Ray Dalio on Bonds

Discussion of the Bond portion of the Permanent Portfolio

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Hal
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Ray Dalio on Bonds

Post by Hal » Wed Sep 23, 2020 4:47 am

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mathjak107
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Re: Ray Dalio on Bonds

Post by mathjak107 » Wed Sep 23, 2020 5:52 am

i agree with ray .......which is why i own no long term treasuries anymore . just a very poor value with a lot of volatile downside risk .

as much as i don't like tips as a means of thinking they will keep up with ones cost of living i think something like a wellsley allocation with a nice inflation hedge using .

vtip
dbc
flot
gld

would be a good idea . only i would eliminate the long term bond component since wellesly does own long term bonds . i think long term bonds have now outlived their usefulness .
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Re: Ray Dalio on Bonds

Post by Hal » Wed Sep 23, 2020 6:37 am

Any thoughts on the CBO's forecast/chart?
https://www.jsmineset.com
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Wed Sep 23, 2020 11:37 am

Hal wrote:
Wed Sep 23, 2020 6:37 am
Any thoughts on the CBO's forecast/chart?
https://www.jsmineset.com
The CBO pretty much sums it up in their report:

https://www.cbo.gov/publication/56598

By the end of 2020, federal debt held by the public is projected to equal 98 percent of GDP. The projected budget deficits would boost federal debt to 104 percent of GDP in 2021, to 107 percent of GDP (the highest amount in the nation’s history) in 2023, and to 195 percent of GDP by 2050.
High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.


Seems they are pretty sure that Long Term Treasuries are f***ed going forward.

Of course, this assumes you don't have any other crashes along the way. At which point, I am sure the updated reports will show treasuries being super-f***ed going forward.

Silver lining? Sure...

Not all effects of higher debt and a higher projected path for debt would be negative. Short-term increases in deficits and debt can provide fiscal support to the economy during challenging times, such as the current pandemic. Also, over time a higher debt path would boost interest rates above what they otherwise would be, promoting private saving and giving the Federal Reserve more flexibility in implementing monetary policy.


That silver lining just doesn't help your existing Long Term Treasuries.
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Re: Ray Dalio on Bonds

Post by mathjak107 » Wed Sep 23, 2020 12:23 pm

lately the crashes have been met with margin call selling in treasuries and gold and they fall too as investors sell to cover their equity margin calls .

it seems we have a whole different investing world with issues and events harry never imagined
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Wed Sep 23, 2020 1:40 pm

mathjak107 wrote:
Wed Sep 23, 2020 12:23 pm
lately the crashes have been met with margin call selling in treasuries and gold and they fall too as investors sell to cover their equity margin calls .

it seems we have a whole different investing world with issues and events harry never imagined
I know, right? The world seems just so leveraged up and backed into a corner. I guess that is why the Fed put that emergency program in place for foreign central banks to use their treasuries as collateral for a loan instead of directly selling them. Obviously, they will never throw gold the same lifeline. But who knows, maybe they would do it as an opportunity to top off the US gold vaults.

I have read that the actual value of the US gold (assuming all of it still exists) is suspect. Apparently, the official weight of bullion measured against the official value is sketchy and indicates low purity bars.

I also remember reading that there was a wikileaks between the US and China embassy where the US was having a temper-tantrum that China was stockpiling gold in their vaults because it threatened to undermine the US option of returning to a partial gold-standard in the future.

I did some historical calculations recently on the value of gold based on the alleged gold ounces held by the US against the M2 to very loosely simulate what it would take for the US to go back on a gold standard (which is obviously insanely wishful thinking).

1959 = $102.72/ounce
1980 = $6,085.66/ounce
2005 = $24,547.99/ounce
2019 = $55,287.19/ounce
4 days ago = $71,039.39/ounce

We certainly have seemed to take a turn for the worst.
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Re: Ray Dalio on Bonds

Post by mathjak107 » Wed Sep 23, 2020 2:03 pm

That is a crazy number for gold ..love it ha ha ha.

Just look at Tlt action in the sell offs of equities lately ...my high yield fund has stood up better ...Tlt should have been soaring with the latest sell off ..we are down a lot of points in stocks
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Re: Ray Dalio on Bonds

Post by Kevin K. » Wed Sep 23, 2020 3:00 pm

It really has been ugly in the markets this week, with all the PP assets except cash tanking in unison.

The video is very good (though I wish it had just been Dalio speaking without the commentary). The CBO report is stunning.

As you said mathjak107 I think we're in territory unimagined by Harry Browne. LTT's look toxic, equities overvalued.

Ironically in the midst of this I was just reading this new post from Tyler:

https://portfoliocharts.com/2020/09/23/ ... -the-ride/

Like most here I have enormous respect for him and am beyond grateful for both his site and his innumerable excellent contributions to this forum and several others, but I couldn't help think as I was reading this that if there were ever a time to heed the boilerplate warning about past performance being no guarantee of future results it is now. We've never seen interest rates like this, or debt at this scale - for starters.

Personally I'm maxing out iBonds, keeping probably too much in short-term Treasury bond funds, buying a few CD's, keeping 20% in gold and including a slice of international in my equities. Oh - and lowering my expectations a la the old Will Rogers quip about banks ("I'm not so much concerned with return ON my capital as return OF my capital."). Wild times.
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Re: Ray Dalio on Bonds

Post by mathjak107 » Wed Sep 23, 2020 3:07 pm

this could be the proverbial " fighting the last war " with long term bonds in my opinion ....

put the long term bond money in dbc ,flot and vtip to beef up the inflation hedge along with the gold .

the rest of the portfolio is cash , ultra short to intermediate term bonds , a bit of high yield and 25% equity
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Re: Ray Dalio on Bonds

Post by Xan » Wed Sep 23, 2020 3:31 pm

Kevin K. wrote:
Wed Sep 23, 2020 3:00 pm
It really has been ugly in the markets this week, with all the PP assets except cash tanking in unison.
Long term bonds have notably NOT tanked this week.
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Re: Ray Dalio on Bonds

Post by mathjak107 » Wed Sep 23, 2020 3:34 pm

They just didn’t respond much as one would expect with the sell off in equities ....

More fed action buying bonds to lower rates and create liquidity in the market is quite inflationary in the longer term and is being looked at as such.

You have a guaranteed loss with a 1.40% yield and the fed saying they will let inflation exceed 2%..return free risk as James grant calls it
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Re: Ray Dalio on Bonds

Post by Xan » Wed Sep 23, 2020 3:49 pm

mathjak107 wrote:
Wed Sep 23, 2020 3:34 pm
They just didn’t respond much as one would expect with the sell off in equities ....

More fed action buying bonds to lower rates and create liquidity in the market is quite inflationary in the longer term and is being looked at as such.

You have a guaranteed loss with a 1.40% yield and the fed saying they will let inflation exceed 2%..return free risk as James grant calls it
But rates can still go down, driving the value up. And who knows what will actually happen to inflation?
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