Ray Dalio: Is He Saying Bonds Are Done?

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texasfight
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by texasfight »

000 wrote: Sat Aug 01, 2020 7:28 pm
texasfight wrote: Sat Aug 01, 2020 7:25 pm
000 wrote: Sat Aug 01, 2020 4:50 pm
texasfight wrote: Sat Aug 01, 2020 12:49 pm The reason stocks are up is because bonds are up. The reason gold is up is because bonds are up. The reason housing is up is because bonds are up.
So what you're really saying is the USD is down?
Yes. Which is why I hold absolutely zero cash. My portfolio has similarities to the permanent portfolio, but with no cash - rising real rates due to liquidity are not allowed to happen, and the Fed has the tools to prevent that from happening for more than a few days - some may disagree (dollar milkshake theory and all). We saw what happened in March of 2020. Biggest liquidity event in US history since modern monetary policy's inception and the end of bretton woods system. Treasury bonds have never been hit like that before, unreal bid/ask spreads, ETF's trading at 10% discounts to NAV, but the Fed was able to step in and stop the DXY rise. Leveraged risk parity strategies got slaughtered. Unlevered 60/40 VTI/EDV bounced back and is crushing it. MGK/EDV even better. MGK or QQQ is the equity everyone should have been holding going into this.
Sorry, I'm having trouble understanding. I thought March 2020 showed the value of cash when liquidity in everything else dried up. Is your opinion that future liquidity crises will be tolerable without cash due to Fed management?
Sure, if you timed it perfectly, but I can tell you how many people had the guts to buy treasury bonds or stocks when they were both down 12% in one day. If you were to only look at your portfolio once a month, and stick to your withdrawal rate, you would be significantly better of holding zero cash thru this whole ordeal.
000
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by 000 »

texasfight wrote: Sat Aug 01, 2020 7:36 pm
000 wrote: Sat Aug 01, 2020 7:28 pm
texasfight wrote: Sat Aug 01, 2020 7:25 pm
000 wrote: Sat Aug 01, 2020 4:50 pm
texasfight wrote: Sat Aug 01, 2020 12:49 pm The reason stocks are up is because bonds are up. The reason gold is up is because bonds are up. The reason housing is up is because bonds are up.
So what you're really saying is the USD is down?
Yes. Which is why I hold absolutely zero cash. My portfolio has similarities to the permanent portfolio, but with no cash - rising real rates due to liquidity are not allowed to happen, and the Fed has the tools to prevent that from happening for more than a few days - some may disagree (dollar milkshake theory and all). We saw what happened in March of 2020. Biggest liquidity event in US history since modern monetary policy's inception and the end of bretton woods system. Treasury bonds have never been hit like that before, unreal bid/ask spreads, ETF's trading at 10% discounts to NAV, but the Fed was able to step in and stop the DXY rise. Leveraged risk parity strategies got slaughtered. Unlevered 60/40 VTI/EDV bounced back and is crushing it. MGK/EDV even better. MGK or QQQ is the equity everyone should have been holding going into this.
Sorry, I'm having trouble understanding. I thought March 2020 showed the value of cash when liquidity in everything else dried up. Is your opinion that future liquidity crises will be tolerable without cash due to Fed management?
Sure, if you timed it perfectly, but I can tell you how many people had the guts to buy treasury bonds or stocks when they were both down 12% in one day. If you were to only look at your portfolio once a month, and stick to your withdrawal rate, you would be significantly better of holding zero cash thru this whole ordeal.
Ok, thanks for the clarification.
ChiGuy
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by ChiGuy »

Boglegrappler wrote: Sat Aug 01, 2020 10:54 am I watched the whole video. It struck me that Dalio's observations fit pretty well with Buffett's observations from the 2011 letter on pages mid 17 to the end of page 19. I've posted links to that repeatedly because of how valuable I think the thought process is.

So here it is again. Page 17-19.

https://www.berkshirehathaway.com/letters/2011ltr.pdf
Thank you for reposting! I'm sure I'm not the only one that needs to be reminded of Buffet's advice periodically throughout their investing career! It would be nice if the relevant pages could actually be pinned to the top of this Bogleheads forum section.
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Munir
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Munir »

ChiGuy wrote: Sat Aug 01, 2020 8:30 pm
Boglegrappler wrote: Sat Aug 01, 2020 10:54 am I watched the whole video. It struck me that Dalio's observations fit pretty well with Buffett's observations from the 2011 letter on pages mid 17 to the end of page 19. I've posted links to that repeatedly because of how valuable I think the thought process is.

So here it is again. Page 17-19.

https://www.berkshirehathaway.com/letters/2011ltr.pdf
Thank you for reposting! I'm sure I'm not the only one that needs to be reminded of Buffet's advice periodically throughout their investing career! It would be nice if the relevant pages could actually be pinned to the top of this Bogleheads forum section.
Thank you for posting these pages. I agree with your suggestion.
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steve321
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by steve321 »

AerialWombat wrote: Sat Aug 01, 2020 2:48 pm
steve321 wrote: Sat Aug 01, 2020 1:38 pm
AerialWombat wrote: Sat Aug 01, 2020 7:47 am

I hold fixed income securities for capital preservation.
you won't preserve your capital with bonds; after taxes and inflation it's pretty clear that you'll lose some of your capital.
You are speculating. You have absolutely ZERO way of knowing that, unless you have a time machine. In which case, I'd love to know who takes the Gold in men's skeleton in the next winter Olympics.

Edit: In addition, this is why you have an AA that includes some equities. Even a super-conservative portfolio like mine needs to have some equity exposure. This theoretically "gooses" the return to (hopefully) keep pace with inflation. A portfolio must be viewed as a whole. Looking at only the bond portion in isolation is ludicrous.

Also, my portfolio, for MY purposes only, is designed to keep purchasing power pace with inflation -- and nothing more. My total portfolio goal is a real return of ZERO. Your desires may be different. Personal finance is personal.
Cool. Great points. Best of luck to you!
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde
Call_Me_Op
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Call_Me_Op »

Boglegrappler wrote: Sat Aug 01, 2020 10:54 am I watched the whole video. It struck me that Dalio's observations fit pretty well with Buffett's observations from the 2011 letter on pages mid 17 to the end of page 19. I've posted links to that repeatedly because of how valuable I think the thought process is.

So here it is again. Page 17-19.

https://www.berkshirehathaway.com/letters/2011ltr.pdf
Thanks. That was really well-written and interesting.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Call_Me_Op »

JBTX wrote: Sat Aug 01, 2020 12:44 pm And the explanation of bonds is spot on, to expect long term positive returns from conventional bonds in this environment requires unnatural mental contortions.
...or keeping your duration very short and hoping.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Call_Me_Op »

steve321 wrote: Sat Aug 01, 2020 1:38 pm
AerialWombat wrote: Sat Aug 01, 2020 7:47 am

I hold fixed income securities for capital preservation.
you won't preserve your capital with bonds; after taxes and inflation it's pretty clear that you'll lose some of your capital.
Although one can argue that 98 cents on the dollar is better than 11 cents. All depends upon your perspective and time frame.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Elysium
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Elysium »

Last I checked (7/31), my bond funds collectively are up over 14% this year so far. They are the ones making my portfolio with heavy equity exposure into positive this year. Should I abandon bonds for more equities, more than the risk up to eye balls that I have now, no, thank you very much. I will take zero returns if I need to, in exchange for the safety they provide, knowing that if the market starts going south again they are the only ones that will let me sleep well at night. If the market does well, no worries, I have plenty of equity exposure to compensate for whatever returns or lack thereof from bonds. Focus on the portfolio, not the individual components.
Call_Me_Op
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Call_Me_Op »

What I found really interesting in listening to this video was to hear Ray say "I don't think you want bonds." Aren't bonds a core position in Dalio's "All-Weather Portfolio?" So much for the "All-Weather" part.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
columbia
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by columbia »

Call_Me_Op wrote: Sun Aug 02, 2020 7:11 am What I found really interesting in listening to this video was to hear Ray say "I don't think you want bonds." Aren't bonds a core position in Dalio's "All-Weather Portfolio?" So much for the "All-Weather" part.
Interesting. Then what does he think folks should want instead?
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Call_Me_Op »

columbia wrote: Sun Aug 02, 2020 7:13 am
Call_Me_Op wrote: Sun Aug 02, 2020 7:11 am What I found really interesting in listening to this video was to hear Ray say "I don't think you want bonds." Aren't bonds a core position in Dalio's "All-Weather Portfolio?" So much for the "All-Weather" part.
Interesting. Then what does he think folks should want instead?
He mentions stocks and gold.

One of the mistakes I see almost everyone making is viewing assets in isolation. There is little doubt that bonds (and their ilk, CDs etc) will have a negative real yield for the next several years. However, they still serve a useful purpose - as ballast for the portfolio. There is value in that function. Stocks and gold cannot serve that function. When I go to sleep at night, I know that I still have assets I can use for living expenses for the foreseeable future.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
finite_difference
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by finite_difference »

Seems like Ray Dalio expects total return from bonds.

Bogleheads expect safety from bonds. Bogleheads expect total return from stocks.
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JBTX
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by JBTX »

Call_Me_Op wrote: Sun Aug 02, 2020 7:27 am
columbia wrote: Sun Aug 02, 2020 7:13 am
Call_Me_Op wrote: Sun Aug 02, 2020 7:11 am What I found really interesting in listening to this video was to hear Ray say "I don't think you want bonds." Aren't bonds a core position in Dalio's "All-Weather Portfolio?" So much for the "All-Weather" part.
Interesting. Then what does he think folks should want instead?
He mentions stocks and gold.

One of the mistakes I see almost everyone making is viewing assets in isolation. There is little doubt that bonds (and their ilk, CDs etc) will have a negative real yield for the next several years. However, they still serve a useful purpose - as ballast for the portfolio. There is value in that function. Stocks and gold cannot serve that function. When I go to sleep at night, I know that I still have assets I can use for living expenses for the foreseeable future.
If one is a long term investor, I fail to see much utility in zero percent nominal long term bonds. At zero pct their "ballast" is limited, they have practically no upside exposure, and signicant downside exposure in an inflationary scenario. You could argue gold as a "ballast", at least it has upside exposure.

That doesn't mean buy more stocks. It means finding other places to park a portion of your portfolio for safety. Cash. High yield bank accounts. Ibonds, cds, TIPS etc
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Munir
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by Munir »

finite_difference wrote: Sun Aug 02, 2020 12:35 pm Seems like Ray Dalio expects total return from bonds.

Bogleheads expect safety from bonds. Bogleheads expect total return from stocks.
Some of us would like some return from bond funds- if possible. I am thinking of retirees with portfolios in the 70-80% fixed income range in their portfolio.
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HomerJ
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by HomerJ »

JBTX wrote: Sun Aug 02, 2020 2:06 pmThat doesn't mean buy more stocks. It means finding other places to park a portion of your portfolio for safety. Cash. High yield bank accounts. Ibonds, cds, TIPS etc
Every one of those suggestions has the same problem as normal bonds. What high yield bank accounts are you talking about?

Ibonds would be my favorite probably, but we can only buy $20,000 a year.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
JBTX
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by JBTX »

HomerJ wrote: Mon Aug 03, 2020 12:10 pm
JBTX wrote: Sun Aug 02, 2020 2:06 pmThat doesn't mean buy more stocks. It means finding other places to park a portion of your portfolio for safety. Cash. High yield bank accounts. Ibonds, cds, TIPS etc
Every one of those suggestions has the same problem as normal bonds. What high yield bank accounts are you talking about?

Ibonds would be my favorite probably, but we can only buy $20,000 a year.
Bank accounts are short term, so at least you aren't locking in long term. I don't have any cds, but rates are probably higher than 10 year bonds. EEBONDS could be interesting if you can wait 20 years.

$20k ibonds per year doesn't seem like a lot, but do that over many years and it adds up. TIPS also have negative real return, but at least inflation protection.
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steve321
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Re: Ray Dalio: Is He Saying Bonds Are Done?

Post by steve321 »

Call_Me_Op wrote: Sun Aug 02, 2020 6:52 am
steve321 wrote: Sat Aug 01, 2020 1:38 pm
AerialWombat wrote: Sat Aug 01, 2020 7:47 am

I hold fixed income securities for capital preservation.
you won't preserve your capital with bonds; after taxes and inflation it's pretty clear that you'll lose some of your capital.
Although one can argue that 98 cents on the dollar is better than 11 cents. All depends upon your perspective and time frame.
I haven't got a clue what you're talking about. 98 cents on the dollar? :dollar :?: 11 cents :?: You've lost me completely.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde
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