9:59 am

Calling a bottom often exposes said-same.
:wink:
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Re: I'm calling a bond bottom.

Post by livesoft » Mon Nov 28, 2016 10:14 am

livesoft wrote:
White Coat Investor wrote:Seriously though, I'd just write down your predictions. Keep doing that for a couple of years. Go back and look at the old ones occasionally. You'll quickly convince yourself of just how cloudy your crystal ball is.
More seriously, don't just write down predictions, publish them on the internet at a location that you cannot later edit for everyone to see and check on.

Here is an example: viewtopic.php?f=10&t=173980
Oh, I guess I should have linked my own Current Rebalancing Opportunities thread. It has a pretty decent track record over the past 3.5 years.
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Re: I'm calling a bond bottom.

Post by magneto » Mon Nov 28, 2016 11:48 am

Deaconfan wrote: As a personal decision, and as an exercise in "knowing thyself," I realized I am okay with stock volatility and declines, but am less okay with seeing losses on fixed income instruments like bonds whose yields aren't all that impressive to begin with.
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Re: I'm calling a bond bottom.

Post by patrick013 » Mon Nov 28, 2016 1:24 pm

livesoft wrote:Oh, I guess I should have linked my own Current Rebalancing Opportunities thread. It has a pretty decent track record over the past 3.5 years.
The up-down theory states when prices are so high they have only one place
to go.

In hindsight relating to bonds would be to tax gain harvest when the yield
was historically low, stay in MMF till January. Next time. :)
age in bonds, buy-and-hold, 10 year business cycle

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Re: I'm calling a bond bottom.

Post by garlandwhizzer » Mon Nov 28, 2016 1:56 pm

In my experience calling a top or a bottom to any market at any time is exceptionally difficult. It becomes slightly less hazardous when a given market is at an all time high or an all time low, hopefully with valuation metrics several standard deviations away from the mean, like bonds in 1982 and stocks in 1999. It's still a tough call in these circumstances as Alan Greenspan learned when he pronounced that markets were "irrationally exuberant" several years and more than thousand NASDAQ points before the crash came. Given that bonds are currently much closer to all time low yields than to all time high yields, it seems risky now to make an asset allocation change based a on a feeling of what the future of the bond market holds in the near or intermediate term. This seems to me a situation for aggressive traders only rather than long term investors. I went through the active stock picking and the aggressive trading stage many years ago and abandoned it, wounded but wiser, and now I am a long term holder of broadly based low cost index funds. I gave up on seeking the needle in the haystack as have many former active stock pickers/traders including Rick Ferri.

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Re: I'm calling a bond bottom.

Post by gkaplan » Mon Nov 28, 2016 10:09 pm

grap0013 called an emerging markets bottom January 15th, quite a prescient call I think.


viewtopic.php?f=10&t=182107&p=2759849&h ... m#p2759849
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Re: I'm calling a bond bottom.

Post by saltycaper » Thu Dec 01, 2016 11:13 am

New 52-week low today for TLT and EDV. Don't worry (at least, not about announcing your call), as I'm sure posters will give you some leeway.
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Re: I'm calling a bond bottom.

Post by dharrythomas » Fri Dec 02, 2016 1:32 pm

My crystal ball is cloudy. When we bought our second house in 1999, we borrowed at 7% and I never thought rates would get lower. I don't see far enough into the future to predict interest rates between market forces, government interference, and geopolitical shocks. My forecasting is cloudy in other areas also, I didn't realize that Trump was winning the election until the numbers in NC stared to move after 9PM on election night. Earlier than some people, but not enough to be actionable. Stay the Course.

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Re: I'm calling a bond bottom.

Post by RAchip » Fri Dec 02, 2016 2:45 pm

"So yes, there will be a bond bottom, but not for a few weeks."

What if there are several years of at least gradual interest rate increases? Bonds could be crushed for a very long period of time.

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Re: I'm calling a bond bottom.

Post by midareff » Fri Dec 02, 2016 2:50 pm

Fred... don't let rational thinking interfere with the markets ability to do whatever it wants. It can stay irrational longer than you can remain solvent.

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Re: I'm calling a bond bottom.

Post by livesoft » Fri Dec 02, 2016 3:21 pm

RAchip wrote:"So yes, there will be a bond bottom, but not for a few weeks."

What if there are several years of at least gradual interest rate increases? Bonds could be crushed for a very long period of time.
So? The quoted statement is NOT "There will be a bond bottom in a few weeks", so it covers your possibility just as well. :)
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Re: I'm calling a bond bottom.

Post by nedsaid » Fri Dec 02, 2016 9:13 pm

White Coat Investor wrote:I positioned my bond portfolio to do pretty well in a period of rising interest rates with half of it in the TSP G Fund...10 years ago. Needless to say, it's about time I was right.

Seriously though, I'd just write down your predictions. Keep doing that for a couple of years. Go back and look at the old ones occasionally. You'll quickly convince yourself of just how cloudy your crystal ball is.
I have been expecting interest rates to be going up over the last few years but the bond market keeps defying my expectations. Rates blipped up due to the "Taper tantrum" in 2013 and went back down. Rates blipped up recently because of a certain event that happened in November but they may go back down again. My guess is that better prospects for economic growth in 2017 will cause rates to gradually go up. But I don't really know. My crystal ball is cloudy like everyone else's.
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Re: I'm calling a bond bottom.

Post by stlutz » Sun Dec 04, 2016 10:57 pm

With the Italy news today, this is looking like a pretty good prediction.

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Re: I'm calling a bond bottom.

Post by fredflinstone » Thu Sep 05, 2019 1:14 pm

That was not a bad call.

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Re: I'm calling a bond bottom.

Post by greg24 » Thu Sep 05, 2019 1:22 pm

TLT went below that price level several times since you called a bottom.

I would call that a bad call.

And now you want to exercise more bond market timing?

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Re: I'm calling a bond bottom.

Post by Random Musings » Thu Sep 05, 2019 1:31 pm

fredflinstone wrote:
Thu Sep 05, 2019 1:14 pm
That was not a bad call.
For general big trending yes, but only paper profits until you make the call to sell and switch to cash/lower duration bonds.

Then, you can claim to be a big bad bond guru and get on the tele....

RM
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Re: I'm calling a bond bottom.

Post by DanMahowny » Thu Sep 05, 2019 1:38 pm

Great call Fred!

You pretty much nailed it, yet the "market timing is impossible" types are saying you were wrong.
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Re: I'm calling a bond bottom.

Post by aristotelian » Thu Sep 05, 2019 3:00 pm

fredflinstone wrote:
Thu Sep 05, 2019 1:14 pm
That was not a bad call.
RAchip wrote:
Fri Dec 02, 2016 2:45 pm
"So yes, there will be a bond bottom, but not for a few weeks."

What if there are several years of at least gradual interest rate increases? Bonds could be crushed for a very long period of time.
It wasn't a good call either. I think RAchip nailed it.

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Re: I'm calling a bond bottom.

Post by Day9 » Thu Sep 05, 2019 3:06 pm

Yabba Dabba Don't try to time the bond market
I'm just a fan of the person I got my user name from

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Re: I'm calling a bond bottom.

Post by fredflinstone » Fri Sep 06, 2019 4:51 pm

Random Musings wrote:
Thu Sep 05, 2019 1:31 pm
fredflinstone wrote:
Thu Sep 05, 2019 1:14 pm
That was not a bad call.
For general big trending yes, but only paper profits until you make the call to sell and switch to cash/lower duration bonds.

Then, you can claim to be a big bad bond guru and get on the tele....

RM
This week I have been switching some of my bond holdings to short-term bonds. At the moment, I prefer a 1-year bond to a 20-year bond. They currently pay the same yield and the short-term bond is less risky.

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Re: I'm calling a bond bottom.

Post by bluquark » Fri Sep 06, 2019 6:05 pm

fredflinstone wrote:
Fri Sep 06, 2019 4:51 pm
They currently pay the same yield and the short-term bond is less risky.
Short-term bonds have reinvestment risk. Loading up on reinvestment risk isn't particularly safe if this is a retirement portfolio exposed to a long reinvestment timeframe. Especially now that the "zero lower bound" myth has been exploded by trends in Europe.

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Re: I'm calling a bond bottom.

Post by vineviz » Fri Sep 06, 2019 6:27 pm

fredflinstone wrote:
Fri Sep 06, 2019 4:51 pm
They currently pay the same yield and the short-term bond is less risky.
It’s actually not less risky.

In fact, unless your spending the money in 1 year it’s MORE risky.
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Re: I'm calling a bond bottom.

Post by indexfundfan » Fri Sep 06, 2019 7:03 pm

Not everyone thinks that the bond allocation should be intermediate term or the total (or even long term) bond funds.

Dr Bernstein notably has recommended using short term bonds in a portfolio.
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Re: I'm calling a bond bottom.

Post by JimmyJammy » Fri Sep 06, 2019 9:37 pm

Bonds sure look toppy here.

A week ago I sold off my EDV fund (long term treasury). What a run!

But I'm holding onto my core BND fund and Muni Bond funds. Not worth timing the market that much, in terms of worry/energy.

That said, I'm 15% cash in a muni money market. A good chunk of cash with a token yield seems like a safe bet right now. Being fully invested will not allow me to sleep at night in this current slowing global growth environment.

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Re: I'm calling a bond bottom.

Post by bluquark » Fri Sep 06, 2019 10:00 pm

indexfundfan wrote:
Fri Sep 06, 2019 7:03 pm
Not everyone thinks that the bond allocation should be intermediate term or the total (or even long term) bond funds.

Dr Bernstein notably has recommended using short term bonds in a portfolio.
Bernstein's rationale is that unexpected inflation is one of those "deep" risks that can eat alive your entire portfolio, so it's worth paying quite some costs or incurring "shallower" risks to avoid it. This makes sense, but I find it more convincing as an argument to buy long-term TIPS than to go short.

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Re: I'm calling a bond bottom.

Post by abuss368 » Fri Sep 06, 2019 11:07 pm

Market timing does not work. Stay the course with a low cost and diversified portfolio.
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Re: I'm calling a bond bottom.

Post by abuss368 » Fri Sep 06, 2019 11:08 pm

Interest rates are harder to predict than the stock market.
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Re: I'm calling a bond bottom.

Post by Ki_poorrichard » Fri Sep 06, 2019 11:51 pm

bluquark wrote:
Fri Sep 06, 2019 10:00 pm
indexfundfan wrote:
Fri Sep 06, 2019 7:03 pm
Not everyone thinks that the bond allocation should be intermediate term or the total (or even long term) bond funds.

Dr Bernstein notably has recommended using short term bonds in a portfolio.
Bernstein's rationale is that unexpected inflation is one of those "deep" risks that can eat alive your entire portfolio, so it's worth paying quite some costs or incurring "shallower" risks to avoid it. This makes sense, but I find it more convincing as an argument to buy long-term TIPS than to go short.
+1

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Re: I'm calling a bond bottom.

Post by Alchemist » Sat Sep 07, 2019 2:02 am

Credit where credit is due, Fred called this about as accurately as anyone possibly could. :sharebeer

This was quite a contrarian call at the time. Most people and almost all "experts" were talking about how high rates were going to go with most predictions including 4-5% yields on the ten year treasury.

Now if someone can call a top, that would be equally impressive. So Fred, are we at the top yet?


Side topic: For those debating short vs intermediate vs long it really all depends on what role bonds are playing for you in your personal portfolio. Safety, alternate income source, some kind of volatility counter, even gross return, ect. There are many types of bonds because they can serve many purposes. There is no 'right' bond choice for everyone.

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Re: I'm calling a bond bottom.

Post by Random Musings » Mon Sep 09, 2019 8:41 pm

fredflinstone wrote:
Fri Sep 06, 2019 4:51 pm
Random Musings wrote:
Thu Sep 05, 2019 1:31 pm
fredflinstone wrote:
Thu Sep 05, 2019 1:14 pm
That was not a bad call.
For general big trending yes, but only paper profits until you make the call to sell and switch to cash/lower duration bonds.

Then, you can claim to be a big bad bond guru and get on the tele....

RM
This week I have been switching some of my bond holdings to short-term bonds. At the moment, I prefer a 1-year bond to a 20-year bond. They currently pay the same yield and the short-term bond is less risky.
I also can not find too compelling a reason to reach out on duration at this moment. Perhaps US rates will go negative and join other countries, but if that occurs, I would think that means there are economic problems afoot.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

bluquark
Posts: 680
Joined: Mon Oct 22, 2018 2:30 pm

Re: I'm calling a bond bottom.

Post by bluquark » Mon Sep 09, 2019 9:32 pm

Random Musings wrote:
Mon Sep 09, 2019 8:41 pm
I also can not find too compelling a reason to reach out on duration at this moment. Perhaps US rates will go negative and join other countries, but if that occurs, I would think that means there are economic problems afoot.
Uhh... that's the point of bonds, to do better than your stocks when there are economic problems afoot.

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