I'm worried about stagflation and am selling all my bonds tomorrow.

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AdamA
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by AdamA » Wed Apr 29, 2020 1:51 pm

StinkyToes wrote:
Tue Apr 28, 2020 9:56 pm



The price of food consumed at home, however, was up 0.5% from February. That was on top of a 0.5% increase the prior month. The report states: "The index for dairy and related products increased 3.7 percent over the last year. The index for meats, poultry, fish, and eggs rose 2.3 percent, with the beef index increasing 3.8 percent." Those are big increases.

That's through March.

But we know that food prices have been accelerating in April. According to this article -- https://www.wtkr.com/money/consumer/don ... 9-pandemic -- egg prices are currently up 50% this year; orange juice prices are up 20%; rice prices are up 20%; wheat prices are up 15%.

In addition, I have personally observed substantial increases in the price of fish, poultry, and meat. Reportedly, these prices will rise even further in the coming days due to shortages caused by meat processing plant closures. It is conceivable home-consumed food price inflation could increase to 1% or more in April, equivalent to an annual inflation rate of 12.7% or more.
My understanding is that the price increase in food is that it's related to issues the pandemic has caused with the food supply.

https://www.nytimes.com/2020/04/13/busi ... upply.html

Hard to have inflation with such a high unemployment rate, I think.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by StinkyToes » Wed Apr 29, 2020 4:37 pm

AdamA wrote:
Wed Apr 29, 2020 1:51 pm
Hard to have inflation with such a high unemployment rate, I think.
Well that is what many people believe. But I am pretty sure they are wrong. We already have had a big inflation in food prices. Yes it is due to coronavirus and it's probably going to get worse. Medical prices are going up (month over month and year over year). And shelter prices in March were 3% higher than a year ago. But airline fares are down! Hooray, except nobody is flying.

Some of us are old enough to remember the 1970s when we had the horrible combination of high unemployment and inflation. That is stagflation, and it was a disaster for bondholders.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by buddtholomew » Wed Apr 29, 2020 5:03 pm

LTT’s flight to quality during an equity decline is sufficient reason for me to hold them in the portfolio. I consider them even more valuable now that I have 40% allocated to stocks (changed from 35% following recent decline).

There are certainly aspects of LTT’s that I don’t like when looked at in isolation, but allocating 25% to Cash lowers duration and Savings Accounts are paying 1 to 1-1/2% to pickup “some yield”.

Gold and/or stocks plus higher cash yields should mitigate losses in bonds in the event we experience the environment you fear the most.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by Dieter » Wed Apr 29, 2020 5:42 pm

Vil wrote:
Wed Apr 29, 2020 2:03 am
Dieter wrote:
Tue Apr 28, 2020 11:02 pm
I've been thinking of shortening duration, but not completely getting out.
Do you consider moving to ITTs ? What WA duration are you thinking of ? It might be move worth to be done, given future perspectives. Though for the time being there might be not that many indicators for such necessity, and still if stocks take a plunge, bonds may serve as diversifier, too. But that's my over simplified point of view :)
Yeah, that is likely what I would do if I went this route -- VG ITT fund for part of LTT allocation (yeah, using funds)

Note I'm not in a true PP -- 50% stocks, 20% LTTs. 15% each Gold / Cash (retirement accounts)

For the person who commented that LTTs were the best performing asset the last 12 months -- that's one reason I'm considering it. Sell high. (Well, that's a thought , anyways).

But yeah, also worried that who knows what is going to happen, and LTT could be best performer over next 12 months.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by AdamA » Wed Apr 29, 2020 7:09 pm

StinkyToes wrote:
Wed Apr 29, 2020 4:37 pm
AdamA wrote:
Wed Apr 29, 2020 1:51 pm
Hard to have inflation with such a high unemployment rate, I think.
Well that is what many people believe. But I am pretty sure they are wrong. We already have had a big inflation in food prices.
But prices going up due to issues of supply and demand is different than prices going up due to inflation.

Mass unemployment is deflationary. I would be very careful about selling those long term treasuries.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by Tortoise » Wed Apr 29, 2020 7:16 pm

Given how large the national debt has ballooned in recent decades (~$500B in 1975 to ~$24T in 2020), does the Fed still actually have an incentive to "fight inflation" like it did back in the 1970s?

The government has zero incentive to fight inflation, except maybe to prevent it from getting so high that the public revolts. The Fed is supposedly "independent" of the government, but we all know that's not true at all.

If the Fed's incentive to fight inflation no longer exists, why would they ever let Treasury rates rise significantly? There would be no benefit to the government.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by AdamA » Wed Apr 29, 2020 7:35 pm

Tortoise wrote:
Wed Apr 29, 2020 7:16 pm

If the Fed's incentive to fight inflation no longer exists, why would they ever let Treasury rates rise significantly? There would be no benefit to the government.
But they really only have any control over the short end of the curve.

I agree that at some point there may be less demand, but I'm not sure when that will be.

Where will people who sell their LTTs put the money?
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by pmward » Wed Apr 29, 2020 8:08 pm

Dieter wrote:
Wed Apr 29, 2020 5:42 pm
Vil wrote:
Wed Apr 29, 2020 2:03 am
Dieter wrote:
Tue Apr 28, 2020 11:02 pm
I've been thinking of shortening duration, but not completely getting out.
Do you consider moving to ITTs ? What WA duration are you thinking of ? It might be move worth to be done, given future perspectives. Though for the time being there might be not that many indicators for such necessity, and still if stocks take a plunge, bonds may serve as diversifier, too. But that's my over simplified point of view :)
Yeah, that is likely what I would do if I went this route -- VG ITT fund for part of LTT allocation (yeah, using funds)

Note I'm not in a true PP -- 50% stocks, 20% LTTs. 15% each Gold / Cash (retirement accounts)

For the person who commented that LTTs were the best performing asset the last 12 months -- that's one reason I'm considering it. Sell high. (Well, that's a thought , anyways).

But yeah, also worried that who knows what is going to happen, and LTT could be best performer over next 12 months.
Is it selling high or is it selling low? That can only be known in retrospect. In my PP I will continue to hold long bonds. In my VP I can play around.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by Tortoise » Wed Apr 29, 2020 8:43 pm

AdamA wrote:
Wed Apr 29, 2020 7:35 pm
But they [the Fed] really only have any control over the short end of the curve.
Didn’t the Fed start purchasing longer-term Treasuries (among other types of securities) in March?

If they can purchase Treasuries of any duration, that means they can influence all parts of the yield curve, doesn’t it?
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by pmward » Wed Apr 29, 2020 9:20 pm

Tortoise wrote:
Wed Apr 29, 2020 8:43 pm
AdamA wrote:
Wed Apr 29, 2020 7:35 pm
But they [the Fed] really only have any control over the short end of the curve.
Didn’t the Fed start purchasing longer-term Treasuries (among other types of securities) in March?

If they can purchase Treasuries of any duration, that means they can influence all parts of the yield curve, doesn’t it?
They also can implement yield curve control in the future, which was basically what they did in the 1940s... and I seriously think the coming years are going to be much more like the 1940s than the 1970-80s as their interest is in slowly inflating away the debt.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by AdamA » Thu Apr 30, 2020 9:43 am

pmward wrote:
Wed Apr 29, 2020 9:20 pm
Tortoise wrote:
Wed Apr 29, 2020 8:43 pm
AdamA wrote:
Wed Apr 29, 2020 7:35 pm
But they [the Fed] really only have any control over the short end of the curve.
Didn’t the Fed start purchasing longer-term Treasuries (among other types of securities) in March?

If they can purchase Treasuries of any duration, that means they can influence all parts of the yield curve, doesn’t it?
They also can implement yield curve control in the future, which was basically what they did in the 1940s... and I seriously think the coming years are going to be much more like the 1940s than the 1970-80s as their interest is in slowly inflating away the debt.
To be honest, the details of how this works are way over my head, and I could definitely be wrong.

The impression I get from having read about this from time to time on this forum is that the Fed has some ability to influence rates, but it cannot control them completely.

There are other deflationary forces like demographics (aging population) and unemployment that are potentially much more powerful than anything the Fed can do.

Again, just my gestalt - put out there more for discussion than as a strong opinion.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by shekels » Thu Apr 30, 2020 10:04 am

AdamA wrote:
Thu Apr 30, 2020 9:43 am


To be honest, the details of how this works are way over my head, and I could definitely be wrong.

The impression I get from having read about this from time to time on this forum is that the Fed has some ability to influence rates, but it cannot control them completely.

There are other deflationary forces like demographics (aging population) and unemployment that are potentially much more powerful than anything the Fed can do.

Again, just my gestalt - put out there more for discussion than as a strong opinion.
Yes, the changing environment forces the Fed to buy more or less depending on the financial climate.
It can work for a long time until it doesn't,
The Fed can control the rate they desire by buying up the surplus.
Right now they do not have to purchase many as long term rates are coming down.

Side Note: I have seen somewhere that they have not purchased any Junk Bonds yet.
Just saying they would buy them has influenced the market.


from the link below.
https://www.brookings.edu/blog/up-front ... e-control/
What is yield curve control, and why does it matter?

In normal times, the Fed steers the economy by raising or lowering very short-term interest rates, such as the rate that banks earn on their overnight deposits. Under yield curve control (YCC), the Fed would target some longer-term rate and stand ready to buy long-term bonds to keep the rate from rising above its target. This would be one way for the Fed to stimulate the economy if bringing short-term rates to zero isn’t enough. Current Fed Governors Richard Clarida and Lael Brainard have both said the Fed ought to consider adopting YCC, as have former Fed chairs Ben Bernanke and Janet Yellen.

Yield curve control is different in one major respect from QE, the trillions of dollars in bond-buying that the Fed pursued during the Great Recession. QE deals in quantities of bonds; YCC focuses on prices of bonds. Under QE, a central bank might announce that it plans to purchase, for instance, $1 trillion in Treasury securities. Because bond prices are inversely related to their yields, buying bonds and pushing up their price leads to lower longer-term rates.

Under YCC, the central bank commits to buy whatever amount of bonds the market wants to supply at its target price. Once bond markets internalize the central bank’s commitment, the target price becomes the market price—who would be willing to sell the bond to a private investor for less than they could get by selling to the Fed?

The Bank of Japan (BOJ) committed in 2016 to peg yields on 10-year Japanese Government Bonds (JGBs) around zero percent, in a fight to boost persistently low inflation. To hit that yield target, the BOJ has a standing offer to purchase any outstanding bond at a price consistent with the target yield. On days when private investors for any reason are less willing to pay that price, the BOJ ends up purchasing more bonds in order to keep yields inside the target price range.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by pmward » Thu Apr 30, 2020 10:20 am

AdamA wrote:
Thu Apr 30, 2020 9:43 am
pmward wrote:
Wed Apr 29, 2020 9:20 pm
Tortoise wrote:
Wed Apr 29, 2020 8:43 pm
AdamA wrote:
Wed Apr 29, 2020 7:35 pm
But they [the Fed] really only have any control over the short end of the curve.
Didn’t the Fed start purchasing longer-term Treasuries (among other types of securities) in March?

If they can purchase Treasuries of any duration, that means they can influence all parts of the yield curve, doesn’t it?
They also can implement yield curve control in the future, which was basically what they did in the 1940s... and I seriously think the coming years are going to be much more like the 1940s than the 1970-80s as their interest is in slowly inflating away the debt.
To be honest, the details of how this works are way over my head, and I could definitely be wrong.

The impression I get from having read about this from time to time on this forum is that the Fed has some ability to influence rates, but it cannot control them completely.

There are other deflationary forces like demographics (aging population) and unemployment that are potentially much more powerful than anything the Fed can do.

Again, just my gestalt - put out there more for discussion than as a strong opinion.
Right now markets set all rates other than the overnight rate. The Fed can be a participant in the market, but they are not controlling it. In Japan (and to a lesser degree the EU) they actually implement yield curve control. This is similar to what the U.S. did in the 1940s where they effectively capped the rate of all treasuries and bought everything and anything that went above their target rate. In yield curve control, the Fed would effectively set the rates for the entire curve... and literally buy or sell treasuries anytime they went above or below their target window. They don't do this now, but I wouldn't be surprised to see it at some point in the future. It's a silly and dumb thing to do... so maybe they'll try to dodge it just like they are trying their damndest to dodge negative rates. We will have to wait and see. Either way, I see rates across the curve staying below inflation for a long time to come.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by Tortoise » Thu Apr 30, 2020 12:07 pm

There was a recent thread here (can't remember which one) in which it was pointed out that the Fed could potentially end up being be the largest single holder of Treasuries.

Not sure how realistic that potential outcome is, but we do know that the Fed has both the means and the motive to keep Treasury rates low across the entire yield curve.

Means: In recent years we've seen that the Fed is entirely willing and able to keep expanding its powers to bend the financial markets to its will. It can now buy and sell just about any type of financial instrument it wants, in unlimited quantities.

Motive: As discussed already in this thread, the Fed is largely controlled by the government, and the government's motive is to borrow as cheaply as possible (low Treasury rates) while also getting rid of as much existing national debt as possible through inflation.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by shekels » Thu Apr 30, 2020 1:04 pm

Tortoise wrote:
Thu Apr 30, 2020 12:07 pm
There was a recent thread here (can't remember which one) in which it was pointed out that the Fed could potentially end up being be the largest single holder of Treasuries.

Not sure how realistic that potential outcome is, but we do know that the Fed has both the means and the motive to keep Treasury rates low across the entire yield curve.

Means: In recent years we've seen that the Fed is entirely willing and able to keep expanding its powers to bend the financial markets to its will. It can now buy and sell just about any type of financial instrument it wants, in unlimited quantities.

Motive: As discussed already in this thread, the Fed is largely controlled by the government, and the government's motive is to borrow as cheaply as possible (low Treasury rates) while also getting rid of as much existing national debt as possible through inflation.
That is the way I see it also.
I would like to add that The FED is a Central BANK. So if a Banking Issue arises they will take care of their OWN first..
If the issues coincides with the FED's agenda great. But don't look for much action, if it is not beneficial to the FED in some manner.
The Party must go on.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by dualstow » Fri May 01, 2020 8:01 am

Glad to be holding bonds today.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by mathjak107 » Fri May 01, 2020 8:09 am

it is funny how gold and treasuries were joined at the hip and now they are each doing their own thing again . last week or so they were moving differently
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by pp4me » Fri May 01, 2020 4:16 pm

StinkyToes wrote:
Tue Apr 28, 2020 9:56 pm
I have a strong hunch that the next few weeks will be really bad for bonds.
Have you ever done a statistical analysis to put your "strong hunches" to the test to evaluate how true they are?

I have no problem with "hunches" as I have my own. Based on my own life experiences however, I would never "sell all my bonds" or any other asset "tomorrow" based on them.

Actually that is not true. I did that once after reading an article about how everything is going to hell and after it didn't turn out the way the article predicted I resolved never to do it again. Generally speaking, my "hunch" is that making any investing decisions during times of chaos is probably not a good idea.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by StinkyToes » Sun May 03, 2020 10:43 pm

pp4me wrote:
Fri May 01, 2020 4:16 pm
StinkyToes wrote:
Tue Apr 28, 2020 9:56 pm
I have a strong hunch that the next few weeks will be really bad for bonds.
Have you ever done a statistical analysis to put your "strong hunches" to the test to evaluate how true they are?

I have no problem with "hunches" as I have my own. Based on my own life experiences however, I would never "sell all my bonds" or any other asset "tomorrow" based on them.

Actually that is not true. I did that once after reading an article about how everything is going to hell and after it didn't turn out the way the article predicted I resolved never to do it again. Generally speaking, my "hunch" is that making any investing decisions during times of chaos is probably not a good idea.
I have not done a statistical analysis. If I am wrong, I doubt I'll lose much. My plan is to buy back my LTTs by the end of June after this month's PPI and CPI reports are released.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by StinkyToes » Tue May 05, 2020 4:26 am

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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by StinkyToes » Tue May 05, 2020 4:35 am

Poultry too?

"Hundreds of Tyson Foods employees screened for COVID-19 after Wilkes County outbreak"
https://myfox8.com/news/hundreds-of-tys ... -outbreak/
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by StinkyToes » Tue May 05, 2020 4:54 am

Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by mathjak107 » Tue May 05, 2020 5:41 am

StinkyToes wrote:
Tue May 05, 2020 4:54 am
Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.
demand inflation can fall on a dime ... it is very different than monetary inflation , which surprisingly we have little of ....when demand falls or supply picks up prices fall. all inflation is not the same and has to be looked at differently .
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by pmward » Tue May 05, 2020 8:16 am

StinkyToes wrote:
Tue May 05, 2020 4:54 am
Wow, Nielsen says fresh meat prices are up 8.1% from one year ago. Processed meat prices up 12.2%, chicken egg prices up 30.9%, milk prices up 10.3%, and cheese prices up 11.2%. This was based on data for the week ending April 25, 2020.

https://twitter.com/nielsen/status/1256 ... 10/photo/1

This is called stagflation, folks. Very dangerous to own long-term bonds in this situation. CPI data will be released May 12. PPI data will be released May 13. Should be interesting.
To add to what everyone else is saying... oil is by far the biggest weight in the CPI data and that has cratered. You're not going to see any "inflation" in the official data until oil starts to go up.
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Re: I'm worried about stagflation and am selling all my bonds tomorrow.

Post by dualstow » Tue May 05, 2020 8:30 am

It was almost exactly two months ago that tomfoolery was “sounding the alarm” in a thread called ‘The (PP) May Be About to Break’. The main culprit: long-term treasuries. But someone, somewhere has been sounding the alarm since the beginning. If it does eventually “break”, the person with the right call will have been right by accident.
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