TLT Negative YTD

Discussion of the Bond portion of the Permanent Portfolio

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ochotona
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Re: TLT Negative YTD

Post by ochotona » Sat May 09, 2015 10:20 pm

Tortoise wrote: If the multi-decade downhill slope in LTT interest rates eventually bottoms out and the rates start climbing, who's to say the rates will continue to climb in a steady slope for decades? The interest rate behavior going forward could be completely different, for example, bouncing randomly back and forth within a certain range for many, many years.

In that case, it would be a good thing to have LTTs in the PP to harvest the volatility and counterbalance the wild swings in stocks and gold. Yes, there could be some short-term losses in the LTT piece for a year or two, as there sometimes are, but then interest rates could reverse and drop right back down, giving us big LTT gains for the year or two after that. Isn't that just how the PP's three volatile asset classes are supposed to work?

It all depends, and nobody knows. Accordingly, I choose to keep holding my LTTs and let the PP do its thing.
Interest rates are completely unpredictable. I agree with you. Close your eyes and let it work.
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Re: TLT Negative YTD

Post by rickb » Sun May 10, 2015 1:24 am

bedraggled wrote: Thanks, Rickb,

I have been a deflationist since 1982 and rates are playing out as I thought and with room to drop significantly.  Lately, though, things seem weird, at least to me, and I wonder what the future looks like just beyond the near term.  With China and Russia creating that bank thing in Asia, will that toss a wrench into the machine?

Thoughts, please.
Again, "Prediction is very difficult, especially about the future".

Current prices for all assets (not just long term bonds) reflect the entire market's consensus. If it was clear that any asset would inevitably go in the toilet tomorrow, it would already be in the toilet today.  If it was clear any asset would inevitably go to the moon tomorrow, it would already be close to the moon today.  The market is occasionally wrong and large "corrections" (mostly down) do happen, but even if you can determine a correction must come (meaning the market consensus is wrong) there's no good way to predict when it will happen.  If stocks are in a bubble and "everyone" knows it, stocks still might double before a correction happens (if everyone actually knew it, the correction would have happened already).

The genius of Browne's PP is that you don't have to do any predictions.  25% of your assets are in stocks, whether pundits are saying stocks are currently high or low - and wherever they are today there's no way to tell whether they'll go higher or lower tomorrow.  25% of your assets are in long term bonds, again regardless of whether anyone says they're currently high or low (and again, there's no way to tell which way they'll go tomorrow).  Similarly gold.  You can spend every waking moment trying to outguess the market, but my guess is you won't.  Stop trying. 

"Use the Force, Luke.  Let go." - Obi-Wan Kenobi
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ochotona
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Re: TLT Negative YTD

Post by ochotona » Mon May 11, 2015 2:56 pm

In the popular press, an article came out over the weekend advocating the "bond free portfolio". I wonder if that doesn't mean it's time to buy bonds.
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Re: TLT Negative YTD

Post by moda0306 » Mon May 11, 2015 3:24 pm

ochotona wrote: In the popular press, an article came out over the weekend advocating the "bond free portfolio". I wonder if that doesn't mean it's time to buy bonds.
It would be one thing if the situation in Japan was not a piece of history.  Considering that it is, I'm surprised people are so quick to abandon fixed income in portfolios, substituting in modest-valuation stock funds.

Interest rates don't exist in vacuum.  The interest rates of the mid-1980's were far more appealing than today... but so were our stock-market valuations.  Simply put, the market for "renting" my money was a lot better in the 1980's.  Right now, there isn't much need for capital

I don't think either is good/bad enough today to warrant making an un-hedged bet in one or the other.
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Re: TLT Negative YTD

Post by Reub » Mon May 11, 2015 3:45 pm

ochotona wrote: In the popular press, an article came out over the weekend advocating the "bond free portfolio". I wonder if that doesn't mean it's time to buy bonds.
Or should we wait 30 years or so?
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Re: TLT Negative YTD

Post by Pointedstick » Mon May 11, 2015 3:59 pm

Why so down in the dumps about bonds, Reub?
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Re: TLT Negative YTD

Post by bedraggled » Mon May 11, 2015 7:30 pm

moda,

Loved your comment on abandoning fixed income.

I am still in deflation mode.  If Europe can have zero interest rates, should we be denied?  That would be one big overextended bond bull market!  There must be a chuckle or two in here somewhere.
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Re: TLT Negative YTD

Post by Reub » Mon May 11, 2015 9:12 pm

Have you checked the rates in Europe recently?

German bund yields have risen precipitously.

http://www.reuters.com/article/2015/05/ ... VE20150511
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Re: TLT Negative YTD

Post by Pointedstick » Mon May 11, 2015 9:21 pm

Reub wrote: Have you checked the rates in Europe recently?

German bund yields have risen precipitously.

http://www.reuters.com/article/2015/05/ ... VE20150511
1. Isn't that just the short-term noise?

2. I don't live in Europe; what do I care?

3. And if I did, aren't rising rates good? That would mean higher coupon payments for decades every time I bought bonds by rebalancing into them or with my new contributions. Right?
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Re: TLT Negative YTD

Post by bedraggled » Tue May 12, 2015 4:29 am

Rates up in Europe!

Could be a blip.
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Desert
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Re: TLT Negative YTD

Post by Desert » Tue May 12, 2015 8:04 am

I'm hoping rates continue to rise, with inflation remaining low.  It does lead to short-term pain, but I don't see how any of us will get decent real rates of return with present low yields. 
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Re: TLT Negative YTD

Post by Reub » Tue May 12, 2015 9:26 am

Rising interest rates are good....if you're a banker. For the PP, they represent a loss of bond principal and an eventual stock market downturn. What was artificially elevated by central banks, namely bond prices and equities, will eventually come back to reality.
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