Ray Dalio on Bonds

Discussion of the Bond portion of the Permanent Portfolio

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AllWeatherPP
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Re: Ray Dalio on Bonds

Post by AllWeatherPP » Sun Oct 04, 2020 5:26 am

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mathjak107
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Re: Ray Dalio on Bonds

Post by mathjak107 » Sun Oct 04, 2020 5:38 am

AllWeatherPP wrote:
Sun Oct 04, 2020 5:26 am
Some more anti-bond sentiment:

https://investingsignal.com/2020/10/03/ ... t-plunges/
this is why i said above we need to stop with the mental masturbation by reading what was or used to be , or how things may have back tested and concentrate on how things are reacting going forward .

driving and looking in the rear view mirror may not be a great idea .
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Re: Ray Dalio on Bonds

Post by AdamA » Mon Oct 05, 2020 12:56 pm

mathjak107 wrote:
Sun Oct 04, 2020 5:38 am


this is why i said above we need to stop with the mental masturbation by reading what was or used to be , or how things may have back tested and concentrate on how things are reacting going forward .

driving and looking in the rear view mirror may not be a great idea .
What do you guys think the worse case scenario is for the Long Term Treasury market?
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Re: Ray Dalio on Bonds

Post by mathjak107 » Mon Oct 05, 2020 1:06 pm

no idea .... i wouldn't attempt to guess .
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Re: Ray Dalio on Bonds

Post by Xan » Mon Oct 05, 2020 1:10 pm

Aren't you guessing by saying you don't want to hold them anymore?
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Re: Ray Dalio on Bonds

Post by mathjak107 » Mon Oct 05, 2020 1:32 pm

yep , it is a weighted educated guess just based on risk vs reward and fed policy . but i have no idea how bad it can get for long term bonds
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Re: Ray Dalio on Bonds

Post by mathjak107 » Mon Oct 05, 2020 2:07 pm

i am toying with a quick trade in TLT .. it is getting beat up today .
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Re: Ray Dalio on Bonds

Post by mathjak107 » Mon Oct 05, 2020 2:33 pm

Took a shot with Tlt . 625 shares 159.63.
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Mon Oct 05, 2020 3:16 pm

AdamA wrote:
Mon Oct 05, 2020 12:56 pm
mathjak107 wrote:
Sun Oct 04, 2020 5:38 am


this is why i said above we need to stop with the mental masturbation by reading what was or used to be , or how things may have back tested and concentrate on how things are reacting going forward .

driving and looking in the rear view mirror may not be a great idea .
What do you guys think the worse case scenario is for the Long Term Treasury market?
I think negative rates are unlikely. If you do get them, I can't imagine them being more than -.25% or -.5%. Anything more than that would be way too much stress on the financial sector and would force too many people towards alternative stores of wealth.

Again, keep in mind that gold is effectively a 0% treasury with no counter-party risk. Not to mention the long-term inverse correlation between stocks/gold is stronger than stocks/bonds. The only real downside is the spread.

But also keep in mind that your Uncle Sam has other options as well. If he hits zero at the long-end of the yield curve, he could just as easily create a 50 year or 100 year treasury to squeeze more juice out of it (albeit with diminishing results).

You could be telling your great-grandkids "I remember when 1,000 year treasuries were yielding 0.35%... those were the days!"

Would that make the PP still viable with ultra-long duration bonds? It does in theory.

However, if you take a look at that latest report from the Congressional Budget Office for the next 30 years... I think it would be obvious to a 4 year old that based on current yields and future expenditures... holding Long-Term Treasuries over the long term is pretty crazy. Another industrial revolution wouldn't be enough to get America out of our hole. You are staring down the barrel of either default or hyperinflation.

I am only aware of one leader who was able to effectively bring his people out of a mountain of debt, made sure his people were well fed, provided lots of social programs, and boosting wages more than double that of other leading nations. His people loved him. The guy was a German named Adolf.

Even if this happened in america, I suspect rates will rise BEFORE we start brutally robbing people in other countries.

So obviously ultra-long duration bonds start really walking up that risk curve. How much risk is really dependent on how things play out over the rest of your life.

The PP has short-term volatility. I suspect it will be a dog performance-wise in the future. You can either go with the dog or extend the length of that short-term volatility. If you can stomach 4 or 5 years of volatility, being in a 2:1 or 3:1 stock/gold allocation would probably provide you with much better "safety" while maximizing yields in regards to risk over the long-term.

Obviously, if you are near retirement, you do not necessarily have that luxury of 4 to 5 years of volatility. At which point, you would want to look towards shorter duration bonds (like mathjak has done).
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Re: Ray Dalio on Bonds

Post by modeljc » Mon Oct 05, 2020 4:06 pm

ahhrunforthehills wrote:
Mon Oct 05, 2020 3:16 pm
AdamA wrote:
Mon Oct 05, 2020 12:56 pm
mathjak107 wrote:
Sun Oct 04, 2020 5:38 am


this is why i said above we need to stop with the mental masturbation by reading what was or used to be , or how things may have back tested and concentrate on how things are reacting going forward .

driving and looking in the rear view mirror may not be a great idea .
What do you guys think the worse case scenario is for the Long Term Treasury market?
I think negative rates are unlikely. If you do get them, I can't imagine them being more than -.25% or -.5%. Anything more than that would be way too much stress on the financial sector and would force too many people towards alternative stores of wealth.

Again, keep in mind that gold is effectively a 0% treasury with no counter-party risk. Not to mention the long-term inverse correlation between stocks/gold is stronger than stocks/bonds. The only real downside is the spread.

But also keep in mind that your Uncle Sam has other options as well. If he hits zero at the long-end of the yield curve, he could just as easily create a 50 year or 100 year treasury to squeeze more juice out of it (albeit with diminishing results).

You could be telling your great-grandkids "I remember when 1,000 year treasuries were yielding 0.35%... those were the days!"

Would that make the PP still viable with ultra-long duration bonds? It does in theory.

However, if you take a look at that latest report from the Congressional Budget Office for the next 30 years... I think it would be obvious to a 4 year old that based on current yields and future expenditures... holding Long-Term Treasuries over the long term is pretty crazy. Another industrial revolution wouldn't be enough to get America out of our hole. You are staring down the barrel of either default or hyperinflation.

I am only aware of one leader who was able to effectively bring his people out of a mountain of debt, made sure his people were well fed, provided lots of social programs, and boosting wages more than double that of other leading nations. His people loved him. The guy was a German named Adolf.

Even if this happened in america, I suspect rates will rise BEFORE we start brutally robbing people in other countries.

So obviously ultra-long duration bonds start really walking up that risk curve. How much risk is really dependent on how things play out over the rest of your life.

The PP has short-term volatility. I suspect it will be a dog performance-wise in the future. You can either go with the dog or extend the length of that short-term volatility. If you can stomach 4 or 5 years of volatility, being in a 2:1 or 3:1 stock/gold allocation would probably provide you with much better "safety" while maximizing yields in regards to risk over the long-term.

Obviously, if you are near retirement, you do not necessarily have that luxury of 4 to 5 years of volatility. At which point, you would want to look towards shorter duration bonds (like mathjak has done).
If you can stomach 4 or 5 years of volatility, being in a 2:1 or 3:1 stock/gold allocation would probably provide you with much better "safety" while maximizing yields in regards to risk over the long-term.

What is 2:1 allocation? 50% stock and 25% Gold? 25% cash or short duration bonds like SHY?
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Re: Ray Dalio on Bonds

Post by ahhrunforthehills » Mon Oct 05, 2020 4:44 pm

modeljc wrote:
Mon Oct 05, 2020 4:06 pm
ahhrunforthehills wrote:
Mon Oct 05, 2020 3:16 pm
AdamA wrote:
Mon Oct 05, 2020 12:56 pm
mathjak107 wrote:
Sun Oct 04, 2020 5:38 am


this is why i said above we need to stop with the mental masturbation by reading what was or used to be , or how things may have back tested and concentrate on how things are reacting going forward .

driving and looking in the rear view mirror may not be a great idea .
What do you guys think the worse case scenario is for the Long Term Treasury market?
I think negative rates are unlikely. If you do get them, I can't imagine them being more than -.25% or -.5%. Anything more than that would be way too much stress on the financial sector and would force too many people towards alternative stores of wealth.

Again, keep in mind that gold is effectively a 0% treasury with no counter-party risk. Not to mention the long-term inverse correlation between stocks/gold is stronger than stocks/bonds. The only real downside is the spread.

But also keep in mind that your Uncle Sam has other options as well. If he hits zero at the long-end of the yield curve, he could just as easily create a 50 year or 100 year treasury to squeeze more juice out of it (albeit with diminishing results).

You could be telling your great-grandkids "I remember when 1,000 year treasuries were yielding 0.35%... those were the days!"

Would that make the PP still viable with ultra-long duration bonds? It does in theory.

However, if you take a look at that latest report from the Congressional Budget Office for the next 30 years... I think it would be obvious to a 4 year old that based on current yields and future expenditures... holding Long-Term Treasuries over the long term is pretty crazy. Another industrial revolution wouldn't be enough to get America out of our hole. You are staring down the barrel of either default or hyperinflation.

I am only aware of one leader who was able to effectively bring his people out of a mountain of debt, made sure his people were well fed, provided lots of social programs, and boosting wages more than double that of other leading nations. His people loved him. The guy was a German named Adolf.

Even if this happened in america, I suspect rates will rise BEFORE we start brutally robbing people in other countries.

So obviously ultra-long duration bonds start really walking up that risk curve. How much risk is really dependent on how things play out over the rest of your life.

The PP has short-term volatility. I suspect it will be a dog performance-wise in the future. You can either go with the dog or extend the length of that short-term volatility. If you can stomach 4 or 5 years of volatility, being in a 2:1 or 3:1 stock/gold allocation would probably provide you with much better "safety" while maximizing yields in regards to risk over the long-term.

Obviously, if you are near retirement, you do not necessarily have that luxury of 4 to 5 years of volatility. At which point, you would want to look towards shorter duration bonds (like mathjak has done).
If you can stomach 4 or 5 years of volatility, being in a 2:1 or 3:1 stock/gold allocation would probably provide you with much better "safety" while maximizing yields in regards to risk over the long-term.

What is 2:1 allocation? 50% stock and 25% Gold? 25% cash or short duration bonds like SHY?
Sorry, I should have been more clear.... and I actually just realized I made a bad typo. I meant 1:2 or 2:3 allocation.

Cash isn't really that important if you can deal with 4 or 5 years of volatility. If you have income, you could be 40% gold and 60% stock for a 2:3 allocation. I would base the ratio based on historical data still. For example, you can adjust based on SWR and CAPE (and other factors) using this spreadsheet:

https://earlyretirementnow.com/2018/08/ ... s-part-28/

Belangp does some really good research on it as well: https://www.youtube.com/user/belangp/videos

Some of his views are backed up by research here: https://earlyretirementnow.com/2020/01/ ... s-part-34/

EarlyRetirementNow is a great resource because the guy is skeptical of gold... which is great because I don't want or need some gold-bug giving me data created to fill his narrative.

Belangp determined the best approach is to never rebalance (as it causes too much tax drag). You just draw from the highest performing asset.

Another variation could be 30% gold, 60% stock, 10% cash.
Last edited by ahhrunforthehills on Mon Oct 05, 2020 6:54 pm, edited 2 times in total.
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mathjak107
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Re: Ray Dalio on Bonds

Post by mathjak107 » Mon Oct 05, 2020 5:30 pm

Drawing from the highest asset is rebalancing for the most part
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