Maximum Bond Upside

[PrimalToker]

I remember in Harry Browne's radio show he mentioned LTT rates hit 1% or below during the great depression, and t-bills were negative. I believe a caller asked why would you buy negative rate bonds. Harry answered at the time banks were going bankrupt and were losing 100%, so if you only had to pay a percent to have a guarantee return of principal then it was worth the cost. You lose 1% when your neighbor lost 100%, not bad. I think he also noted your cash duration should be 1 year, because 3 month t-bills can go negative. I don't recall Harry talking long term being negative, only short term being mentioned about negative rates.

[dualstow]

7. A PP of 4x25 Cash/ITT/Gold/Stock would work nearly as well at near-0 rates, as a PP of 4x25 Cash/LTT/Gold/Stock works at higher rates.

I confess that I haven't read either of Harry's or Craig's books. Did they ever discuss any of this?

#7: In the books, probably not much, but a bullet of ITTs (versus a barbell of long bonds and cash) has come up many times over the years. If you do some searching, you’re sure to find discussions.

[williswine]

Switzerland's 50 year bond (to be precise, it's actually 48 years, due 2064) yield today fell to an all time low of 0.32%.

Yes, if you want to lend Switzerland money for the next 50 years, you're only going to get 0.32% interest per year.

Clearly at some point investors should just not be buying bonds.

In the case of the Permanent Portfolio, you'd have a hard time getting me to buy long term bonds under 1%. I say this knowing that it breaks the model. But I'd also say that 30 year bonds paying under 1% the risk is just far too high. 50 year bonds under 1% is an absurdly bad deal as well. Investors would be better in cash.

We do now have fairly recent evidence from Craig that he did drop this 1% threshold down to 0%!

Vinny

Revisiting older threads, like you Vinny. Where did you see that Craigr dropped his 1% threshold to 0%? Can you post a link?

[vnatale]

Switzerland's 50 year bond (to be precise, it's actually 48 years, due 2064) yield today fell to an all time low of 0.32%.

Yes, if you want to lend Switzerland money for the next 50 years, you're only going to get 0.32% interest per year.

Clearly at some point investors should just not be buying bonds.

In the case of the Permanent Portfolio, you'd have a hard time getting me to buy long term bonds under 1%. I say this knowing that it breaks the model. But I'd also say that 30 year bonds paying under 1% the risk is just far too high. 50 year bonds under 1% is an absurdly bad deal as well. Investors would be better in cash.

We do now have fairly recent evidence from Craig that he did drop this 1% threshold down to 0%!

Vinny

Revisiting older threads, like you Vinny. Where did you see that Craigr dropped his 1% threshold to 0%? Can you post a link?

How about this one?

viewtopic.php?f=1&t=10446&p=187110#p187110

[williswine]

I see! Thank you Vinny!

[vnatale]

Any thoughts? Only that I'm in no position to criticize. Many's the time I considered the same, like every time TLT breaches 130. (I'm holding bonds directly, but TLT is a convenient and simple gauge). After Craig said he'd sell at 1%, I really got the bug.

FWIW. The reason I don't comment much on what I do is because I don't want people to blindly copy it.

Mostly though with unprecedented things going on with bonds, I just wanted to say that at some point you just have to take your chips and go home. Bonds are perhaps the only asset in the portfolio that the value risk vs. reward is pretty stark. Yields are what yields are and it's known what happens up or down as interest rates move. Gold doesn't have this indicator. Stocks don't either. Cash is cash and relatively stable and short interest rates moves can be waited out.

But again, with long bonds at 1% or less, the risk of holding them for me, is just not worth it. I bring up the issue now because I feel being quiet about it isn't doing any favors. You'll notice that I rarely ever comment on portfolio assets otherwise because mostly it's just noise. But long bonds below 1% is juggling nitroglycerin kind of risk in my mind and a horrible buy.

Again as others (and I) have pointed out. It's one thing to get out, but another to know when to get back in. I think it is safe to say though that bonds that are under 1% are probably not a hot buying opportunity and I'd avoid them regardless of portfolio theory. As when to get back in? I don't know. Again I haven't had to face this question yet. But I'll point out that people have been saying since 2008 that long bonds are a horrible idea and they've been wrong, wrong, wrong. So I could be joining that crowd if I sell out at 1%, but I'll just have to deal with that.

Hopefully Harry Browne will forgive me, but I think he'd be understanding when long bonds are paying 0.50% for 50 years that they aren't worth the risk.

These are interesting times, guys. We could be witnessing the endgame for Keynesianism. The ultimate race to the bottom where mere mortals are all losers.

With long-term bond rates even lower 5 1/2 year later...I wonder if Craig was still active here what his thoughts would be today. Some of you still active here now were involved in this discussion during this time period.

How many times have we read mathjak telling us that we may be near the end of a 40 year bull market for long-term bonds?

[Xan]

Digital Currencies Pave Way for Deeply Negative Interest Rates - WSJ

[dualstow]

Digital Currencies Pave Way for Deeply Negative Interest Rates - WSJ

Wow. Negative rates don’t bother me that much, as I have stocked up on notes and bonds that will expire when I expire.
Taking away paper money- that bothers me. Off topic: Will we still be allowed to hoard gold?

[Xan]

Digital Currencies Pave Way for Deeply Negative Interest Rates - WSJ

Wow. Negative rates don’t bother me that much, as I have stocked up on notes and bonds that will expire when I expire.
Taking away paper money- that bothers me. Off topic: Will we still be allowed to hoard gold?

Yes, killing cash would be ugly in many ways. I'm not sure it would have an impact on storing gold, though. Cash, yes!

Also as the article points out, negative rates (at least, deeply negative rates) have some really weird consequences. Down is up and up is down etc.

[Mark Leavy]

Digital Currencies Pave Way for Deeply Negative Interest Rates - WSJ

Wow. Negative rates don’t bother me that much, as I have stocked up on notes and bonds that will expire when I expire.
Taking away paper money- that bothers me. Off topic: Will we still be allowed to hoard gold?

dual. I’m enjoying your increasing appreciation for physical gold. It’s not a panacea, but it has its uses. My mental model is ballast in a ship.

[Smith1776]

Digital Currencies Pave Way for Deeply Negative Interest Rates - WSJ

Wow. Negative rates don’t bother me that much, as I have stocked up on notes and bonds that will expire when I expire.
Taking away paper money- that bothers me. Off topic: Will we still be allowed to hoard gold?

dual. I’m enjoying your increasing appreciation for physical gold. It’s not a panacea, but it has its uses. My mental model is ballast in a ship.

And no ongoing expense ratio!

[vnatale]

Stay Above the Interest Rate Fray

Your best bets now are venerable, managed diversified bond funds. You'll get a fair yield and peace of mind.

https://www.kiplinger.com/investing/bon ... -rate-fray


"This year, by contrast, housing and oil prices are soaring, wages are climbing, economic growth is robust. Those seem like reasons for the Fed to stand back and let the markets push interest rates higher, and the current Fed leadership is under pressure to tighten credit or at least stay neutral – a scenario right out of any 1970s first-year economics textbook.

Instead, on Aug. 6, the 10-year bond settled at 1.30%, down from a top of 1.75% in the spring. Bond funds that started 2021 dripping red ink are now up slightly, while presumptive beneficiaries of higher rates are backtracking."

"Your best bets now: venerable, managed diversified bond funds such as Dodge & Cox Income (DODIX), Metropolitan West Total Return Bond (MWTRX), PGIM Total Return Bond (PDBAX) and Vanguard Long-Term Investment Grade (VWESX). These funds have managers who have seen it all and represent the group that has done well over the past three months following early 2021 struggles. You will get a fair yield and peace of mind.

As for your individual bonds, hold them to maturity and be glad that defaults are all but nonexistent. You can stay comfortably above the interest-rate fray."


Looking at one of his recommended funds: Vanguard Long-Term Investment Grade (VWESX)...and then going to its summary: "This fund provides diversified exposure to medium-and high- quality investment-grade corporate bonds with an average maturity of 15 to 25 years. Reflecting this goal, the fund invests primarily in corporate bonds, with a small percentage in taxable municipal bonds, within that maturity range."

Is this not somewhat similar to the prescribed bond investment for the Permanent Portfolio? Roughly equivalent in terms of years but primarily corporate bonds rather than 100% Treasury. Therefore, seems akin to being a cousin to the recommended Permanent Portfolio bond investment.

Seems that one could do worse in making a bond investment than what he recommends?

[dockinGA]

Stay Above the Interest Rate Fray

Your best bets now are venerable, managed diversified bond funds. You'll get a fair yield and peace of mind.

https://www.kiplinger.com/investing/bon ... -rate-fray


"This year, by contrast, housing and oil prices are soaring, wages are climbing, economic growth is robust. Those seem like reasons for the Fed to stand back and let the markets push interest rates higher, and the current Fed leadership is under pressure to tighten credit or at least stay neutral – a scenario right out of any 1970s first-year economics textbook.

Instead, on Aug. 6, the 10-year bond settled at 1.30%, down from a top of 1.75% in the spring. Bond funds that started 2021 dripping red ink are now up slightly, while presumptive beneficiaries of higher rates are backtracking."

"Your best bets now: venerable, managed diversified bond funds such as Dodge & Cox Income (DODIX), Metropolitan West Total Return Bond (MWTRX), PGIM Total Return Bond (PDBAX) and Vanguard Long-Term Investment Grade (VWESX). These funds have managers who have seen it all and represent the group that has done well over the past three months following early 2021 struggles. You will get a fair yield and peace of mind.

As for your individual bonds, hold them to maturity and be glad that defaults are all but nonexistent. You can stay comfortably above the interest-rate fray."


Looking at one of his recommended funds: Vanguard Long-Term Investment Grade (VWESX)...and then going to its summary: "This fund provides diversified exposure to medium-and high- quality investment-grade corporate bonds with an average maturity of 15 to 25 years. Reflecting this goal, the fund invests primarily in corporate bonds, with a small percentage in taxable municipal bonds, within that maturity range."

Is this not somewhat similar to the prescribed bond investment for the Permanent Portfolio? Roughly equivalent in terms of years but primarily corporate bonds rather than 100% Treasury. Therefore, seems akin to being a cousin to the recommended Permanent Portfolio bond investment.

Seems that one could do worse in making a bond investment than what he recommends?

I, for one, and very nervous about corporate bonds. The yield may be higher, but when the crap hits the fan with the stock market, the same companies whose stock is declining usually have bonds that are declining in value as well. Whereas, with long term treasuries, those can oftentimes drive the portfolio forward during times of stock market uncertainty. Just one person's opinion.

[vnatale]

king a bond investment than what he recommends?

I, for one, and very nervous about corporate bonds. The yield may be higher, but when the crap hits the fan with the stock market, the same companies whose stock is declining usually have bonds that are declining in value as well. Whereas, with long term treasuries, those can oftentimes drive the portfolio forward during times of stock market uncertainty. Just one person's opinion.
[/quote]

Your opinion is one of the foundational principles of the Permanent Portfolio!

[I Shrugged]

Just look at 2009 for living proof of that.