Hoisington on why low rates can still go lower

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Kevin K.
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Hoisington on why low rates can still go lower

Post by Kevin K. » Sat Aug 15, 2020 5:37 pm

A really short article but these guys have an impressive track record.

Also of note are the absurdly high investment return expectations (IMHO) across the board shown in the graphic after the bond piece.

https://www.bloomberg.com/amp/opinion/a ... bout-rates
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Kriegsspiel
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Re: Hoisington on why low rates can still go lower

Post by Kriegsspiel » Sat Aug 15, 2020 7:05 pm

I'm pretty fucking suspect when these finance people write articles for popular consumption.

Very glad I found out about the PP when I learned about investing.
I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. Who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. . . Nothing is better for a man than to eat and drink and enjoy his work.
- Ecclesiastes
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I Shrugged
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Re: Hoisington on why low rates can still go lower

Post by I Shrugged » Mon Aug 17, 2020 6:47 pm

When Gary Shilling says the bond bull market is over, then I'll believe it's over.
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Re: Hoisington on why low rates can still go lower

Post by johnnywitt » Sun Sep 13, 2020 2:26 pm

I Shrugged wrote:
Mon Aug 17, 2020 6:47 pm
When Gary Shilling says the bond bull market is over, then I'll believe it's over.
That there is pretty funny Dude!
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Re: Hoisington on why low rates can still go lower

Post by boglerdude » Mon Sep 14, 2020 3:22 am

Shilling seems based. Not tooo clever and "shilling" to attract AUM. Or maybe I just like him because Im holding long bonds and want my views affirmed (imagine someone doing that? ;D )

He says the world is deflationary outside of war. Tell that to Argentina...
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Re: Hoisington on why low rates can still go lower

Post by mathjak107 » Mon Sep 14, 2020 4:37 am

aint nothing here deflating ...everything is going up in price to compensate for losses in business
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Re: Hoisington on why low rates can still go lower

Post by modeljc » Mon Sep 14, 2020 5:04 pm

I Shrugged wrote:
Mon Aug 17, 2020 6:47 pm
When Gary Shilling says the bond bull market is over, then I'll believe it's over.
I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?
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Mark Leavy
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Re: Hoisington on why low rates can still go lower

Post by Mark Leavy » Mon Sep 14, 2020 5:22 pm

modeljc wrote:
Mon Sep 14, 2020 5:04 pm

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?
Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking. :)

Mark
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Re: Hoisington on why low rates can still go lower

Post by modeljc » Tue Sep 15, 2020 10:19 am

Mark Leavy wrote:
Mon Sep 14, 2020 5:22 pm
modeljc wrote:
Mon Sep 14, 2020 5:04 pm

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?
Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking. :)

Mark
I'm cheap. Keystone light. Trying to ask if long rates go to zero or maybe negtive meaning less than zero. LTTs are about 1.40%. Thats the upside potential. If Long rates were to go from 1.40% to 3% that is downside. Is that a little clearer?
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Re: Hoisington on why low rates can still go lower

Post by Mark Leavy » Tue Sep 15, 2020 10:50 am

modeljc wrote:
Tue Sep 15, 2020 10:19 am
Mark Leavy wrote:
Mon Sep 14, 2020 5:22 pm
modeljc wrote:
Mon Sep 14, 2020 5:04 pm

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?
Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking. :)

Mark
I'm cheap. Keystone light. Trying to ask if long rates go to zero or maybe negtive meaning less than zero. LTTs are about 1.40%. Thats the upside potential. If Long rates were to go from 1.40% to 3% that is downside. Is that a little clearer?
Ah... got it now. I'm guessing the standard approximation of multiplying duration (about 19 years) by the change in interest rate won't exactly hold up at these rates. I may try to run the real numbers this evening.
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Mark Leavy
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Re: Hoisington on why low rates can still go lower

Post by Mark Leavy » Tue Sep 15, 2020 5:19 pm

Okay modeljc. Here are the numbers I came up with. I'm open to any corrections.

Assuming current interest rates of 1.4% and assuming 25 years to maturity...

I calculate that:
An interest rate drop to 0% increases the bond price by 35%
An interest rate increase to 3% decreases the bond price by 28%.


I used this formula:
bondprice.png
bondprice.png (80.9 KiB) Viewed 110 times

You can see that there is less downside than upside in your example, even though we used a larger rate hike than rate drop.
Tyler has a great graph of this phenomena in his bond convexity post.


convexity-bond-fund-interest-rate-sensitivity-total-return.jpg
convexity-bond-fund-interest-rate-sensitivity-total-return.jpg (98.86 KiB) Viewed 110 times
modeljc
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Re: Hoisington on why low rates can still go lower

Post by modeljc » Tue Sep 15, 2020 6:25 pm

Mark Leavy wrote:
Tue Sep 15, 2020 5:19 pm
Okay modeljc. Here are the numbers I came up with. I'm open to any corrections.

Assuming current interest rates of 1.4% and assuming 25 years to maturity...

I calculate that:
An interest rate drop to 0% increases the bond price by 35%
An interest rate increase to 3% decreases the bond price by 28%.


I used this formula:
bondprice.png


You can see that there is less downside than upside in your example, even though we used a larger rate hike than rate drop.
Tyler has a great graph of this phenomena in his bond convexity post.



convexity-bond-fund-interest-rate-sensitivity-total-return.jpg
WOW! I said I need a sharpie. Almost got upside right but missed the downside by a mile. Thanks so much. Thinking I can live with 17% in LTTs. But I will trim as necessary to keep them about 15%.
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