David Rosenberg: Long Treasuries Are Still The Safest Asset Around

[Kevin K.]

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.

[pmward]

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.

[mathjak107]

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

[dualstow]

I can’t imagine abandoning my long treasuries, even though I am also not bullish.

[ppnewbie]

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.

[Kevin K.]

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.

[AdamA]

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.

[Dieter]

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

[mathjak107]

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

[Smith1776]

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.

[Hal]

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?

[Smith1776]

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.

[ppnewbie]

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.

[mathjak107]

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.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

[dualstow]

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.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

But that’s why the pp has 3 other assets. One that would see higher interest rates, another that is a bet on prosperity, and one that may very well eventually rise with inflation.

[mathjak107]

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.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

But that’s why the pp has 3 other assets. One that would see higher interest rates, another that is a bet on prosperity, and one that may very well eventually rise with inflation.

Gold has been quite poor at just rising with inflation ..it needs either quite high inflation or pretty negative interest rates ...bonds typically tend to level out at inflation which makes gold not so likely to do well either...


People tend to think gold does well with normal inflation increasing but that is a myth.

The perception of future inflation creeping up has both my Tlt and Gld sucking wind right now

[Kevin K.]

I still haven't seen anything on gold that's as good as Tyler's writeup from last year:

https://portfoliocharts.com/2020/08/21/ ... #inflation

Regarding just one part of it, he points out that the positive correlation is to negative real interest rates rather than inflation per se. And we've got those of course, along with the near-certainty of much further currency debasement/money printing/"quantitative easing" yet to come.

So at the risk of sounding like a broken record, it seems to me that the PP-derived idea of having assets to deal with key economic conditions still makes sense, but that 4 x 25% has never made sense given that the four conditions aren't equally likely and have very different costs to insure against (paraphrasing William Bernstein). Thus the Golden Butterfly, or switching out some or all of the LTT's for ITT's and some iBonds, looking beyond the FAANG-driven total U.S. Stock market and other possible modifications. But I'm not letting my gold go below 20%.

[dualstow]

People tend to think gold does well with normal inflation increasing but that is a myth.

The perception of future inflation creeping up has both my Tlt and Gld sucking wind right now

I was careful to put “may” and “eventually” in there, but the point stands that even if long bonds are a bet against the fed, they’re only 25%-of-your-money bet.

[dualstow]

btw, I think this think will open up the podcast linked in the OP on your Apple device, for those of you that prefer that:
https://podcasts.apple.com/us/podcast/m ... 0500278432

[ppnewbie]

I agree with Kevin. I’m just letting my LTTs fade a bit - they are at about 20 percent at the moment and my PP is tilting towards a bet that we will see inflation. But if there is another major crash I think the LTT’s will help keep the ship upright.

[mathjak107]

Cash under rising but low inflation is sucking wind too ..so it could be cash , bonds and gold.

I hope not as I have multiple 7 figures in the pp but it can happen

[dualstow]

I agree with Kevin. I’m just letting my LTTs fade a bit - they are at about 20 percent at the moment and my PP is tilting towards a bet that we will see inflation. But if there is another major crash I think the LTT’s will help keep the ship upright.

is there a percentage that you guys are shooting for? % of pp? % of pp+vp?

[dualstow]

Several years ago, there was a post from...I want to say either 6 Iron or Lonestar, saying, “I feel incredibly stupid right now because I’m selling long bonds to buy new ones.” The message was clear and I was sympathetic to it: bond yields looked like they had nowhere to go but up. The pp calls for replacing bonds with 20 years left for 30-year ones to get that powerful volatility back that 20-year ones, like brownish ageing SCOBYs in a vat of kombucha, no longer have.

6 iron or lonestar did what I aspire to. I wouldn’t characterize it as slavish devotion to dogma but as discipline. Sure, if you know where interest rates are going, you’re taking a calculated risk which is not as bad as acting on emotions. I don’t know where interest rates are going nor where stocks are going so as an agnostic, the best thing I can do is stay the course.

When I started out, I bought some bonds at with the low, low yield of 4.75%. Some bonds. I didn’t go all in like crawlingroad.com (later to spawn gyroscopicinvesting) founder craigr because I was hesitant. I had heard that bond yields were low and I thought, nothing wrong with easing into the pp. I’ll just add bonds gradually as the yield rises. That hesitancy did cost me, even though I was being passive and not making an active bet that yields would rise. I wish I had been agnostic and disciplined.

[Kevin K.]

I have no idea where interest rates are going either but I've replaced the LTT's with ITT's in my GB.

Over long periods of time ITT's have been a wash with the LTT/MM barbell but with less volatility. But that's looking at the historic 40 year bull market in bonds in the rear view mirror. The risk:reward ratio for LTT's at this point is, as any number of others have said, such that it's hard to imagine Harry Browne advocating owning them at all. YMMV.

https://www.portfoliovisualizer.com/bac ... tion6_3=20

[mathjak107]

In flight to safety the long treasuries tend to trade far more like stocks based on greed , fear and perception...so the long term treasuries and short term barbell tend to have more oomph than just intermediate term bonds