Fed damaging bond market

Discussion of the Bond portion of the Permanent Portfolio

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seajay
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Re: Fed damaging bond market

Post by seajay » Thu Apr 07, 2022 6:51 pm

buddtholomew wrote:
Thu Mar 31, 2022 9:35 am
I’ve always liked the philosophy but in action you lose a lot to a traditional 60/40
For some, its not a personal loss risk, rather a potential loss risk for heirs/charities/taxman.

PP diversification equally across cash, stocks, bonds, gold includes in part sub-sets of all other choices of asset allocation, such as around 40% in a 60/40, 60% remainder in a blend of bonds, cash, gold.

Even a sole cash deposit newly retired 65 year old drawing a 3.3% SWR where that cash yields -3% real would see that last 20+ years and have been successful in around two-thirds of cases (for those that didn't live to see 85). 0% real, 30 years, and even more successful. Rather than just cash however diversifying more widely and the likelihood is for even higher success rates.

I suspect not having the grandest tombstone in the graveyard is not a lot of a loss for many.
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Re: Fed damaging bond market

Post by seajay » Thu Apr 07, 2022 7:34 pm

In computing one of the greatest security risks is between the keyboard and back of chair. The same also holds for investment risk. Swapping/changing (profit chasing) on average yields worse outcomes than had the investor just held cash deposits.

Another primary risk is that of earlier years sequence of returns. If you reach your capital goal to retire but that capital halves relatively quickly thereafter then you're on a potential path to failure. A newly retired who opts to diversify equally across stocks/cash/bonds/gold is better placed to reduce that risk.

Hit retirement, buy a PP, and forget about it, retire. It's not even necessary to review/rebalance, partial rebalancing might be achieved by direction of periodic withdrawals, excepting if it becomes very obvious that the portfolio had become excessively tilted.

Yes there is a realistic regret risk of alternative assets/asset-allocations having yielded more, for instance I suspect a 1970's investors would regret not having held some/all gold.

With the best of intentions buddtholomew I suspect in regard to risk you need to look at a mirror as you seem very inclined towards falling into the first paragraph above. Not a dig at you, purely intended as possible advice. Some of the best investors I have known didn't even know it, true long term buy and holders with little/no interest in their holdings who had accumulated considerable wealth well above their needs.
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Re: Fed damaging bond market

Post by GT » Fri Apr 08, 2022 10:01 am

seajay wrote:
Thu Apr 07, 2022 7:34 pm
In computing one of the greatest security risks is between the keyboard and back of chair. The same also holds for investment risk. Swapping/changing (profit chasing) on average yields worse outcomes than had the investor just held cash deposits.

Another primary risk is that of earlier years sequence of returns. If you reach your capital goal to retire but that capital halves relatively quickly thereafter then you're on a potential path to failure. A newly retired who opts to diversify equally across stocks/cash/bonds/gold is better placed to reduce that risk.

Hit retirement, buy a PP, and forget about it, retire. It's not even necessary to review/rebalance, partial rebalancing might be achieved by direction of periodic withdrawals, excepting if it becomes very obvious that the portfolio had become excessively tilted.

Yes there is a realistic regret risk of alternative assets/asset-allocations having yielded more, for instance I suspect a 1970's investors would regret not having held some/all gold.

With the best of intentions buddtholomew I suspect in regard to risk you need to look at a mirror as you seem very inclined towards falling into the first paragraph above. Not a dig at you, purely intended as possible advice. Some of the best investors I have known didn't even know it, true long term buy and holders with little/no interest in their holdings who had accumulated considerable wealth well above their needs.
In computing one of the greatest security risks is between the keyboard and back of chair. The same also holds for investment risk. Swapping/changing (profit chasing) on average yields worse outcomes than had the investor just held cash deposits.
Nailed it!

I would also add - setting unrealistic expectations for the investments or portfolio

Example - The investor reads the phrase "money you cannot afford to lose" and creates an expectation of "money I will never lose" whereby the portfolio should never have a negative dip in performance - ever - i.e. there are only 2 hours left in the trading day and gold has not gone up enough in value to offset the stock market dip- this portfolio is so broken. It seems to me, once the investor's self defined expectations are not met - trust in the investments or portfolio is broken; which leads to portfolio rejection and feeling of being "duped".
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Re: Fed damaging bond market

Post by Cortopassi » Fri Apr 08, 2022 12:17 pm

It is unfortunate that at any timescale/starting point from 1 day to 20 years (to today), TLT has severely underperformed gold and the overall market.

I still hold it, yes, but damn it's been painful for the past few months.

I am definitely worried in trying to tame inflation that all assets are going to do poorly for a while.
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Re: Fed damaging bond market

Post by buddtholomew » Fri Apr 08, 2022 2:27 pm

I’m sure glad i sold TLT.
Perhaps I am the poster child for behavioral pitfalls, but I will not fight the last battle when the cards are stacked against me.

Corto, if ALL assets are going to do poorly for a while, then why hold ALL of them?
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Re: Fed damaging bond market

Post by Cortopassi » Fri Apr 08, 2022 3:45 pm

If you've looked at my options posting, I have converted about 33% of my net worth to cash and am selling puts. The rest I still have in a PP configuration, but yeah, i finally got a little tired of esp. holding GLD without seeing any income.
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Re: Fed damaging bond market

Post by buddtholomew » Fri Apr 08, 2022 4:15 pm

Cortopassi wrote:
Fri Apr 08, 2022 3:45 pm
If you've looked at my options posting, I have converted about 33% of my net worth to cash and am selling puts. The rest I still have in a PP configuration, but yeah, i finally got a little tired of esp. holding GLD without seeing any income.
I’ll have to take a look at your option trading posts.
33% cash is another sort of put option as it allows you to reallocate capital to beaten down assets.

I haven’t tracked the PP’s performance YTD (probably doing just fine), but my allocation to 50% stocks, 15% gold and 35% cash is down 2.19%

Tough investing times for sure.
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Re: Fed damaging bond market

Post by whatchamacallit » Fri Apr 08, 2022 4:42 pm

It is hard to see how this is true but the dollar dxy is up almost as much as tlt is down over last year.

https://www.marketwatch.com/investing/index/dxy
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Re: Fed damaging bond market

Post by Don » Fri Apr 08, 2022 5:16 pm

I watched Options Action on CNBC and they all sounded confident that 112-114 will be the low in TLT, at least short term. That's about a 9% further loss.
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Re: Fed damaging bond market

Post by Cortopassi » Fri Apr 08, 2022 7:22 pm

There definitely is a mental attitude shift going on with me and this put selling. I really am liking not holding anything long term, and the puts I am holding can be rolled if they go against me, for credit, not like buy and hold where you are pretty much limited to watching the ups and downs and reallocating at times.

Started small in January, trying to get the guts to do more, but I generally only have 50% of the 33% allocated usually and I have a real income return of 4.9% on the whole 33%.

I have to be invested normally in my company 401k and I have my physical gold, but all else is cash for the puts.

At a minimum it is giving me confidence that I can create income in retirement that's not at the whims of the market.
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Re: Fed damaging bond market

Post by jalanlong » Thu Apr 14, 2022 2:36 pm

Something I have learned in my years with the PP and its variations is that you have to be comfortable yourself with your investments. Just because someone tells you that a risk parity portfolio will help you sleep at night and stay the course in tough times does not mean it will for you.

I have moved into mostly cash with a smattering of 10-15 dividend stocks that I like a lot and intend to hold and leave to my heirs. Until then the dividends they generate will be icing on the cake. For whatever reason, holding those stocks I believe in makes it a lot easier for me to go thru turbulent times and stay the course with them. Even though I understand taking risk parity portfolios as a whole and not as individual parts, I just could not rationally hold long term treasuries and that much gold. It may sound counter-intuitive but I would worry less about one of my companies experiencing a 30% drawdown this year than I worry about LTTs. If times are tough, I can see my companies being able to take any number of measures to increase revenue going forward. However, LTTs strictly depend on the future of interest rates. ((Personally I dont think interest rates will rise again anytime soon. If rising rates dont work to curb inflation then politicians will reach into their bag of tricks of price controls and rationing. But that is an aside.))

I still believe in the PP mantra that you cannot predict the future. But being invested in companies that I believe can adjust to the future to me is a better bet than being invested equally in every asset class for protection.
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Re: Fed damaging bond market

Post by Kbg » Thu Apr 14, 2022 2:56 pm

Cortopassi wrote:
Fri Apr 08, 2022 7:22 pm
There definitely is a mental attitude shift going on with me and this put selling. I really am liking not holding anything long term, and the puts I am holding can be rolled if they go against me, for credit, not like buy and hold where you are pretty much limited to watching the ups and downs and reallocating at times.
If you are continuously selling puts you are long even if you don't think you are. If you keep it up for several years consistently you will find that out. If you do it well with very low costs you will find you are very close to market returns with slightly less risk. The odds are highly stacked against you that you will even be able to do this due to things that will prevent you from being ultra-efficient in execution (i.e. life). The only exception to this is if you are timing the market and if you time well you will be rewarded. If you time poorly you will do worse than the market.

I sell hundreds of options every year and my goal is to add 2-3% to whatever the market returns...and it's really hard to do.

Having noted this...I very much like this thread and hope you will keep posting on it. (And seriously...good luck, may you prosper)
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Re: Fed damaging bond market

Post by Cortopassi » Thu Apr 14, 2022 4:57 pm

Kbg wrote:
Thu Apr 14, 2022 2:56 pm
Cortopassi wrote:
Fri Apr 08, 2022 7:22 pm
There definitely is a mental attitude shift going on with me and this put selling. I really am liking not holding anything long term, and the puts I am holding can be rolled if they go against me, for credit, not like buy and hold where you are pretty much limited to watching the ups and downs and reallocating at times.
If you are continuously selling puts you are long even if you don't think you are. If you keep it up for several years consistently you will find that out. If you do it well with very low costs you will find you are very close to market returns with slightly less risk. The odds are highly stacked against you that you will even be able to do this due to things that will prevent you from being ultra-efficient in execution (i.e. life). The only exception to this is if you are timing the market and if you time well you will be rewarded. If you time poorly you will do worse than the market.

I sell hundreds of options every year and my goal is to add 2-3% to whatever the market returns...and it's really hard to do.

Having noted this...I very much like this thread and hope you will keep posting on it. (And seriously...good luck, may you prosper)
Thanks. I know I am technically long, but only 30 delta generally. It will be interesting to see if I can keep this going.

I'm not sure I yet agree with needing to be ultra efficient. The only timing I try to do is sell puts on a down day, but even that ends up being a crapshoot, it could be the start of many down days, or could be the sign it is reversing. So I am not really trying to time.

I see tons of people getting burned by selling puts on individual stocks, then an announcement or earnings come out and the stock moves down so fast there's no chance to adjust. I will not do this on individual stocks only ETFs.

While I see that can happen (with TLT for example), specifically with that one since I still own shares and am writing calls, after today, I have captured at least 55% of the drop from 143 to 122 with call writing. And this was totally not being efficient, i.e. I was mentally hoping TLT would at some point reverse for at least a little bit and did not write calls aggressively.

What I am seeing so far, is with 30-45DTE 30 delta puts, right now for example would be a strike of $179 on GLD where it is $184 currently. I start out with a 3.7% ($5 plus ~$1.80 premium) downside buffer. If it gaps down 3.7% to $177.00, I should absolutely be able to buy back the 30-45DTE put for a loss, and sell the next month out for an effective credit. If GLD continues down, there will be a point where I run out of option months to do this with, but I will have captured a lot of premium along the way, while I otherwise would have shrugged and watched it drop. And all I need is some snapback rally to exit with a scratch or small profit.

No intention of beating a huge year on the S&P, none at all. But if I can pull 10-15% consistently as a withdrawal rate, I am set for retirement.
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Re: Fed damaging bond market

Post by dockinGA » Thu Apr 14, 2022 5:05 pm

Cortopassi wrote:
Thu Apr 14, 2022 4:57 pm
Kbg wrote:
Thu Apr 14, 2022 2:56 pm
Cortopassi wrote:
Fri Apr 08, 2022 7:22 pm
There definitely is a mental attitude shift going on with me and this put selling. I really am liking not holding anything long term, and the puts I am holding can be rolled if they go against me, for credit, not like buy and hold where you are pretty much limited to watching the ups and downs and reallocating at times.
If you are continuously selling puts you are long even if you don't think you are. If you keep it up for several years consistently you will find that out. If you do it well with very low costs you will find you are very close to market returns with slightly less risk. The odds are highly stacked against you that you will even be able to do this due to things that will prevent you from being ultra-efficient in execution (i.e. life). The only exception to this is if you are timing the market and if you time well you will be rewarded. If you time poorly you will do worse than the market.

I sell hundreds of options every year and my goal is to add 2-3% to whatever the market returns...and it's really hard to do.

Having noted this...I very much like this thread and hope you will keep posting on it. (And seriously...good luck, may you prosper)
Thanks. I know I am technically long, but only 30 delta generally. It will be interesting to see if I can keep this going.

I'm not sure I yet agree with needing to be ultra efficient. The only timing I try to do is sell puts on a down day, but even that ends up being a crapshoot, it could be the start of many down days, or could be the sign it is reversing. So I am not really trying to time.

I see tons of people getting burned by selling puts on individual stocks, then an announcement or earnings come out and the stock moves down so fast there's no chance to adjust. I will not do this on individual stocks only ETFs.

While I see that can happen (with TLT for example), specifically with that one since I still own shares and am writing calls, after today, I have captured at least 55% of the drop from 143 to 122 with call writing. And this was totally not being efficient, i.e. I was mentally hoping TLT would at some point reverse for at least a little bit and did not write calls aggressively.

What I am seeing so far, is with 30-45DTE 30 delta puts, right now for example would be a strike of $179 on GLD where it is $184 currently. I start out with a 3.7% ($5 plus ~$1.80 premium) downside buffer. If it gaps down 3.7% to $177.00, I should absolutely be able to buy back the 30-45DTE put for a loss, and sell the next month out for an effective credit. If GLD continues down, there will be a point where I run out of option months to do this with, but I will have captured a lot of premium along the way, while I otherwise would have shrugged and watched it drop. And all I need is some snapback rally to exit with a scratch or small profit.

No intention of beating a huge year on the S&P, none at all. But if I can pull 10-15% consistently as a withdrawal rate, I am set for retirement.
If 10-15% a year is possible, then every hedge fund/money manager on Wall Street would already be doing this.
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Re: Fed damaging bond market

Post by Kbg » Thu Apr 14, 2022 5:07 pm

If one is using options to rebalance a core portfolio that is actually (academically studied) a very good approach/use of options.
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Re: Fed damaging bond market

Post by Cortopassi » Thu Apr 14, 2022 11:09 pm

dockinGA wrote:
Thu Apr 14, 2022 5:05 pm
Cortopassi wrote:
Thu Apr 14, 2022 4:57 pm
Kbg wrote:
Thu Apr 14, 2022 2:56 pm
Cortopassi wrote:
Fri Apr 08, 2022 7:22 pm
There definitely is a mental attitude shift going on with me and this put selling. I really am liking not holding anything long term, and the puts I am holding can be rolled if they go against me, for credit, not like buy and hold where you are pretty much limited to watching the ups and downs and reallocating at times.
If you are continuously selling puts you are long even if you don't think you are. If you keep it up for several years consistently you will find that out. If you do it well with very low costs you will find you are very close to market returns with slightly less risk. The odds are highly stacked against you that you will even be able to do this due to things that will prevent you from being ultra-efficient in execution (i.e. life). The only exception to this is if you are timing the market and if you time well you will be rewarded. If you time poorly you will do worse than the market.

I sell hundreds of options every year and my goal is to add 2-3% to whatever the market returns...and it's really hard to do.

Having noted this...I very much like this thread and hope you will keep posting on it. (And seriously...good luck, may you prosper)
Thanks. I know I am technically long, but only 30 delta generally. It will be interesting to see if I can keep this going.

I'm not sure I yet agree with needing to be ultra efficient. The only timing I try to do is sell puts on a down day, but even that ends up being a crapshoot, it could be the start of many down days, or could be the sign it is reversing. So I am not really trying to time.

I see tons of people getting burned by selling puts on individual stocks, then an announcement or earnings come out and the stock moves down so fast there's no chance to adjust. I will not do this on individual stocks only ETFs.

While I see that can happen (with TLT for example), specifically with that one since I still own shares and am writing calls, after today, I have captured at least 55% of the drop from 143 to 122 with call writing. And this was totally not being efficient, i.e. I was mentally hoping TLT would at some point reverse for at least a little bit and did not write calls aggressively.

What I am seeing so far, is with 30-45DTE 30 delta puts, right now for example would be a strike of $179 on GLD where it is $184 currently. I start out with a 3.7% ($5 plus ~$1.80 premium) downside buffer. If it gaps down 3.7% to $177.00, I should absolutely be able to buy back the 30-45DTE put for a loss, and sell the next month out for an effective credit. If GLD continues down, there will be a point where I run out of option months to do this with, but I will have captured a lot of premium along the way, while I otherwise would have shrugged and watched it drop. And all I need is some snapback rally to exit with a scratch or small profit.

No intention of beating a huge year on the S&P, none at all. But if I can pull 10-15% consistently as a withdrawal rate, I am set for retirement.
If 10-15% a year is possible, then every hedge fund/money manager on Wall Street would already be doing this.
I don’t know what to say other than I will keep you updated, and a very conservative current estimate for Jan to Apr 14 is I am a little over 5% return so far on the amount I allocated for this, and not using even 50% of the available buying power most of the time.

I suggest possibly perusing the theta gang subreddit to read how some people are doing this, many for 5+ years.
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Re: Fed damaging bond market

Post by murphy_p_t » Fri Apr 15, 2022 11:16 am

How would a strategy like this Fair if the stock market shuts down again like September 11th?
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Re: Fed damaging bond market

Post by Cortopassi » Fri Apr 15, 2022 2:14 pm

I do not know. These options have expiration dates, so would added time be tacked on when reopened? Maybe?

Worst case is you get assigned the shares at the strike price you had. You should never sell options on stocks you wouldn't want to own, so you just bought some stock maybe, is the other possibility. But at least it was at a discount.
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Re: Fed damaging bond market

Post by Cortopassi » Tue Apr 19, 2022 9:06 am

Damn, TLT cannot catch a break! Not even a peep of a relief rally for even a day for the whole month of April.
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Re: Fed damaging bond market

Post by buddtholomew » Tue Apr 19, 2022 2:55 pm

We are a whisker away from a 3% yield on LTT’s.
What happens if we go to 4, 5 or 6%?
Does your plan account for this possibility?

Personally, I believe LTT’s will have their day in the sun once more. I just need to see some strength when stocks decline before allocating any capital.
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Re: Fed damaging bond market

Post by Cortopassi » Tue Apr 19, 2022 4:04 pm

My plan is selling covered calls on the way down right now, capturing 50-60% of the loss so far. But not the long bonds in my 401k....
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Re: Fed damaging bond market

Post by Cortopassi » Thu May 05, 2022 10:13 am

Luckily enough, before the Fed announcement, I sold deep ITM calls on the remaining of my TLT holdings. At $117.50 I sold $115 calls. TLT has now dropped below $115.

And the market completely reversed yesterday.

Wow.
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Re: Fed damaging bond market

Post by barrett » Thu May 05, 2022 5:23 pm

Some of us have said for a long time that we yearn for the days when we could get some yield on our cash holdings. The only way to get there is via this pain that rising rates bring. Not really telling anyone anything they don't know.

I would add, though, that the Fed is doing pretty much what they have to do. They got rates right to zero as soon as the pandemic hit which they had to do. And now they have no choice but to raise rates. The only questions are how fast and by how much.

I guess I am just disagreeing with the thread title.
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Re: Fed damaging bond market

Post by Cortopassi » Fri May 06, 2022 12:56 pm

Regardless, it is definitely currently broken! I continue to sell calls going down, but doesn't feel very good anyway. May be selling them at $113 next...

When the heck are savings banks going to boost their 0-0.5% rates?
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Re: Fed damaging bond market

Post by vnatale » Fri May 06, 2022 2:12 pm

Cortopassi wrote:
Fri May 06, 2022 12:56 pm

Regardless, it is definitely currently broken! I continue to sell calls going down, but doesn't feel very good anyway. May be selling them at $113 next...

When the heck are savings banks going to boost their 0-0.5% rates?


When they see money leaving those accounts?
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