Ray Dalio on Bonds

Discussion of the Bond portion of the Permanent Portfolio

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senecaaa
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Re: Ray Dalio on Bonds

Post by senecaaa » Tue Oct 06, 2020 6:26 am

Replacing LTT with REIT in portfoliocharts, seems like an interesting move: ZUSAXAA20AI20AN20AO20GB20Z (shortcode).
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Hal
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Re: Ray Dalio on Bonds

Post by Hal » Tue Oct 06, 2020 6:37 am

Interesting discovery Senecaaa,

Whats your theory on why REITs perform so well?
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Re: Ray Dalio on Bonds

Post by senecaaa » Tue Oct 06, 2020 6:43 am

Hal wrote:
Tue Oct 06, 2020 6:37 am
Interesting discovery Senecaaa,

Whats your theory on why REITs perform so well?
I was inspired by this tweet: https://twitter.com/alexisohanian/statu ... 7427155970. I interpreted "alternative" as "real estate" ;D. No theory behind it.
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Re: Ray Dalio on Bonds

Post by Hal » Tue Oct 06, 2020 6:57 am

senecaaa wrote:
Tue Oct 06, 2020 6:43 am
Hal wrote:
Tue Oct 06, 2020 6:37 am
Interesting discovery Senecaaa,

Whats your theory on why REITs perform so well?
I was inspired by this tweet: https://twitter.com/alexisohanian/statu ... 7427155970. I interpreted "alternative" as "real estate" ;D. No theory behind it.
Food for thought....
Using the Pacific Peso, it works well.

Edit: Just remembered, this is similar to Marc Fabers portfolio https://mebfaber.com/wp-content/uploads ... Book-1.pdf
Had to sneak this in as well ::) https://www.youtube.com/watch?v=EoAYKrfKB0c
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Re: Ray Dalio on Bonds

Post by mathjak107 » Tue Oct 06, 2020 8:51 am

mathjak107 wrote:
Mon Oct 05, 2020 2:33 pm
Took a shot with Tlt . 625 shares 159.63.
got stopped out already ...
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Tue Oct 06, 2020 8:55 am

Hal wrote:
Tue Oct 06, 2020 6:37 am
Interesting discovery Senecaaa,

Whats your theory on why REITs perform so well?
Hold the phone. Home loans get massively cheaper as yields drop, no? You simply get a lot more for your money.

18.45% Rate (Oct 1981) vs 3% (Now) on $300k 30 year fixed rate:

$4,632 vs $1,265 per month for the SAME EXACT HOUSE.

The average home has gotten much larger because people have more spending power to throw at houses (and because builders can now make your trim out of cardboard.

Here is the question:

Did real estate do just as well from 1941 to 1981 (rising rates) as it did from 1981 to 2021 (falling rates):

https://3.bp.blogspot.com/-ynrQyoAUzgM/ ... e+1900.jpg

Not even close.

It appears you are jumping from the Titanic into a lifeboat... but the lifeboat is welded to the deck of the titanic.

If (when) interest rates go up... the monthly price of an existing 5,000 sqft house goes up as well. Now you have fewer buyers. Since houses have gotten bigger (the bigger the house the more they cost to maintain) and they use less quality materials (increasing costs of repairs) the financial needs will be higher yet.

It reminds me of the best days of owning a boat.. the day you buy it and the day you sell it. When rates are falling everybody “has gotten a good deal on a new home”. But you are still talking about a pile of sticks sitting out in the rain. It doesn’t get better with age.

Also keep in mind other factors that have historically inflated real estate sales. Having a 20% down payment was the minimum many years ago. However, the time period you are backtesting is a period where people were able to put much much less down (which increases the risk like crazy).

Part of this is because banks have an incentive to push loans in a falling rate environment. If they need to repo your house, the falling rates help ensure they can resell the house easily.

Are there other factors at play outside of rates? Probably. But I am not seeing anything that makes me feel warm and fuzzy...

Today’s younger generation’s value system doesn’t seem to circle around nice houses like earlier generations. They would rather have expensive coffee and peletons.

Also, the largest population growth going forward is the hispanic population. They are much more likely as a group to have multiple families living in the same house.

You also have the downward pressure of the baby-boomers downsizing, selling, etc.

Housing is also arguably in a larger bubble than it was during the last collapse:

https://gordcollins.com/wp-content/uplo ... istory.png

Lastly, the chances of budget shortfalls in the future are enormous (again, refer to the CBO report). Higher property taxes seem inevitable.

The only plus I can think of is that you still get tax incentives through depreciation on the business side of it. However, if Trump ever has his tax returns exposed... those deductions could be a political unpopular issue going forward.
Last edited by ahhrunforthehills on Tue Oct 06, 2020 9:32 am, edited 2 times in total.
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Tue Oct 06, 2020 9:09 am

Sorry, one more... government has made it very clear lately that people don’t have to pay their rent if they lack emergency savings. Uncle Sam basically said real estate investors will be the first to be sacrificed during tough economic periods.

That definitely has to change the correlation dynamic between stocks and real-estate going forward.
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Re: Ray Dalio on Bonds

Post by Hal » Tue Oct 06, 2020 9:15 am

ahhrunforthehills wrote:
Tue Oct 06, 2020 9:09 am
Sorry, one more... government has made it very clear lately that people don’t have to pay their rent if they lack emergency savings. Uncle Sam basically said real estate investors will be the first to be sacrificed during tough economic periods.

That definitely has to change the correlation dynamic between stocks and real-estate going forward.
Seriously?? Can the landlord evict the tenant, or will the government pay the landlords bank loan if they have one :o
Are we living in "The Twilight Zone"?
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Re: Ray Dalio on Bonds

Post by l82start » Tue Oct 06, 2020 9:21 am

evictions are suspended, and outside what ever small business assistance is left over after big business sucked most of it up, is all they have. Property management is a whipping boy for the left, all rent is evil capitalism and slumlord-ism to them ..
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Re: Ray Dalio on Bonds

Post by mathjak107 » Thu Oct 08, 2020 5:24 am

even without covid , here in ny under the new laws a judge can give a delinquent tenant up to a year on your back under the new laws .

we are so glad we have nothing to do with real estate here anymore
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Re: Ray Dalio on Bonds

Post by Kbg » Fri Oct 09, 2020 10:06 pm

Speaking of real estate and bonds...I have mostly rolled to short and IT bonds but I still have a smidgeon of LTTs in my leveraged PP. However, I digress. I think I have sufficient cash and bond savings I overall, so I decided to back off accumulating more cash and bonds and throw the extra at my mortgage. I refinanced this year down to a 15 (alas I should have waited longer) and paid a bunch of points to buy down to a 2.25% irate.

Rationally, this is what the math dictates. If ST to IT bonds go above 2.25 and factoring in tax impacts I'll reverse.
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Re: Ray Dalio on Bonds

Post by Kriegsspiel » Sat Oct 10, 2020 6:28 am

ahhrunforthehills wrote:
Tue Oct 06, 2020 8:55 am
Hold the phone. Home loans get massively cheaper as yields drop, no? You simply get a lot more for your money.

18.45% Rate (Oct 1981) vs 3% (Now) on $300k 30 year fixed rate:
$4,632 vs $1,265 per month for the SAME EXACT HOUSE.

The average home has gotten much larger because people have more spending power to throw at houses (and because builders can now make your trim out of cardboard.

Here is the question:

Did real estate do just as well from 1941 to 1981 (rising rates) as it did from 1981 to 2021 (falling rates):

Image

Not even close.

It appears you are jumping from the Titanic into a lifeboat... but the lifeboat is welded to the deck of the titanic.

If (when) interest rates go up... the monthly price of an existing 5,000 sqft house goes up as well. Now you have fewer buyers. Since houses have gotten bigger (the bigger the house the more they cost to maintain) and they use less quality materials (increasing costs of repairs) the financial needs will be higher yet.

It reminds me of the best days of owning a boat.. the day you buy it and the day you sell it. When rates are falling everybody “has gotten a good deal on a new home”. But you are still talking about a pile of sticks sitting out in the rain. It doesn’t get better with age.

Also keep in mind other factors that have historically inflated real estate sales. Having a 20% down payment was the minimum many years ago. However, the time period you are backtesting is a period where people were able to put much much less down (which increases the risk like crazy).

Part of this is because banks have an incentive to push loans in a falling rate environment. If they need to repo your house, the falling rates help ensure they can resell the house easily.

Are there other factors at play outside of rates? Probably. But I am not seeing anything that makes me feel warm and fuzzy...

Today’s younger generation’s value system doesn’t seem to circle around nice houses like earlier generations. They would rather have expensive coffee and peletons.

Also, the largest population growth going forward is the hispanic population. They are much more likely as a group to have multiple families living in the same house.

You also have the downward pressure of the baby-boomers downsizing, selling, etc.

Housing is also arguably in a larger bubble than it was during the last collapse:

https://gordcollins.com/wp-content/uplo ... istory.png

Lastly, the chances of budget shortfalls in the future are enormous (again, refer to the CBO report). Higher property taxes seem inevitable.

The only plus I can think of is that you still get tax incentives through depreciation on the business side of it. However, if Trump ever has his tax returns exposed... those deductions could be a political unpopular issue going forward.
I think what you're talking about matters when discussing your own home's price, but not owning and operating real estate like a business like REITs do. REITs and other real estate investors can use low rates right now to secure the productive asset (the actual real estate), and can then respond to market conditions in whatever ways they need to. If inflation goes up and people start earning higher wages, they can raise the rent. If people don't want to live/work there, they can improve the property. If they can't get enough rent to be profitable, they can defer maintenance and let the property quality slide.

I guess what I'm getting at is that home buyers are more apt to use cheaper money to over-consume, but investors/business (maybe I should say good investors/business, since bad ones might operate more like an emotional homebuyer) would be looking at an investment rationally.
I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. Who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. . . Nothing is better for a man than to eat and drink and enjoy his work.
- Ecclesiastes
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