The Bond Dream Room

Discussion of the Bond portion of the Permanent Portfolio

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Kbg
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Re: The Bond Dream Room

Post by Kbg » Mon Jun 06, 2016 8:42 pm

For my personal situation I am still in the asset growth phase of life so I'm more focused on growth and would (do) lever up. Today I've been messing around with portfolio analyzer using leveraged ETF risk parity. I'm going to do it more thoroughly tomorrow...it has been pretty interesting.

I still shake my head in awe at how well this particular simple mix of assets does in terms of risk/reward properties. I don't think it is particularly good for wealth building as a 1x, but that isn't a big issue to overcome.
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Re: The Bond Dream Room

Post by Kbg » Tue Jun 07, 2016 12:02 pm

Google "band vs. annual rebalancing". Several items come up.
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Re: The Bond Dream Room

Post by curlew » Tue Jun 07, 2016 3:42 pm

Kbg wrote:Google "band vs. annual rebalancing". Several items come up.
I generally do a combination of both - check annually and re-balance only if you've exceeded the bands, otherwise let it ride for another year unless something extraordinary is happening in the markets. I actually thought that was what HB was suggesting but I may have misunderstood. I was on a long flight back from Hong Kong when I read the book.

It's interesting that you think May or October is the best month. What is the reason for that? I generally do it late in January but it has occurred to me that if everybody else does it in January then that might be skewing things while you are in the process of rebalancing.
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Re: The Bond Dream Room

Post by Kbg » Tue Jun 07, 2016 5:09 pm

The reason for the suggested dates is that there actually ARE seasonal tendencies in the US stock market...not always and not strong but statistically significant. Now whether they stick going forward, who knows?

However, running a quick backtest on PP using ETFs since 2005 it turns out March is the best followed by December then Jan (trade on first trading day of month)

So ignore... ::)
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Re: The Bond Dream Room

Post by MachineGhost » Tue Jun 07, 2016 5:26 pm

Kbg wrote:The reason for the suggested dates is that there actually ARE seasonal tendencies in the US stock market...not always and not strong but statistically significant. Now whether they stick going forward, who knows?

However, running a quick backtest on PP using ETFs since 2005 it turns out March is the best followed by December then Jan (trade on first trading day of month)

So ignore... ::)
Yeah, it doesn't hold up on the PP probably because its so "well balanced". I use April because it is the worst month. So it's likely to be the most realistic for covering most all sitautions.
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Re: The Bond Dream Room

Post by dualstow » Thu Jun 09, 2016 8:52 am

TLT nearing its 52-week high today.
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Re: The Bond Dream Room

Post by dualstow » Tue Jul 05, 2016 9:32 am

Boy do I feel like a moron for selling my breakeven bonds that were constantly dipping into the red.
But, I'm glad I held fast to the rest. Average yield: 3.74%
Up about 31%
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Re: The Bond Dream Room

Post by MachineGhost » Tue Jul 05, 2016 10:25 pm

dualstow wrote:Boy do I feel like a moron for selling my breakeven bonds that were constantly dipping into the red.
But, I'm glad I held fast to the rest. Average yield: 3.74%
Up about 31%
Sold my low-duration bonds and gold stocks today. Glad to get rid of that albatross. Now I can focus on pure Treasuries.
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Re: The Bond Dream Room

Post by dualstow » Mon Apr 03, 2017 11:48 am

Nice pop in bonds today, even though it's still early.
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Re: The Bond Dream Room

Post by barrett » Mon Apr 03, 2017 3:28 pm

dualstow wrote:Nice pop in bonds today, even though it's still early.
Yeah, it was a good day to own LTTs. Does anyone want to take a crack at explaining to me why long bonds and gold have been so closely corellated in recent months? I haven't looked too closely at the little sqigglies, but it seems to me that those two assets have moved largely in unison the past six to eight months.
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Re: The Bond Dream Room

Post by ochotona » Mon Apr 03, 2017 3:56 pm

I have heard it described as a rotation into risk-off assets.
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Re: The Bond Dream Room

Post by dualstow » Fri Apr 07, 2017 8:06 am

New Fidelity Treasury offerings announcement:

UST Maturing 07/13/2017 Auction Close Date: 04/10/2017

UST Maturing 10/12/2017 Auction Close Date: 04/10/2017

UST Maturing 04/15/2020 Auction Close Date: 04/10/2017

UST Maturing 02/15/2027 Auction Close Date: 04/11/2017

UST Maturing 02/15/2047 Auction Close Date: 04/12/2017
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Re: The Bond Dream Room

Post by dualstow » Sun Apr 30, 2017 8:48 am

Good post at b'heads by Robert T: The Diversifying Power of Longer Term US Treasuries

https://www.bogleheads.org/forum/viewto ... =10&t=2409
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Re: The Bond Dream Room

Post by dualstow » Fri May 05, 2017 2:38 pm

I see 30-year bonds for auction via Vanguard today. Get'em while they're hot.
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Re: The Bond Dream Room

Post by Jack Jones » Fri May 05, 2017 2:41 pm

I appreciate these bond auction reminders. I've missed a few auctions in the past.
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Re: The Bond Dream Room

Post by dualstow » Fri May 05, 2017 2:44 pm

Jack Jones wrote:I appreciate these bond auction reminders. I've missed a few auctions in the past.
I meant to post it this morning -- sorry about that. Too many contractors calling, and calling about nothing, really.

Still have time, though.
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Re: The Bond Dream Room

Post by barrett » Fri May 05, 2017 3:38 pm

dualstow wrote:I see 30-year bonds for auction via Vanguard today. Get'em while they're hot.
Can you explain why it's advantageous to buy bonds at auction as opposed to on the secondary market? The auctions are just something I never pay attention to. Thanks for your help.
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Re: The Bond Dream Room

Post by dualstow » Fri May 05, 2017 3:51 pm

I can't. I think the last time this conversation came up, it ended with someone saying, "Some people just like that new bond smell."
O0

EDIT: https://gyroscopicinvesting.com/forum/v ... bond+smell
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Re: The Bond Dream Room

Post by dualstow » Fri May 05, 2017 3:58 pm

Slightly pro-auction comments in this TIPS thread at b'heads: https://www.bogleheads.org/forum/viewtopic.php?t=165995
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Re: The Bond Dream Room

Post by dualstow » Tue May 09, 2017 3:01 pm

barrett wrote:Can you explain why it's advantageous to buy bonds at auction as opposed to on the secondary market? The auctions are just something I never pay attention to. Thanks for your help.
I think i have a better answer for you, although it still doesn't amount to advantageous. In keeping with the theme of taking what the market gives you, i.e. in a similar vein to buying a broad stock market index fund, I think I prefer just buying at the next auction the next time I have the cash and the need. I don't worry about the time between auctions, and it's not like I buy that often.

Rather than try to figure out what kind of yield I need and what price to pay, rather than try to compete with other buyers and sellers who are almost certainly smarter than me, I just buy a note when I need a note and a 30-year-bond when I need a bond.

(Granted, the market movements are pricing those secondary market notes and bonds, too, so you're still buying what the market gives you when you buy used. But, you're selecting from different issues).

There is one tiny advantage with buying 30-year-bonds at auction. They'll last a bit longer than anything you can find used. By definition, there's nothing newer.
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Re: The Bond Dream Room

Post by dualstow » Sun Jul 09, 2017 4:31 pm

Saw this posted at Bogleheads

https://www.bloomberg.com/news/articles ... r-the-exit

{ Gundlach. -- long bonds -- end of bull run -- Bloomberg }
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Re: The Bond Dream Room

Post by Cortopassi » Fri Jul 21, 2017 8:11 am

And here is another reason the bond bull is supposedly over from Karl at the Market Ticker. He's really good at making things sound like the end of the world, and has been for years, but the exponential mathematics he always quotes as being unsustainable never seem to arrive. Not saying he is wrong, but somehow the can is able to continue to be kicked for years and years.

I don't think this will change my allocation, just something else to think about.

https://market-ticker.org/akcs-www?singlepost=3424262

----------Clip

No, the "risk" from "quantitative tightening" is not The Fed.

Yes, the reduction of their balance sheet will be a tightening.

But you're a fool if you think this is the only -- or even the largest source of such tightening over the next number of years -- 10 to 15 years from now, in fact and starting effectively now.

There is in fact, as of right now, $5.486 trillion worth of "tightening" that will take place between now and 2034 and it will probably start in permanent form within the next two years.

Where is it?

Social Security and Medicare.

The system holds bonds as a buffer between demographics. This is a good thing, by the way, because there are baby booms and baby busts in any economy. By holding bonds during "boom" times the system has the assets to pay liabilities during busts.

When it acquires said Treasuries it is effectively bidding for said assets, driving prices higher and yields lower than they would otherwise be. This has the same monetary effect as "Quantitative Easing" if the banks do not lend the 'money' they acquire by such sales to The Fed, and in the current cycle they have not.

But when Social Security and Medicare sell said bonds it effectively offers them into the market which drives prices lower and yields higher. This is exactly the same monetary effect as a Fed balance sheet reduction - - that is, "Quantitative Tightening"!

There is nothing that can be done about this; it is going to happen. If you try to raise taxes so the system doesn't have to sell its cache of bonds then you withdraw money from the system exactly as you do if you sell the bonds, so trying to mitigate the effect with a tax increase won't work either.

This isn't "bad" or "good" -- it just is, and is a function of the boomers going through the system. It cannot be avoided no matter what political or monetary decisions are made.

But this, along with The Fed being at or near zero, is why the 30+ year trend of ever-lower interest rates has ended and cannot extend.

Folks, virtually everything you know about financial leverage and how business works -- especially public firms that have been issuing debt like crazy to buy back stock (they're the only net buyers over the last five years, in fact) along with municipalities and the federal government to fund this and that are all predicated on ever-lower rates which allows you have more "money" outstanding for the same interest payment every time you refinance.

That is over.

It is mathematically over and inescapable.

I've written on this for years but nobody wants to hear it. Well, it's here folks. It's starting now. We had a couple of years where very small amounts of these trust funds were redeemed during the '09 timeframe but the fact that a steady and unrelenting drawdown was going to take place over the space of more than a decade was known then and in fact was known all the way back to the 1990s.

Yet companies continue to buy back stock with debt (which eventually must be rolled) and both the federal and state governmental units continue to issue more and more debt with no plan to ever pay it off which also must be rolled. This continual roll will run smack into the demographically-caused Quantitative Tightening starting now and accelerating through the next decade and there is exactly nothing that anyone can do to stop it from happening.

Why Wall Street continues to "reward" companies that pull this crap (such as Tesla) rather than drive them into the ground is beyond me -- but down this road lies bankruptcy for all of the firms that engaged in this tactic -- and that's most public companies. At the same time bankruptcy also lies ahead for both the Federal and State governments unless they can run permanent surpluses sufficient to pay not just coupon expense today but also the maturity of bonds so they do not have to roll them.

There is exactly one way to do that: Defang the medical monopolies and cut the cost of medical care by 80% now. We have less than four years to do it and have it all take effect and play out before the mathematics overtake us and the spiral gets to the point that it will be virtually impossible to change the outcome without basically zeroing all discretionary spending at both Federal and State levels.

We are out of time.
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Re: The Bond Dream Room

Post by flyingpylon » Fri Jul 21, 2017 9:33 am

I've been reading Karl's stuff for several years now and like to think of him as "the angriest man on the internet". :)

I read that post this morning and wondered if I should share it here, so thanks for doing that. But as you mentioned, the impending disasters never seem to arrive. Perhaps he's just early, not wrong... I don't have the expertise to know for sure. Someone else could make an emphatic counter-argument that would seem just as believable. Hence the reason I'm in the PP!
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Re: The Bond Dream Room

Post by Cortopassi » Fri Jul 21, 2017 9:40 am

flyingpylon wrote:I've been reading Karl's stuff for several years now and like to think of him as "the angriest man on the internet". :)

I read that post this morning and wondered if I should share it here, so thanks for doing that. But as you mentioned, the impending disasters never seem to arrive. Perhaps he's just early, not wrong... I don't have the expertise to know for sure. Someone else could make an emphatic counter-argument that would seem just as believable. Hence the reason I'm in the PP!
Exactly. There are others, many in the gold blogosphere who foretell the demise of the dollar and rise of gold constantly, who I like reading but take with a huge grain of salt. I have been reading many since 2008, and it looked like they were on the verge of being right in 2011, but now 6 years later, ehh.

Every time he starts out a post with "Incoming" I know it's going to be good, but probably ahead of his time. He has a lot of good thoughts on medical costs/eating.
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Re: The Bond Dream Room

Post by Kbg » Fri Jul 21, 2017 10:05 am

His analysis as posted here is bad on many levels. I'm not going to go into a lot of detail but I will provide a couple of points folks can run with to think for themselves.

Bond liquidation vs. expiration

Current US tax law treatment of debt vs. equity

Actual US demographics vs. purported imbalances

Finally, a little nuance on public debt you never see

https://fredblog.stlouisfed.org/2017/02 ... n=fredblog

Facts are wonderful things...but the main fact is economically the US is on a very positive roll right now. That can and will change but for now the skies are quite blue.
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