Fed damaging bond market

Discussion of the Bond portion of the Permanent Portfolio

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perfect_simulation
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Re: Fed damaging bond market

Post by perfect_simulation » Fri May 06, 2022 8:41 pm

Bonds are looking cheap relative to stocks:

Today VOO / TLT = 3.36
Last year VOO / TLT = 2.78
2 years ago VOO / TLT = 1.64

You can get over 3 tlts for the price of one VOO!!!
barrett
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Re: Fed damaging bond market

Post by barrett » Sat May 07, 2022 6:06 am

vnatale wrote:
Fri May 06, 2022 2:12 pm
Cortopassi wrote:
Fri May 06, 2022 12:56 pm
Regardless, it is definitely currently broken! I continue to sell calls going down, but doesn't feel very good anyway. May be selling them at $113 next...

When the heck are savings banks going to boost their 0-0.5% rates?
When they see money leaving those accounts?
I guess we'll see if banks start raising their rates after the next Fed announcement on rate increases on June 15. I think Vinny is right and I think that investors are slow to pull their money out of super low-yielding savings accounts as long as the gulf between yields (in general) and inflation remains so high. A one-year T-Bill will get you 2.2% right now which is paltry compared to inflation of 10%. So it's just mentally hard to take that plunge. A few months ago I took a big chunk of FDLXX (in a Traditional IRA) and bought a bunch of three-month T-Bills. I'll make a few hundred nominal dollars on June 30th and then put that money right back into another three-month bill or something similar.

My gut level feeling was that I'm engaging in a futile pursuit as we see our net worth get pummeled by tens of thousands of dollars on some days, so I was doing nothing for a while with that cash. Now I am just trying to get something on the way up while being resigned to the very high likelihood that our portfolio is going to be lower for a couple of years.

I then envision a time (a year or two from now?) when I will be able to get some decent yields on Treasuries.

Stocks and bonds get pounded in unison when rates rise so dramatically. I guess I just see that as the "risk" side of investing and I don't see it going on forever.

From my point of view, nothing is broken. It just sucks to be an investor at the moment but it's better than the alternative!
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Desert
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Re: Fed damaging bond market

Post by Desert » Sat May 07, 2022 2:49 pm

barrett wrote:
Sat May 07, 2022 6:06 am
Stocks and bonds get pounded in unison when rates rise so dramatically. I guess I just see that as the "risk" side of investing and I don't see it going on forever.

From my point of view, nothing is broken. It just sucks to be an investor at the moment but it's better than the alternative!
Very good, timely points. Reminds me a bit of the Keynes quote:

"It is the duty of the long-term investor to endure great losses with equanimity.”

Market declines are part of investing. No declines = no risk = no return.
perfect_simulation
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Re: Fed damaging bond market

Post by perfect_simulation » Fri May 13, 2022 12:43 pm

I'm trying to wrap my head around something. If rising rates are deflationary, when do bonds benefit from it? Because we all just witnessed bonds get slaughtered amidst the prospect of rising rates.
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Tortoise
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Re: Fed damaging bond market

Post by Tortoise » Fri May 13, 2022 4:56 pm

perfect_simulation wrote:
Fri May 13, 2022 12:43 pm
I'm trying to wrap my head around something. If rising rates are deflationary, when do bonds benefit from it? Because we all just witnessed bonds get slaughtered amidst the prospect of rising rates.
Who says "rising rates are deflationary"?

I think it's important to distinguish between cause and effect here. The cause is the economic environment (inflation or deflation), and the effect is interest rates.

Inflation tends to cause interest rates to rise since investors demand higher interest to help offset the inflation. Similarly, deflation tends to cause interest rates to fall for the inverse reason.

Also, bond prices don't respond to the mere "prospect" of yield changes. Only actual yield changes affect bond prices, because bond price and yield are locked together mathematically by a known formula (not just a correlation). One fully determines the other.
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