David Rosenberg: Long Treasuries Are Still The Safest Asset Around

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David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Fri Nov 27, 2020 8:47 am

New podcast that is worth a listen. Don't say I 100% agree with everything he says. But Dave is a smart guy and his opinion is well respected in the industry. It's a good contrary opinion to what you hear on this board lately. If you find yourself being super bearish on bonds, this is worth a listen to look at the argument from a different angle. FWIW I suspect Harry's opinion would be similar to the argument Dave makes here in many ways.

https://www.macrovoices.com/916-macrovo ... -inflation
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Kevin K. » Fri Nov 27, 2020 4:43 pm

Thanks for the link. I agree it's a good interview (easy to download the transcript, which I prefer).

I don't find Rosenberg's argument for 30 year T's all that compelling though. as of today 20 year T's are at 1.36%, 30 at 1.57%, making the 20 year bonds much more appealing it seems to me. Pretty easy to get 3 and 5 year CD's at very close to the 20 year T rate too. Meanwhile current S & P 500 dividend yield is 1.80%.

Personally I'm fine with a slice of TLT, iBonds and T-bills and the full gold allocation.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Fri Nov 27, 2020 4:51 pm

Kevin K. wrote:
Fri Nov 27, 2020 4:43 pm
Thanks for the link. I agree it's a good interview (easy to download the transcript, which I prefer).

I don't find Rosenberg's argument for 30 year T's all that compelling though. as of today 20 year T's are at 1.36%, 30 at 1.57%, making the 20 year bonds much more appealing it seems to me. Pretty easy to get 3 and 5 year CD's at very close to the 20 year T rate too. Meanwhile current S & P 500 dividend yield is 1.80%.

Personally I'm fine with a slice of TLT, iBonds and T-bills and the full gold allocation.
Right, well his argument wasn't that bonds were going to be a big money maker in and of themselves. But that they still had their place in a diversified portfolio. The safety arguments he used for inclusion in a diversified portfolio cannot be applied to a CD, nor to an S&P index fund. And right now T-Bills are a guaranteed real compound loss, signaled to continue for years to come by the Fed.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Kevin K. » Fri Nov 27, 2020 9:50 pm

pmward wrote:
Fri Nov 27, 2020 4:51 pm
Kevin K. wrote:
Fri Nov 27, 2020 4:43 pm
Thanks for the link. I agree it's a good interview (easy to download the transcript, which I prefer).

I don't find Rosenberg's argument for 30 year T's all that compelling though. as of today 20 year T's are at 1.36%, 30 at 1.57%, making the 20 year bonds much more appealing it seems to me. Pretty easy to get 3 and 5 year CD's at very close to the 20 year T rate too. Meanwhile current S & P 500 dividend yield is 1.80%.

Personally I'm fine with a slice of TLT, iBonds and T-bills and the full gold allocation.
Right, well his argument wasn't that bonds were going to be a big money maker in and of themselves. But that they still had their place in a diversified portfolio. The safety arguments he used for inclusion in a diversified portfolio cannot be applied to a CD, nor to an S&P index fund. And right now T-Bills are a guaranteed real compound loss, signaled to continue for years to come by the Fed.
Sure bonds still make sense in a diversified portfolio but what duration? FDIC-insured CD's are every bit as safe as Treasuries (yes I've read Browne and Rowland/Lawson's arguments against this and think they're pointless hair-splitting). And of course the S & P is extremely volatile but the fact that its nominal dividend yield trounces even LTT's is noteworthy.

As for T-bills (or short-term CDs for that matter), we're back to the old Will Rogers quip about banks: if you're more concerned about return OF your principal than return ON it they're perfect - without the very real risk of catastrophic losses for LTT's if interest rates spike.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 7:28 am

Kevin K. wrote:
Fri Nov 27, 2020 9:50 pm
Sure bonds still make sense in a diversified portfolio but what duration?
Depends how much "diversification" you want. The more volatile the instrument, the more "diversification" it provides per dollar invested. So one can get much more bang for the buck out of 30 year than 10 year for instance.
Kevin K. wrote:
Fri Nov 27, 2020 9:50 pm
FDIC-insured CD's are every bit as safe as Treasuries (yes I've read Browne and Rowland/Lawson's arguments against this and think they're pointless hair-splitting). And of course the S & P is extremely volatile but the fact that its nominal dividend yield trounces even LTT's is noteworthy.
As of close yesterday 30 year yield 1.57, S&P dividend 1.62. They are basically even for all intents and purposes. And both are long dated instruments. As for the FDIC thing, yeah that argument is probably a stretch. I would be lying if I said I had my cash savings in treasuries right now, CD's are definitely more attractive provided you're under the FDIC limit. But, I have to point back to the point above, that cash nor CD's provide the same hedging power that a long bond does. I think someone in a PP going for 50% cash in lieu of the 50/50 split would be a mistake, ESPECIALLY with cash being the only asset that currently is in a true secular bear market right now and is sure to have compound real losses indefinitely into the future.
Kevin K. wrote:
Fri Nov 27, 2020 9:50 pm
As for T-bills (or short-term CDs for that matter), we're back to the old Will Rogers quip about banks: if you're more concerned about return OF your principal than return ON it they're perfect - without the very real risk of catastrophic losses for LTT's if interest rates spike.
Sure, that's why some cash does make sense. But having someone go 100% all in cash right now doesn't really make sense. If we go into a period of inflation and the Fed implements yield curve control (a period like the 40s, which I think is highly likely) then cash would take just as big, if not worse of a beating than long term treasuries in real terms. I don't think people think this part through. The idea at that point would be to intentionally inflate away the debt, just like they did in the 40s. Cash would not be safe nominally speaking like it was in the 70s. I think too many people here look to the 70s for the inflation playbook, when they really need to be looking at the 40s.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by barrett » Sat Nov 28, 2020 8:04 am

pmward wrote:
Sat Nov 28, 2020 7:28 am
Sure, that's why some cash does make sense. But having someone go 100% all in cash right now doesn't really make sense. If we go into a period of inflation and the Fed implements yield curve control (a period like the 40s, which I think is highly likely) then cash would take just as big, if not worse of a beating than long term treasuries in real terms. I don't think people think this part through. The idea at that point would be to intentionally inflate away the debt, just like they did in the 40s. Cash would not be safe nominally speaking like it was in the 70s. I think too many people here look to the 70s for the inflation playbook, when they really need to be looking at the 40s.
If inflation is rising, won't T-Bill yields adjust upward as well? Or is that not what happened in the 1940s?
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 8:13 am

barrett wrote:
Sat Nov 28, 2020 8:04 am
pmward wrote:
Sat Nov 28, 2020 7:28 am
Sure, that's why some cash does make sense. But having someone go 100% all in cash right now doesn't really make sense. If we go into a period of inflation and the Fed implements yield curve control (a period like the 40s, which I think is highly likely) then cash would take just as big, if not worse of a beating than long term treasuries in real terms. I don't think people think this part through. The idea at that point would be to intentionally inflate away the debt, just like they did in the 40s. Cash would not be safe nominally speaking like it was in the 70s. I think too many people here look to the 70s for the inflation playbook, when they really need to be looking at the 40s.
If inflation is rising, won't T-Bill yields adjust upward as well? Or is that not what happened in the 1940s?
Nope not what happened. In yield curve control the Fed sets the yield curve. In the 40s they set the entire curve at 2.5% ceiling. They would not do that these days, they would want a more ideal curve and target each maturity differently, just like Japan is doing. They would hold the short term down at 0 basically. They likely would allow a normal "curve", so a cap of like 2-3% on the 30 year would probably be the level they would cap at. So the long end would perform better on the whole in this environment in real terms, though both would take real losses the long bond would be less. Cash would basically be lit on fire and destroyed.

I'm also expecting the intermittent spikes of inflation from the 40's to be the base case, instead of the consistent year after year inflation like we had in the 70s. So like boom surprise 15% inflation one year, then 2-3 years of 2% for people to get comfortable and think it's over, then boom 12% another year, etc. While holding the short end of the curve at 0, those real compound losses would basically wipe the cash portion out. It would also make the "deficit" problem go bye bye. I think for anyone that is going to buy and hold bonds, there are more risks than most realize in cash going forward compared to the long bond. I'm not saying this is 100% how it will play out, but there are reasons to believe it is possible, and in many ways we are in an environment more similar to the late 30s than the late 60s.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 8:23 am

So basically, I still think for buy and hold bonds the barbell is more "safe" going forward than 100% cash. And just imagine what happens to gold on a year where the short end is 0%, the long end is say 3%, and inflation registers 10%+. Stocks would also perform much better in this environment than they did in the 70s.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by barrett » Sat Nov 28, 2020 8:27 am

Very interesting and thanks for answering so quickly, pmward.

I know you are a big Ray Dalio fan and one of the things that I find curious in his "bonds are a terrible investment at the moment" position (I'm paraphrasing) is that I haven't heard him say anything about 20-30 year treasuries. In other words, in everything I've listened to from Dalio over the past 7-8 months, he basically seems to be saying that all bonds are a bad investment. And this coming from someone who has traditionally been a big fan of long-dated T-Bonds.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 8:30 am

barrett wrote:
Sat Nov 28, 2020 8:27 am
Very interesting and thanks for answering so quickly, pmward.

I know you are a big Ray Dalio fan and one of the things that I find curious in his "bonds are a terrible investment at the moment" position (I'm paraphrasing) is that I haven't heard him say anything about 20-30 year treasuries. In other words, in everything I've listened to from Dalio over the past 7-8 months, he basically seems to be saying that all bonds are a bad investment. And this coming from someone who has traditionally been a big fan of long-dated T-Bonds.
Yeah, remember my argument is not bullish bonds. Long bonds will still take a loss in the scenario, just when it's all said and done it would be less of a total real loss than cash.. So I agree with Dalio that stocks and commodities are the likely winners *if* this scenario plays out. But, if someone is going to hold a diversified portfolio like the PP and doesn't want to take any active bets, the barbell still seems more safe to me than going all in on cash. I think cash is likely to be the worst performing asset in real terms going forward for many years. It's basically a fixed yearly compound loss at this point in time.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Kevin K. » Sat Nov 28, 2020 9:39 am

I really appreciate your posts pmward - thanks for sharing your thoughts.

I don't disagree at all with the logic, but am in the Bill Bernstein (or even Golden Butterfly) camp in believing that tilting towards prosperity and inflation protection (e.g. with the GB's 5 x 20% allocation) generally makes more sense. Or to put it another way (this straight out of Bernstein's "Deep Risk"), I don't think it makes sense to be so in love with the simple symmetry of 4 equally-weighted assets that one actually allocates equal amounts to defend against conditions that are anything but equally likely to occur and whose insurance costs vary greatly. So with respect to the bond/cash allocation, I think there are plenty of alternatives to the barbell that could make sense: 15% LTT's, 35% T-bills, 10-15% in high-yield CDs and the rest in ITT's, etc., as well as increasing the equity allocation to 40% (and including some international) GB-style while keeping the bonds and cash to 40% total.

I feel like I'd be remiss to not point out that iBonds and (if one is young enough - I'm not) EE's are infinitely better investments than Treasuries or CDs of any duration, albeit with PITA annual purchase limits:

https://seekingalpha.com/article/438430 ... n-20-years

To barrett's point, Dalio's hedge fund changes its allocations frequently and what he shares in Bridgewater's publicly published newsletters is always rear-view mirror info. As I recall they upped their gold holdings, ditched most of their Treasuries and have been heavily focused on getting into Chinese government long bonds paying 3%. But they're also looking at currency arbitrage 24/7 and in general focused on strategies that are the antithesis of buy and hold and which include asset classes not available to ordinary retail investors. AND as we know, the chances they'll woefully underperform a plain vanilla PP over time are quite high.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 11:40 am

Kevin K. wrote:
Sat Nov 28, 2020 9:39 am
I really appreciate your posts pmward - thanks for sharing your thoughts.

I don't disagree at all with the logic, but am in the Bill Bernstein (or even Golden Butterfly) camp in believing that tilting towards prosperity and inflation protection (e.g. with the GB's 5 x 20% allocation) generally makes more sense. Or to put it another way (this straight out of Bernstein's "Deep Risk"), I don't think it makes sense to be so in love with the simple symmetry of 4 equally-weighted assets that one actually allocates equal amounts to defend against conditions that are anything but equally likely to occur and whose insurance costs vary greatly. So with respect to the bond/cash allocation, I think there are plenty of alternatives to the barbell that could make sense: 15% LTT's, 35% T-bills, 10-15% in high-yield CDs and the rest in ITT's, etc., as well as increasing the equity allocation to 40% (and including some international) GB-style while keeping the bonds and cash to 40% total.
You're preaching to the choir on this one. I think the 4x25 was indeed meant for ease of use and implementation more than anything performance related. And yes, the alternatives you've listed all could definitely help the issue. These things are non-binary. These would indeed be more intelligent than say booting all LTT's for cash.
Kevin K. wrote:
Sat Nov 28, 2020 9:39 am
https://seekingalpha.com/article/438430 ... n-20-years

To barrett's point, Dalio's hedge fund changes its allocations frequently and what he shares in Bridgewater's publicly published newsletters is always rear-view mirror info. As I recall they upped their gold holdings, ditched most of their Treasuries and have been heavily focused on getting into Chinese government long bonds paying 3%. But they're also looking at currency arbitrage 24/7 and in general focused on strategies that are the antithesis of buy and hold and which include asset classes not available to ordinary retail investors. AND as we know, the chances they'll woefully underperform a plain vanilla PP over time are quite high.
Well the problem with Bridgewater's reported allocations is they only ever report as a whole, not for their individual funds. Their "All-Weather" is a quant fund. They are always going to have bonds at the level that risk parity algorithm systematically determines. He is not going to forego bonds in the "All-Weather" because he believes they will likely underperform in the future. The "Pure Alpha" on the other hand is a discretionary fund, where they are taking their views and trying to produce Alpha. Dalio believes in a HB like approach, where you have a mix of both... your defense (All-Weather/PP) and offense (Pure-Alpha/VP). A GB like allocation to stocks also fits this offense bill to try to chase some extra alpha.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Kevin K. » Sat Nov 28, 2020 12:51 pm

Another great post pmward and in one short paragraph you convey more valuable information on Dalio and Bridgewater than pages of stuff I've read on Bogleheads and other forums. Even when you discount the 80-90% of folks who conflate Dalio and Bridgewater with Tony Robbin's "All Seasons" portfolio much of the rest of the typical comments I see dismiss Dalio because of his wrong calls or maintain that the sacred "Three Fund" porfolio is all the risk parity anyone needs.

Thank you again for consistently adding so much value to these forums. I learn a lot from you.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by pmward » Sat Nov 28, 2020 1:56 pm

Kevin K. wrote:
Sat Nov 28, 2020 12:51 pm
Another great post pmward and in one short paragraph you convey more valuable information on Dalio and Bridgewater than pages of stuff I've read on Bogleheads and other forums. Even when you discount the 80-90% of folks who conflate Dalio and Bridgewater with Tony Robbin's "All Seasons" portfolio much of the rest of the typical comments I see dismiss Dalio because of his wrong calls or maintain that the sacred "Three Fund" porfolio is all the risk parity anyone needs.

Thank you again for consistently adding so much value to these forums. I learn a lot from you.
Thanks, I appreciate it!! And yeah, Robbins is not at all a Dalio portfolio. Dalio is not a buy and hold guy at all. All-Weather is a quant strategy and Pure Alpha is a discretionary strategy. People can dismiss Dalio all they want, but he got to where he is for a reason. Now, it's hard for risk parity at this point to continue it's dominance... but that's because it's grown so big. Not only at Bridgwater but how many copy cat funds are there out there? Quant strategies can only work when they are following the market. They break down when a strategy becomes the market. This was seen in March when all the "risk parity" funds had to rebalance, and it caused that quick crash, and marked the exact bottom. Risk parity has grown a bit too big to stay as effective as it was in the past. Eventually there will have to be shake out in funds. Likely Bridgewater will still be there, but many of the copy cats will go out of business.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by mathjak107 » Sat Nov 28, 2020 6:55 pm

pmward wrote:
Sat Nov 28, 2020 1:56 pm
Kevin K. wrote:
Sat Nov 28, 2020 12:51 pm
Another great post pmward and in one short paragraph you convey more valuable information on Dalio and Bridgewater than pages of stuff I've read on Bogleheads and other forums. Even when you discount the 80-90% of folks who conflate Dalio and Bridgewater with Tony Robbin's "All Seasons" portfolio much of the rest of the typical comments I see dismiss Dalio because of his wrong calls or maintain that the sacred "Three Fund" porfolio is all the risk parity anyone needs.

Thank you again for consistently adding so much value to these forums. I learn a lot from you.
Thanks, I appreciate it!! And yeah, Robbins is not at all a Dalio portfolio. Dalio is not a buy and hold guy at all. All-Weather is a quant strategy and Pure Alpha is a discretionary strategy. People can dismiss Dalio all they want, but he got to where he is for a reason. Now, it's hard for risk parity at this point to continue it's dominance... but that's because it's grown so big. Not only at Bridgwater but how many copy cat funds are there out there? Quant strategies can only work when they are following the market. They break down when a strategy becomes the market. This was seen in March when all the "risk parity" funds had to rebalance, and it caused that quick crash, and marked the exact bottom. Risk parity has grown a bit too big to stay as effective as it was in the past. Eventually there will have to be shake out in funds. Likely Bridgewater will still be there, but many of the copy cats will go out of business.
Very well said
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by dualstow » Thu Dec 03, 2020 8:43 am

I can’t imagine abandoning my long treasuries, even though I am also not bullish.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by ppnewbie » Mon Dec 14, 2020 12:38 pm

One perspective on the interest rate for long term bonds is that they compete with other asset classes. LTT prices are high when there is no good alternative in the market. If stocks, gold, or cash become better places to park / invest money LTT's will become cheaper. Incidentally, I heard that the BIS has named Gold as a tier one asset. Which to me means that LTT's could become cheaper vs gold. But I do not see cash or stocks as something that could be classified as a good value.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Kevin K. » Tue Dec 22, 2020 9:37 am

How's this for an interesting factoid: the most recent rate for 30 year Treasuries and the current rate for iBonds is exactly the same: 1.68% - except, of course, for the fact that the iBond's rate will be adjusted for inflation for up to 30 years and no income tax is due until redemption.

Too bad about the 10K annual purchase limit 'cause the safest asset around sure ain't long treasuries.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by AdamA » Tue Dec 22, 2020 6:53 pm

Kevin K. wrote:
Tue Dec 22, 2020 9:37 am
How's this for an interesting factoid: the most recent rate for 30 year Treasuries and the current rate for iBonds is exactly the same: 1.68% - except, of course, for the fact that the iBond's rate will be adjusted for inflation for up to 30 years and no income tax is due until redemption.

Too bad about the 10K annual purchase limit 'cause the safest asset around sure ain't long treasuries.
I love iBonds too, but you really can't compare them to LTTs. No capital appreciation when interest rates go down.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Dieter » Tue Dec 22, 2020 9:56 pm

AdamA wrote:
Tue Dec 22, 2020 6:53 pm
Kevin K. wrote:
Tue Dec 22, 2020 9:37 am
How's this for an interesting factoid: the most recent rate for 30 year Treasuries and the current rate for iBonds is exactly the same: 1.68% - except, of course, for the fact that the iBond's rate will be adjusted for inflation for up to 30 years and no income tax is due until redemption.

Too bad about the 10K annual purchase limit 'cause the safest asset around sure ain't long treasuries.
I love iBonds too, but you really can't compare them to LTTs. No capital appreciation when interest rates go down.
Yeah, more Cash
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by mathjak107 » Wed Dec 23, 2020 10:30 am

Kevin K. wrote:
Tue Dec 22, 2020 9:37 am
How's this for an interesting factoid: the most recent rate for 30 year Treasuries and the current rate for iBonds is exactly the same: 1.68% - except, of course, for the fact that the iBond's rate will be adjusted for inflation for up to 30 years and no income tax is due until redemption.

Too bad about the 10K annual purchase limit 'cause the safest asset around sure ain't long treasuries.
Since I last sold out of Tlt and Gld it went up another 9k from where I sold.

So I have been out of both until yesterday when I got back in to gold after it gave 98% of that back .

I am watching Tlt which is now up a few hundred bucks from where I last sold .and may actually fall below

Phew , it gave back thousands pretty quickly
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Smith1776 » Wed Dec 23, 2020 1:53 pm

Some of my latest thinking (of course in the context of Canadian investing) is to use two intermediate term bond funds instead of the long/short barbell.

The first bond fund being domestic government intermediates. The second one being global intermediate sovereigns with currency hedging. In Canada you could easily accomplish this with ZFM and XGGB.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Hal » Wed Dec 23, 2020 6:18 pm

Smith1776 wrote:
Wed Dec 23, 2020 1:53 pm
Some of my latest thinking (of course in the context of Canadian investing) is to use two intermediate term bond funds instead of the long/short barbell.

The first bond fund being domestic government intermediates. The second one being global intermediate sovereigns with currency hedging. In Canada you could easily accomplish this with ZFM and XGGB.
Think that is reasonable. Doing something similar with funds in employers Superannuation scheme ie 2:1 International intermediate bonds to International shares with 25% Gold held outside Superannuation.
https://aware.com.au/member/investments ... nit-prices

Feel much safer having portfolio weighted to global capitalisation instead of just Australian. If I wanted to be pedantic, could include Australian Bonds/ Equities but that accounts for only approx 2% global cap.

Especially with our insane property bubble and just having watched this -> https://www.youtube.com/watch?v=wdhEnzZ6EuM
Interestingly enough, the video matches "exactly" with people I had talked to who lived through the last property crash back in the 30's.

Whats your reasoning for going the intermediate bond route Smithy?
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by Smith1776 » Wed Dec 23, 2020 9:01 pm

Hal wrote:
Wed Dec 23, 2020 6:18 pm

Whats your reasoning for going the intermediate bond route Smithy?
I don't think I have an inherent preference for all intermediates over the long/short barbell. What I've always preached has been the international diversification piece. In Canada there's only one fund that holds global bonds that are strictly government issues. It happens to be an intermediate term fund. So, in order to get the same exposure to term risk as the vanilla PP then the domestic bond portion pretty much has to be intermediate by default.

I guess having two intermediate term funds also removes the feeling of "wasting" tax advantaged space with cash too.
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Re: David Rosenberg: Long Treasuries Are Still The Safest Asset Around

Post by ppnewbie » Mon Feb 15, 2021 2:11 am

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.
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