A case for bonds?

Discussion of the Bond portion of the Permanent Portfolio

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murphy_p_t
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A case for bonds?

Post by murphy_p_t » Mon Nov 22, 2021 10:34 am

https://wealthion.com/hussman/

I was listening to an interview of hussman... Yeah, he's trying to justify his market lagging returns. However, I think he presents a good argument.


It is a fiction that stocks, at any price, are better than low-yielding bonds. If you want to make
that argument to investors – here I’m speaking directly to analysts on Wall Street and the
Fed – at least have the intellectual decency to test your estimates against decades of actual
subsequent market returns, and show them side-by-side. By our estimates, the S&P 500 is
likely to lag Treasury bonds by about 8% annually over the coming decade – the largest gap
in history, and slightly worse than the outcomes after 1929 and 2000. For a discussion of
equity risk premium (ERP) models, including the Shiller-Black-Jirav “excess CAPE yield”,
see A Good Response to a Bad Situation.
Yes, bond yields are lower than they were in 2000, but equity valuations are also more
extreme. The end result for relative returns is likely to be similar to that of previous bubbles.
Even an “error” as large as the one we’ve seen in the past 12 years (which would require
future valuations to remain at bubble extremes) would leave S&P 500 total returns at or
below the lowly returns on Treasury bonds. The main thing the Federal Reserve has
accomplished is to create a yield-seeking bubble that has driven both bonds and stocks to
valuations that imply dismal future outcomes.
pp4me
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Re: A case for bonds?

Post by pp4me » Mon Nov 22, 2021 3:43 pm

murphy_p_t wrote:
Mon Nov 22, 2021 10:34 am
By our estimates, the S&P 500 is likely to lag Treasury bonds by about 8% annually over the coming decade – the largest gap
in history, and slightly worse than the outcomes after 1929 and 2000.
Pretty amazing prediction even though I think such predictions aren't even worth the bits they are recorded on. What's this guy selling any way?
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pugchief
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Re: A case for bonds?

Post by pugchief » Mon Nov 22, 2021 5:05 pm

I've said this a hundred times before on this forum, but Hussman has been so wrong so often that you can't take his advice on timing for anything. He may be right about the market being overvalued (his perpetual opinion) right now, but "the market can be irrational a lot longer than you can be solvent" or however that quote goes.
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Dieter
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Re: A case for bonds?

Post by Dieter » Fri Nov 26, 2021 8:27 pm

And then LTT is goes up a we tad today (2.3% for Vanguards LTT Mutual Fund)

Bonds have nowhere to go but down?

Being a Friday, I get to appreciate the bounce in my LTT allocation for at LEAST the weekend. :)
dockinGA
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Re: A case for bonds?

Post by dockinGA » Fri Nov 26, 2021 8:58 pm

Dieter wrote:
Fri Nov 26, 2021 8:27 pm
And then LTT is goes up a we tad today (2.3% for Vanguards LTT Mutual Fund)

Bonds have nowhere to go but down?

Being a Friday, I get to appreciate the bounce in my LTT allocation for at LEAST the weekend. :)
Yes, there is a certain member of the forum that would have you believe he has a crystal ball that knows what all markets will do, and 'Rising Rates' and 'LTT's will get slaughtered' seem to be his favorite tropes. And yet since May 12, when there was a nice little discussion about LTT rates and how they would almost certainly go up, they've actually declined from 2.4% to 1.83%. Let's hope, for his sake, that he's stayed the course and enjoyed the nice bump in value of his bonds. Regardless, I am sure, 110% sure, that LTT rates will go up and anybody holding them will get slaughtered. If anyone believes otherwise they're fools because the Fidelity Insights Newsletter says so.
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Re: A case for bonds?

Post by Kbg » Sat Nov 27, 2021 11:46 am

Look, bonds are the easiest part of the PP. Straight math. We can try and predict all day long or just split the difference like the PP does. If we have a sustained increase in interest rates the longest bonds will get hammered the worst, shorter bonds do better and they all lose money. The reverse is true as well.

To answer the slaughter questions…duration tells you that precisely. No guessing required. Interest rates go up 1% you’re going to lose around 17-25% of your bond portfolio depending on how long your bonds are.

Simple as that, easy.
dockinGA
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Re: A case for bonds?

Post by dockinGA » Sat Nov 27, 2021 12:29 pm

Kbg wrote:
Sat Nov 27, 2021 11:46 am
Look, bonds are the easiest part of the PP. Straight math. We can try and predict all day long or just split the difference like the PP does. If we have a sustained increase in interest rates the longest bonds will get hammered the worst, shorter bonds do better and they all lose money. The reverse is true as well.

To answer the slaughter questions…duration tells you that precisely. No guessing required. Interest rates go up 1% you’re going to lose around 17-25% of your bond portfolio depending on how long your bonds are.

Simple as that, easy.
Is anybody doubting your math? Seems to me the question du jour is if rates are going to go up, not what will happen if they do.
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Re: A case for bonds?

Post by Kbg » Sat Nov 27, 2021 1:49 pm

That’s always the question, but why does it matter in a PP?

I know, it’s fun to talk about. :-)

I just find myself continuously surprised that folks don’t do due diligence when they adopt whatever portfolio. With the tools available on the internet for free these days no one should ever not know what “will” happen to their portfolio under any economic condition that has occurred.

No prediction because I don’t have any special insight into future inflation but if it continues the Fed will eventually be forced to raise interest rates unless they plan on not issuing treasuries anymore.

Not raising them is why we have some pretty crazy bubbles going on right now…people aren’t buying them other than the Fed.
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