Dalio says bonds have entered a bear market

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garlandwhizzer
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Dalio says bonds have entered a bear market

Post by garlandwhizzer » Wed Jan 24, 2018 11:06 am

No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase

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Re: Dalio says bonds have entered a bear market

Post by MidwestMike » Wed Jan 24, 2018 11:12 am

garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
Linky no worky. Fixed here.

Edit: original link now works.
Last edited by MidwestMike on Wed Jan 24, 2018 6:41 pm, edited 1 time in total.

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Re: Dalio says bonds have entered a bear market

Post by AnalogKid22 » Wed Jan 24, 2018 11:24 am

I agree. It seems 2018, at least, is similar to the Bitcoin runup with a lot of FOMO people gradually jumping in as the market surges upward. Dalio "predicts" 12-18 months of this activity, at which point you'll gradually see a slowdown as banks, as Dalio puts it, "apply the breaks" by raising rates.

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Re: Dalio says bonds have entered a bear market

Post by aristotelian » Wed Jan 24, 2018 11:39 am

Interest rates might be going up? Shocking!!!!

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Re: Dalio says bonds have entered a bear market

Post by azanon » Wed Jan 24, 2018 11:41 am

I'm glad we have the experts to tell us which direction interest rates will go in the future. Mere mortals only know which way they've previously gone.

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Re: Dalio says bonds have entered a bear market

Post by munemaker » Wed Jan 24, 2018 11:49 am

We all know a bear market in stocks is a 20% decline.

I have never heard of this. So what constitutes a bear market in bonds? VBTLX is down less than one percent this quarter, hardly a bear market by whatever definition you would use.

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Re: Dalio says bonds have entered a bear market

Post by Hawaiishrimp » Wed Jan 24, 2018 11:51 am

I agree to this at least: "No one knows the future of markets and all predictions are best taken as a grain of salt."
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Dalio says bonds have entered a bear market

Post by blackcat allie » Thu Jan 25, 2018 1:02 am

Is this a bad time to lump sum enter into a Total Bond Index (VBTLX) ?
Or even to DCA slowly, via Investor Shares?
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Re: Dalio says bonds have entered a bear market

Post by Daryl » Thu Jan 25, 2018 6:40 am

Buying bonds today is less scary if we assume that the present value of the Total Bond Market reflects the consensus view (estimate/projection) of inflation and interest rate changes over the intermediate term for high quality fixed income investments. I'm OK with that assumption, and will keep buying in order to maintain my asset allocation.

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Re: Dalio says bonds have entered a bear market

Post by Toons » Thu Jan 25, 2018 6:47 am

Bear Market Bonds.
Great.
Rates Going Up
Stick To Your Asset Allocation.









:thumbsup
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Re: Dalio says bonds have entered a bear market

Post by thx1138 » Thu Jan 25, 2018 7:15 am

I'm confused - as usual - with the "expert" narratives here:

Interest rates will rise faster than the yield curve currently reflects so be prepared to get hammered if you stick with bonds!

Interest rates will rise faster than the yield curve currently reflects making stocks seem vastly overvalued with the new discount rate resulting in a flight from stocks to bonds!

Wait... but if people sell stocks to buy bonds then wouldn't bond prices/yields...

Of course the fundamental story here - which is the same for every talking head forecast comes down to:

Listen to me, I have a story that sounds smart but fundamentally says the market consensus is wrong.

In this case it isn't just rates go up - it is rates are going to go up faster than the market expects. The talking head bases this on his belief that he knows better than the Fed what the Fed is going to end up doing in the future.

And don't forget the real point to all this. The actual motivation here is to say something that sounds both scary and smart because what he is really doing is advertising his funds indirectly. He's not on TV giving advice out of a sense of good citizenship, he's talking up his brand so folks will think "what a clever guy, I want my money under his fund's management".

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Re: Dalio says bonds have entered a bear market

Post by Grt2bOutdoors » Thu Jan 25, 2018 7:25 am

Thought the oracle of bonds was Gross or Gundlach?? Has baton been passed to Dalio as in a game of hot potato??
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Re: Dalio says bonds have entered a bear market

Post by Always passive » Thu Jan 25, 2018 7:55 am

The issue with bonds may not be consequential to those in the accumulation phase that have a long way to go, but it is certainly a concern to those that are in retirement. No one is disputing that bonds are entering a bear market, interest rates can only go up.
This means that an investor that depends on bonds to fund his/her retirement has to either rely on short term bonds offering a pitiful income, or invest in the total bond market for 6 + years (6 year duration) to assure positive returns.
Are you not aggreing with me? What are the options given that the stock market is not a bargain either?

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Re: Dalio says bonds have entered a bear market

Post by RNJ » Thu Jan 25, 2018 8:12 am

Grt2bOutdoors wrote:
Thu Jan 25, 2018 7:25 am
Thought the oracle of bonds was Gross or Gundlach?? Has baton been passed to Dalio as in a game of hot potato??
IIRC, Gross has said several times that >2.6% yield on the 10y would be the tipping point for a bear market in bonds.

2.633% as I write.

(By the way, I'm not saying any of this is actionable).

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Re: Dalio says bonds have entered a bear market

Post by Grt2bOutdoors » Thu Jan 25, 2018 8:12 am

Always passive wrote:
Thu Jan 25, 2018 7:55 am
The issue with bonds may not be consequential to those in the accumulation phase that have a long way to go, but it is certainly a concern to those that are in retirement. No one is disputing that bonds are entering a bear market, interest rates can only go up.
This means that an investor that depends on bonds to fund his/her retirement has to either rely on short term bonds offering a pitiful income, or invest in the total bond market for 6 + years (6 year duration) to assure positive returns.
Are you not aggreing with me? What are the options given that the stock market is not a bargain either?
A fixed income ladder, held to maturity bears no such risk. A retiree is not forced to use mutual funds, they can and do use fixed term, laddered certificates of deposit and/or bonds. Bonds on the open market are subject to daily revaluations, bonds that are redeemed on the maturity date receive full faith and principal back usually. I caveat that with usually, because some think they can have their cake and eat it using junk bonds for high coupon and thinking junk is the same as a AAA/AA/A rated corporate or sovereign bonds issued by a G-7 issuer or US Government bonds. Purchasing emerging market sovereigns is in the same category with junk. Look to Argentina/Brazil/Venezuela when you give them your money, I say give because that is what you are doing when you hand it over to them.
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Re: Dalio says bonds have entered a bear market

Post by harvestbook » Thu Jan 25, 2018 8:14 am

Grt2bOutdoors wrote:
Thu Jan 25, 2018 7:25 am
Thought the oracle of bonds was Gross or Gundlach?? Has baton been passed to Dalio as in a game of hot potato??
Gross is Monday, Dalio is Tuesday, Gundlach is Wednesday, Dimon is Thursday, Rickert/Faber/Gartman or Wacko Bear of the Week is Friday. Alternate stances every other week, rinse and repeat, count the clicks and eyeballs ---->ad revenue.
I'm not smart enough to know, and I can't afford to guess.

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Re: Dalio says bonds have entered a bear market

Post by Grt2bOutdoors » Thu Jan 25, 2018 8:17 am

Black Cat wrote:
Thu Jan 25, 2018 1:02 am
Is this a bad time to lump sum enter into a Total Bond Index (VBTLX) ?
Or even to DCA slowly, via Investor Shares?
If your time frame is 6-10 years and you reinvest the distributions, you should come out just fine. If your time horizon is 3 years, use a short term bond fund.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Dalio says bonds have entered a bear market

Post by billyt » Thu Jan 25, 2018 8:23 am

You should be aware that the term "bond bear market" refers to bond traders, who can lose big money if their leveraged interest rate bets go bad. For the big bond traders it is easier to make money in a falling interest rate environment, as bonds prices rise. For Bogelheads, who buy and hold bond funds as part of a long-term strategy, returns depend primarily on interest rates and improve over the long term if rates rise and diminish if interest rates fall. Therefore a "bond bear market" for traders is a bond bull market for Bogleheads.

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Re: Dalio says bonds have entered a bear market

Post by Da5id » Thu Jan 25, 2018 8:25 am

Always passive wrote:
Thu Jan 25, 2018 7:55 am
The issue with bonds may not be consequential to those in the accumulation phase that have a long way to go, but it is certainly a concern to those that are in retirement. No one is disputing that bonds are entering a bear market, interest rates can only go up.
This means that an investor that depends on bonds to fund his/her retirement has to either rely on short term bonds offering a pitiful income, or invest in the total bond market for 6 + years (6 year duration) to assure positive returns.
If interest rates can only go up, there surely must be ways to leverage this absolute certainty that isn't reflected in current bond pricing! There are ways to effectively "short" bonds, go to it! (just kidding).

I don't see any big problems here. If interest rates rise (as seems likely, but not, as you say, certain), bond prices will indeed fall. Yields will rise. Life will go on. Intermediate term bond funds will do just fine. Those who need to sell their bond funds during a period of rising rates will see moderate capital losses. If we get runaway inflation and bonds defaulting everywhere, wake me up. That would be more interesting.

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Re: Dalio says bonds have entered a bear market

Post by Lauretta » Thu Jan 25, 2018 8:41 am

Grt2bOutdoors wrote:
Thu Jan 25, 2018 8:12 am

A fixed income ladder, held to maturity bears no such risk. A retiree is not forced to use mutual funds, they can and do use fixed term, laddered certificates of deposit and/or bonds. Bonds on the open market are subject to daily revaluations, bonds that are redeemed on the maturity date receive full faith and principal back usually. I caveat that with usually, because some think they can have their cake and eat it using junk bonds for high coupon and thinking junk is the same as a AAA/AA/A rated corporate or sovereign bonds issued by a G-7 issuer or US Government bonds. Purchasing emerging market sovereigns is in the same category with junk. Look to Argentina/Brazil/Venezuela when you give them your money, I say give because that is what you are doing when you hand it over to them.
I am not sure that all G-7 issuers are complety safe to lend to either: I am thinking in particular of my own country (Italy)
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Re: Dalio says bonds have entered a bear market

Post by nexesn » Thu Jan 25, 2018 9:04 am

Sorry, this is a really ignorant question, but I'm also a total newbie when it comes to bonds (I tried googling info on this and didn't find much).

Here's my questions: When they talk about Bonds, do they also mean Muni Bonds? My wife and I are both still working, and are in a high tax bracket. So, we placed several hundred thousand in VWIUX. I understand Bogleheads advice of hold for the long run. But, I was just curious if anyone could summarize, briefly, when people mention Bonds, do they also mean Muni Bonds?

Just as an added comment, we were thinking of VWIUX as taking the place of a savings account, as the interest earned on savings is taxed so high.

Sorry for the dumb question, but ever since stumbling on this site a month ago, it's change my whole view toward investing! (In a really good way! :happy )

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Re: Dalio says bonds have entered a bear market

Post by Lauretta » Thu Jan 25, 2018 9:29 am

Thank you for posting this link, quite interesting. :happy Actually I only just started listening to Dalio's audiobook Principles (it's the audiobook I chose for my free one month trial of Amazon audiobooks :wink: ) and I quite like him - he says he has achieved in his life what he wanted to achieve so he's now interested in aiding other people to achieve their goals; I might be naive but I think he's truthful so I don't think he's voicing these opinions just for self-publicity or to promote Bridgewater (as has been stated somewhere in this thread).
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Re: Dalio says bonds have entered a bear market

Post by TSquare » Thu Jan 25, 2018 9:50 am

Black Cat wrote:
Thu Jan 25, 2018 1:02 am
Is this a bad time to lump sum enter into a Total Bond Index (VBTLX) ?
Or even to DCA slowly, via Investor Shares?
I just bought a helping of total bond on Tuesday. I'll let you know how it works out in 30 years.

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Re: Dalio says bonds have entered a bear market

Post by Greg in Idaho » Thu Jan 25, 2018 10:07 am

billyt wrote:
Thu Jan 25, 2018 8:23 am
a "bond bear market" for traders is a bond bull market for Bogleheads.
say that 5 times, fast...dare ya

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Re: Dalio says bonds have entered a bear market

Post by czeckers » Thu Jan 25, 2018 11:19 am

Always passive wrote:
Thu Jan 25, 2018 7:55 am
The issue with bonds may not be consequential to those in the accumulation phase that have a long way to go, but it is certainly a concern to those that are in retirement. No one is disputing that bonds are entering a bear market, interest rates can only go up.
This means that an investor that depends on bonds to fund his/her retirement has to either rely on short term bonds offering a pitiful income, or invest in the total bond market for 6 + years (6 year duration) to assure positive returns.
Are you not aggreing with me? What are the options given that the stock market is not a bargain either?
Interest rates can also stay the same or go back down. Right now, if you have a balanced portfolio, the small bond losses are mitigated by the surging stock market. When the stock market reverses direction, then the demand for high quality bonds will go up -- diversification at work.
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Re: Dalio says bonds have entered a bear market

Post by Leesbro63 » Thu Jan 25, 2018 11:30 am

A fixed income ladder, held to maturity bears no such risk.
This isn’t correct, especially for the long term investor who would keep rolling the ladder.

The difference is that the ladder holder just doesn’t see the lost purchasing power of the portfolio vs new, higher coupon bonds (in a rising rate environment).

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Re: Dalio says bonds have entered a bear market

Post by BlueEars » Thu Jan 25, 2018 11:38 am

To me the issue is at what slope rates rise. Dalio thinks it will be faster then consensus.

Short term investment grade or intermediate bonds? I have both.

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Re: Dalio says bonds have entered a bear market

Post by unclescrooge » Thu Jan 25, 2018 11:46 am

nexesn wrote:
Thu Jan 25, 2018 9:04 am
Sorry, this is a really ignorant question, but I'm also a total newbie when it comes to bonds (I tried googling info on this and didn't find much).

Here's my questions: When they talk about Bonds, do they also mean Muni Bonds? My wife and I are both still working, and are in a high tax bracket. So, we placed several hundred thousand in VWIUX. I understand Bogleheads advice of hold for the long run. But, I was just curious if anyone could summarize, briefly, when people mention Bonds, do they also mean Muni Bonds?

Just as an added comment, we were thinking of VWIUX as taking the place of a savings account, as the interest earned on savings is taxed so high.

Sorry for the dumb question, but ever since stumbling on this site a month ago, it's change my whole view toward investing! (In a really good way! :happy )
Yes, it would affect muni bonds too.

That being said, I just put $20k in some closed end muni bond funds that were trading at a 10 discount to net asset value. They will be volatile, but I doubt they will drop more than 10% from here.

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Re: Dalio says bonds have entered a bear market

Post by azanon » Thu Jan 25, 2018 12:19 pm

I saw a few asking why would someone be concerned about this really, at least in comparison to bear stock markets. To that, I'd just say that Dalio himself might be particularly more concerned than the average investor since his former Hedge fund Bridgewater, whom I imagine he still has ties to, uses long-duration bonds and/or Zeros, and also applies leverage to those bonds as an investing strategy. So whatever effect unexpected rises in interest rates have on vanilla intermediate term bonds is going to be heavily amplified by their investing tactics.

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Re: Dalio says bonds have entered a bear market

Post by AlmstRtrd » Thu Jan 25, 2018 12:29 pm

The link in question is at best poor journalism and, more fairly, just deliberately misleading. The Dalio interview is almost a year old (I've seen it uploaded to Youtube as early as March of 2017). Also, the 1% rise in rates that Dalio spoke about already happened, at least on the 30-year bond. On 7/4/16 the yield was at 2.11%. By 12/12/16 it had risen to 3.17%. Source is here:

http://www.macrotrends.net/2521/30-year ... ield-chart

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Re: Dalio says bonds have entered a bear market

Post by azanon » Thu Jan 25, 2018 12:35 pm

It's a new video. They're in Davos this week. That video was widely distributed on multiple news channels on the 23rd.

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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Thu Jan 25, 2018 12:43 pm

azanon wrote:
Thu Jan 25, 2018 12:19 pm
I saw a few asking why would someone be concerned about this really, at least in comparison to bear stock markets. To that, I'd just say that Dalio himself might be particularly more concerned than the average investor since his former Hedge fund Bridgewater, whom I imagine he still has ties to, uses long-duration bonds and/or Zeros, and also applies leverage to those bonds as an investing strategy. So whatever effect unexpected rises in interest rates have on vanilla intermediate term bonds is going to be heavily amplified by their investing tactics.
For a long time I've been trying to reconcile the apocalyptic rhetoric of Wall Street gurus with my best assessment of the amount of risk to a long-only, stay-the-course holder of an intermediate-term, investment grade "core" bond fund.

The best explanation I can think of is that bonds are used in a different way on "Wall Street" and that, yes, because they are normally fairly steady and predictable, people like Dalio build complicated houses of cards on top of bonds using leverage and short positions, amplifying little inconsistencies across the yield curve... and that when the behavior of bonds is even a little bit surprising, it brings down the whole structure. That's what happened to LTCM in 1988 with Russian bonds, for example.

I've read accounts of the 1994 "bond massacre," which doesn't look like anything at all on a chart of Total Bond--a 4% loss and back to even in less than 18 months. But Fortune's account talks about:
The bond business isn’t just bigger. It has also become mystifyingly complex as Wall Street’s financial wizards use high-powered technology, even an occasional Cray supercomputer, to devise new ways to hedge risks or speculate on minute changes in interest rates. The growth of financial derivatives, which basically are side bets on the future course of interest rates, exchange rates, and commodities prices, has not only magnified the financial consequences of a market move but also thwarted traditional analysis of interest rate movements, which tends to focus more on economics than on internal market dynamics.

To understand what happened, one has to take all these factors — a bigger, global market; derivatives; greater speed — and magnify them tenfold. That would begin to take account of the dramatic leverage that has been injected into the financial markets by traders, the professional speculators who run hedge funds, and others in recent years. Even that multiplier might not capture the full effect of forces at work on this market. Indeed, as recently as last fall, some hedge funds — and a few wealthy individuals — were buying bonds on margin for as little as 1 or 2 cents on the dollar (banks and securities dealers put up the rest). When the market cooperates, such leverage can greatly magnify the gains, as it did last year, when some hedge funds enjoyed total returns of 50% or more. When it doesn’t, losses can be staggering.
So perhaps that is the kind of context in which Dalio's comments must be understood.
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Re: Dalio says bonds have entered a bear market

Post by FreeAtLast » Thu Jan 25, 2018 12:48 pm

Grt2bOutdoors wrote:
Thu Jan 25, 2018 7:25 am
Thought the oracle of bonds was Gross or Gundlach?? Has baton been passed to Dalio as in a game of hot potato??
What does James Grant say? Anybody? :?
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Re: Dalio says bonds have entered a bear market

Post by Lauretta » Thu Jan 25, 2018 12:51 pm

I just saw this video in which Fink does not believe, if I understand correctly, that US yields will go up fast because as far as I've understood there's demand for US treasuries due to their yielding more than Japan and EU bonds - something I don't fully understand because Japanese and EU investors can only get that extra yield in US bonds at the expense of great currency risk (of the dollar weakening).
https://www.bloomberg.com/news/articles ... ng-in-cash
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Re: Dalio says bonds have entered a bear market

Post by H-Town » Thu Jan 25, 2018 1:02 pm

garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
yeah buying opportunity for bonds is coming up.

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Re: Dalio says bonds have entered a bear market

Post by nexesn » Thu Jan 25, 2018 1:03 pm

unclescrooge wrote:
Thu Jan 25, 2018 11:46 am
nexesn wrote:
Thu Jan 25, 2018 9:04 am
Sorry, this is a really ignorant question, but I'm also a total newbie when it comes to bonds (I tried googling info on this and didn't find much).

Here's my questions: When they talk about Bonds, do they also mean Muni Bonds? My wife and I are both still working, and are in a high tax bracket. So, we placed several hundred thousand in VWIUX. I understand Bogleheads advice of hold for the long run. But, I was just curious if anyone could summarize, briefly, when people mention Bonds, do they also mean Muni Bonds?

Just as an added comment, we were thinking of VWIUX as taking the place of a savings account, as the interest earned on savings is taxed so high.

Sorry for the dumb question, but ever since stumbling on this site a month ago, it's change my whole view toward investing! (In a really good way! :happy )
Yes, it would affect muni bonds too.

That being said, I just put $20k in some closed end muni bond funds that were trading at a 10 discount to net asset value. They will be volatile, but I doubt they will drop more than 10% from here.

Thanks for the response. At least I know when I hear Bonds, I can generally lean to think that it's about muni bonds too.

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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Thu Jan 25, 2018 8:48 pm

“A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” Bridgewater Associates founder Dalio said in a Bloomberg TV interview in Davos on Wednesday. We’re in a bear market, he said.
Siegel and Schwartz wrote, on August 19, 2010, in a Wall Street Journal article entitled "The Great American Bond Bubble:"
The Great American Bond Bubble

If 10-year interest rates, which are now 2.8%, rise to 4% as they did last spring, bondholders will suffer a capital loss more than three times the current yield.

Ten years ago we experienced the biggest bubble in U.S. stock market history—the Internet and technology mania that saw high-flying tech stocks selling at an excess of 100 times earnings. The aftermath was predictable: Most of these highfliers declined 80% or more, and the Nasdaq today sells at less than half the peak it reached a decade ago.

A similar bubble is expanding today that may have far more serious consequences for investors. It is in bonds, particularly U.S. Treasury bonds...
So, Siegel and Schwartz made these points: a) There is a bond bubble. b) It might pop if the 10-year rate rises by 1.2%. c) If it pops the result might be more serious for investors than the technology dot-bomb crash of 2000 when many stocks lost 80%.

Here's the point. In actual fact, the ten year rate did, in fact rise, from 2.8% to 3.72%. A rise of 0.92%. Not quite Dalio's 1%, but darn close, and also about 2/3rds of the worst scenario Siegel and Schwartz mentioned.

In other words, a scenario very close to Dalio's already happened back in 2010.

Do you remember how awful it was? Do remember that it was as bad as the dot-bomb crash of the NASDAQ in 2000? Nope, me neither.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Dalio says bonds have entered a bear market

Post by 3funder » Thu Jan 25, 2018 10:18 pm

My time horizon is 35+ years; therefore, I care not and will continue to invest in bonds via payroll deduction.

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Re: Dalio says bonds have entered a bear market

Post by nedsaid » Thu Jan 25, 2018 10:29 pm

garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
Budget deficits have no bearing on the level of interest rates. Economists have known this for years. The Reagan years and the Obama years saw relatively high budget deficits but interest rates did nothing but fall during those two administrations. I am really shocked that Ray Dalio doesn't know this.

I do think Dalio is right, that we will see a bear market in bonds. But really, is this bad news? Interest rates were kept artificially low by governments around the world in response to the 2008-2009 financial crisis. I think really what is happening is that interest rates are normalizing. I would actually like to be able to read the interest rate being paid on my savings and not have to look at them under a microscope.

Normalization of interest rates would be okay. What would be a disaster is the return of inflation, which is really bad for bonds. If we see an inflation spike, that will be bad for stocks as well. So really, I am more interested in the inflation outlook than that of interest rates.
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3funder
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Re: Dalio says bonds have entered a bear market

Post by 3funder » Thu Jan 25, 2018 10:36 pm

nedsaid wrote:
Thu Jan 25, 2018 10:29 pm
garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
Budget deficits have no bearing on the level of interest rates. Economists have known this for years. The Reagan years and the Obama years saw relatively high budget deficits but interest rates did nothing but fall during those two administrations. I am really shocked that Ray Dalio doesn't know this.

I do think Dalio is right, that we will see a bear market in bonds. But really, is this bad news? Interest rates were kept artificially low by governments around the world in response to the 2008-2009 financial crisis. I think really what is happening is that interest rates are normalizing. I would actually like to be able to read the interest rate being paid on my savings and not have to look at them under a microscope.

Normalization of interest rates would be okay. What would be a disaster is the return of inflation, which is really bad for bonds. If we see an inflation spike, that will be bad for stocks as well. So really, I am more interested in the inflation outlook than that of interest rates.
I assume you really mean you aren't looking forward to the return of hyperinflation, as opposed to inflation itself?

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nedsaid
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Re: Dalio says bonds have entered a bear market

Post by nedsaid » Thu Jan 25, 2018 10:47 pm

3funder wrote:
Thu Jan 25, 2018 10:36 pm
nedsaid wrote:
Thu Jan 25, 2018 10:29 pm
garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
Budget deficits have no bearing on the level of interest rates. Economists have known this for years. The Reagan years and the Obama years saw relatively high budget deficits but interest rates did nothing but fall during those two administrations. I am really shocked that Ray Dalio doesn't know this.

I do think Dalio is right, that we will see a bear market in bonds. But really, is this bad news? Interest rates were kept artificially low by governments around the world in response to the 2008-2009 financial crisis. I think really what is happening is that interest rates are normalizing. I would actually like to be able to read the interest rate being paid on my savings and not have to look at them under a microscope.

Normalization of interest rates would be okay. What would be a disaster is the return of inflation, which is really bad for bonds. If we see an inflation spike, that will be bad for stocks as well. So really, I am more interested in the inflation outlook than that of interest rates.
I assume you really mean you aren't looking forward to the return of hyperinflation, as opposed to inflation itself?
Hyperinflation just isn't going to happen in my view. It happens when there is a collapse of productivity in the economy. If inflation went from 2% to 3%, we could handle it. 5% or 6% inflation would be a disaster for the markets though that is not hyperinflation. I am not a gold bug. Indeed, I own no gold.

When I talk about inflation spikes, I am thinking about the 1973-74 oil shocks, stagflation, and a nasty 50% down bear market. It wasn't a great economic period but it wasn't hyperinflation either. We are not Weimar Germany.
A fool and his money are good for business.

larryslocum1982
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Re: Dalio says bonds have entered a bear market

Post by larryslocum1982 » Thu Jan 25, 2018 10:48 pm

I think there is too much risk in bonds. Yields are not enough for the risk. I just sold my bond funds.

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Re: Dalio says bonds have entered a bear market

Post by Call_Me_Op » Fri Jan 26, 2018 7:44 am

larryslocum1982 wrote:
Thu Jan 25, 2018 10:48 pm
I think there is too much risk in bonds. Yields are not enough for the risk. I just sold my bond funds.
Where is the risk of the bonds are short-intermediate term and very high quality? Sure, there are risky bonds - but those aren't the ones you should be investing in anyway.

For folks who do not trust (or understand) bond funds, there are always individual treasuries and CD's. They are basically bonds, but perhaps easier to understand.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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nativenewenglander
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Re: Dalio says bonds have entered a bear market

Post by nativenewenglander » Fri Jan 26, 2018 8:00 am

The long term average of 10 year bond is 4%. The bond market is normalizing. These big players are trying to scare the weak hands to fold so they can buy them up cheaper. We could and probably will stay in a trading range of 1% or 2% from where we are now for decades.

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greg24
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Re: Dalio says bonds have entered a bear market

Post by greg24 » Fri Jan 26, 2018 10:17 am

We're just about reaching 10 straight years of pundits screaming "interest rates have no where to go but up!!!"

Leesbro63
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Re: Dalio says bonds have entered a bear market

Post by Leesbro63 » Fri Jan 26, 2018 10:32 am

greg24 wrote:
Fri Jan 26, 2018 10:17 am
We're just about reaching 10 straight years of pundits screaming "interest rates have no where to go but up!!!"
+1

mptfan
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Re: Dalio says bonds have entered a bear market

Post by mptfan » Fri Jan 26, 2018 10:44 am

nativenewenglander wrote:
Fri Jan 26, 2018 8:00 am
The long term average of 10 year bond is 4%. The bond market is normalizing.
I agree, the 10 year treasury rate has increased from 2.05% to 2.65% over the last 4 months. Has anyone noticed the bond market collapsing? I don't claim to know the future, but I expect the rate to rise to 3% or higher sometime during 2018 without a "bursting" of the "bond market bubble."

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nisiprius
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Re: Dalio says bonds have entered a bear market

Post by nisiprius » Fri Jan 26, 2018 10:59 am

Leesbro63 wrote:
Fri Jan 26, 2018 10:32 am
greg24 wrote:
Fri Jan 26, 2018 10:17 am
We're just about reaching 10 straight years of pundits screaming "interest rates have no where to go but up!!!"
+1
Furthermore, they've been going up, over 1/2% in the last six months--along with my bank savings accounts. And people are still saying "Sooner or later interest rates will go up and when they do, oh boy, watch out, it's gonna be ugly, Katy bar the door."

Dalio said "A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981." Well, OK, there has been a 1/2% percent rise in just the last few months, so whatever he's talking about, it's already half over.

And come to think of it: just how bad was "1980 to 1981?" Total Bond doesn't go back that far, so let's look at FBNDX, which is Fidelity's long-running bond fund. Currently duration is 5.59 years, so pretty comparable to Total Bond or other intermediate-term "core" bond funds.

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Image

1980-1981 in the Fidelity bond fund: oh, the humanity!

Actually, it made money. (No, not after inflation. Yeah, I know about the inflation then. I lived through it).

If Total Bond is level for the next couple of years I won't be rejoicing, and I might have some buyer's remorse about keeping it there instead of putting it in a Capital One 360 Money Market account--but it isn't going to ruin me.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Blueskies123
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Re: Dalio says bonds have entered a bear market

Post by Blueskies123 » Fri Jan 26, 2018 11:08 am

thangngo wrote:
Thu Jan 25, 2018 1:02 pm
garlandwhizzer wrote:
Wed Jan 24, 2018 11:06 am
No one knows the future of markets and all predictions are best taken as a grain of salt. However, Ray Dalio's comments and point of view are interesting.

www.bloomberg.com/news/articles/2018-01 ... bear-phase
yeah buying opportunity for bonds is coming up.
If you working and do not need your portfolio that is fine but if you are retired and living off your portfolio living through a 6 bond bear is not easy. Bonds lost about half their value over 6 years and if you held on or bought more you had a nice bull market. 30 Year Treasury Bond Prices, Monthly (1978 – 2007)
http://www.thedigeratilife.com/images/b ... schart.jpg
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Da5id
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Re: Dalio says bonds have entered a bear market

Post by Da5id » Fri Jan 26, 2018 11:22 am

nisiprius wrote:
Fri Jan 26, 2018 10:59 am
Furthermore, they've been going up, over 1/2% in the last six months--along with my bank savings accounts. And people are still saying "Sooner or later interest rates will go up and when they do, oh boy, watch out, it's gonna be ugly, Katy bar the door."

Dalio said "A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981." Well, OK, there has been a 1/2% percent rise in just the last few months, so whatever he's talking about, it's already half over.

And come to think of it: just how bad was "1980 to 1981?" Total Bond doesn't go back that far, so let's look at FBNDX, which is Fidelity's long-running bond fund. Currently duration is 5.59 years, so pretty comparable to Total Bond or other intermediate-term "core" bond funds.
Hyperbole sells. Moderation is boring. I think that is the summary of most investing articles. "We are all doomed batten down the hatches" is much more exciting than "rates are probably going to rise, you may (or may not) see some capital losses in the short term if you sell bonds, if you hang on to short to intermediate bonds for the fund duration all will almost certainly be be OK".

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