Rebalancing into more LTT

[doodle]

Also, I'm surprised how much confidence people have here in central banks to create inflation. We haven't seen it in Japan or Europe and so far the Fed despite big talk has missed their targets for over a decade. The latest spurt is more supply chain related than anything else.

[mathjak107]

We think You put to much stock in what happened in Japan or Europe the way you think we look at stocks and rates

[jalanlong]

Also, I'm surprised how much confidence people have here in central banks to create inflation. We haven't seen it in Japan or Europe and so far the Fed despite big talk has missed their targets for over a decade. The latest spurt is more supply chain related than anything else.

https://www.lynalden.com/economic-japanification/

This article is interesting. It breaks down why Japan was not the money printing machine people assume they were over the last 20 years. It also breaks down the various structural differences between Japan and the US and why our currency will most likely devalue more than theirs.

[jswinner]

FWIW The gospel is to sell at 20 years remaining.

I keep staring into Tyler's chart: https://i0.wp.com/portfoliocharts.com/w ... C628&ssl=1

convexity-bond-fund-interest-rate-sensitivity-total-return.jpg (116 KiB) Viewed 9226 times

What stands out for me is that it allows you find your risk tolerance threshold fairly quickly. At low rates, it is the potential for capital appreciation, with a relative small decrease in the rate, that drives the return, not the coupon. Of course with a much greater risk. But, you can maintain the benefit of the uncorrelated asset the bonds provide with a smaller overall amount. A little dab will do ya

[doodle]

We think You put to much stock in what happened in Japan or Europe the way you think we look at stocks and rates

Everything the Fed has done was first done by Japan....and even more. Japanese central bank goes as far as directly purchasing stocks.

For people who are dead certain we are going to spiral into inflationary hell I'd suggest looking at some different economists....Lacy Hunt, Jeff Snider, Steven Van Metre, Gary Shilling...to name a few. Perhaps they might poke a few holes in your certainties.

[mathjak107]

Japan dropped the ball back in the 1980s which kicked this spiral off .Japan is an example of what not to do

The main causes of this economic slowdown were raising interest rates that set a liquidity trap at the same time that a credit crunch was unfolding.
The major lessons economies can take from Japan's include using available public funds to restructure banks' balance sheets and that sometimes the fear of inflation can cause stagnation.

[Hal]

Following from Mathjaks comments.....

If you don't like LT treasuries, combining Ben Grahams 50/50 TSM & 10 Year Bonds with Harrys 25% Gold Allocation gives quite good results.

PS: Guessing most of you know all about bonds, but found the segment at the 23:30 min mark interesting
https://www.youtube.com/watch?v=JoyRL0VDvbo

[mathjak107]

It gave good results , but again 40 years of falling interest rates does not mean interest rate sensitive assets won’t be an issue if held in abundance….

Even intermediate terms bonds and 25% gold can be overly sensitive to rates and an outsized bet on them in my opinion for what it’s worth

[doodle]

It gave good results , but again 40 years of falling interest rates does not mean interest rate sensitive assets won’t be an issue if held in abundance….

Even intermediate terms bonds and 25% gold can be overly sensitive to rates and an outsized bet on them in my opinion for what it’s worth

Your argument though seems to lean more strongly towards holding no bonds at this point. If rates were to rise back to historical average then servicing government debt would eat up over a third of government budget. That isn't possible, so financial repression of interest rates is only option....at that point why hold intermediate bonds at an even lower interest rate?

[mathjak107]

i hold intermediate like total bond , short term like shy and high yield like hyg and a mortgage bond fund . interest rate sensitivity is a fraction of the pp.

50% of the pp is very aggressive as far as rate sensitivity , tlt and gld .

[doodle]

Ok, sure...but how exactly do you expect rates to rise given that the government debt is at nearly 30 trillion and rising?

Rising rates would basically lead to increased insolvency so why hold any bonds at all if you think rates are going to rise.....unless you think that spending 30% of government budget on interest payments is feasible

[mathjak107]

Because the high yield act more like stock , the short term bonds is worth doing because if rates don’t rise it is better than cash and if they do they will not get hit much .

The only risk Is a 17% stake in total bond and that is way way way less than tlt. Little danger there of holding back equities if gains are muted

[doodle]

So the scenario of Congressional gridlock, evelvated debt levels, waning corporate growth and profits from years of underinvestment in physical capital, expiring stimulus and a large baby boomers retirement trend leading to a revaluation of growth prospects and a repricing of stock market vs risk free debt is just totally off the table for you as a plausible scenario. I guess that's what makes a market...because I don't see that as implausible at all. And when you couple that with the realization that the Federal reserve has mandated powers to create bank reserves by swapping them for treasuries purchased by primary dealers (banks) who are not incentivised to lend in this environment I think you can connect the dots and see how we get back into fighting deflationary headwinds.

[mathjak107]

Well you have to do what you see fit and we who think there are better ways going forward will do the same

[dockinGA]

Well you have to do what you see fit and we who think there are better ways going forward will do the same

And yet you're still just going to spend hours on this forum grumbling and fussing about 'rising rates' and how you don't think the PP is going to work going forward.

[pp4me]

Well you have to do what you see fit and we who think there are better ways going forward will do the same

And yet you're still just going to spend hours on this forum grumbling and fussing about 'rising rates' and how you don't think the PP is going to work going forward.

As iron sharpens iron, So a man sharpens the countenance of his friend - Proverbs 27:17

Let Budd and mathjak alone, I say. They are doing us no harm.

[whatchamacallit]

I got out of LTT once I realized I was a peon in the grand scheme which may not be true for everyone here.

I am rotating all cash and bonds to EE bonds while I still can.

If rates go way up then I can sell with no nominal loss and buy at higher yield.

If rates go way down then I am locked in at 3.54% with what I was able to get in.

[pp4me]

I got out of LTT once I realized I was a peon in the grand scheme which may not be true for everyone here.

Pretty sure that pertains to everyone here. Anyone who doesn't think they are a peon in the grand scheme of things, speak now or forever hold your peace.

[whatchamacallit]

I got out of LTT once I realized I was a peon in the grand scheme which may not be true for everyone here.

Pretty sure that pertains to everyone here. Anyone who doesn't think they are a peon in the grand scheme of things, speak now or forever hold your peace.

I can understand getting to a few million in your portfolio and it just not be worth the extra complexity to buy a couple percent into EE or I bonds. At that point the Wellesley plus some gold and forget about it sounds nice.

[mathjak107]

It could be just the opposite..the smaller the portfolio the more important it can be to get things right and not have assets in it get sand bagged by betting heavily on low rates and lower inflation at what stands a good chance of being the turn of a cycle.

The penalty for being wrong can be very severe since unlike equities interest rate cycles may be long

[mathjak107]

Well you have to do what you see fit and we who think there are better ways going forward will do the same

And yet you're still just going to spend hours on this forum grumbling and fussing about 'rising rates' and how you don't think the PP is going to work going forward.

The biggest obstacle to financial success is what is called not sleeping with the enemy.

Usually you get those who think a like hanging with those who think like they do and they high five each other and support each other’s view right or wrong .

It isn’t until you really understand the other camps thinking and can argue for or against equally that you stop believing your own bull shit As it is called and are able to draw a much better conclusion as to what to do.

You see this all the time in forums where you have those who just do something whether the best way or not because they don’t know what they don’t know so they just continue doing the same thing and telling each other this is the best way .

It may very well be the best way but by closing out the other side and negatives you can be quite wrong and today you will be penalized very heavily because so much of the pp is rate sensitive.

It has never seen such low rates and high valuations in equities at the same time . It has always been one or the other

[dockinGA]

Well you have to do what you see fit and we who think there are better ways going forward will do the same

And yet you're still just going to spend hours on this forum grumbling and fussing about 'rising rates' and how you don't think the PP is going to work going forward.

The biggest obstacle to financial success is what is called not sleeping with the enemy.

Usually you get those who think a like hanging with those who think like they do and they high five each other and support each other’s view right or wrong .

It isn’t until you really understand the other camps thinking and can argue for or against equally that you stop believing your own bull shit As it is called and are able to draw a much better conclusion as to what to do.

You see this all the time in forums where you have those who just do something whether the best way or not because they don’t know what they don’t know so they just continue doing the same thing and telling each other this is the best way .

It may very well be the best way but by closing out the other side and negatives you can be quite wrong and today you will be penalized very heavily because so much of the pp is rate sensitive.

It has never seen such low rates and high valuations in equities at the same time . It has always been one or the other

As I mentioned in my earlier post, I most certainly do not block out view points that are negative on the PP. I am not even 100% invested in the PP. But hearing the same negative viewpoints of the PP over and over and over and over without any hard facts, from someone who claims to know exactly what the rate cycle is going to do (yet also admits that they have lost lots of money on TLT before bailing) is not hard facts, and is just annoying to me. The fact that your warnings about decimation to the PP are the same things I've been hearing and reading for 7 years or more (and they still haven't happened) only make it worse.

I find your comment about 'not knowing what they don't know' quite rich coming from someone who lost lots of money on TLT over the last 6+ months.

Some comments:
1. You constantly say that you think the kryptonite for the PP is rising rates. Maybe it will be, maybe it won't. But going to portfoliovisualizer or portfoliocharts both shows that the worst 5 year run for the PP was in the early 80's. That was a period of declining rates (LTT's went from roughly 15% to 7% from 1980-85).
2. The late 70s saw the LTT rate rise by approximately the same amount. Yet the PP did quite well, certainly much better than a traditional portfolio of stocks/bonds.
3. Obviously gold's performance was probably the main driver in the PP at this time. This time is almost certainly different, for some reason, and it's also equally certain that none of us know ahead of time exactly how this time will be different.
4. If rates rise, that is likely to make LTT's more attractive to people who are currently invested in equities chasing yield. That would lower the price of equities (if not cause an outright crash of the market), and put a 'temporary cap' on LTT yields, until we break through that equilibrium (either up or down) in the constant dance of the investment world. As doodle has mentioned before, there are a lot of signs pointing towards a long term deflationary trend in the world's developed countries due to demographics, debt, etc.
5. And finally, on Jan 2 2020 (pre-Covid) the LTT rate was 2.33%. Today it stands at 2.35%. There has been a huge dip and subsequent spike in there, but the long term picture, at least according to how the market currently values LTT, hasn't changed any appreciable amount over the last 17 months. Being invested in LTT was just as crazy in Jan 2020 as it is today, and yet that investment allowed me to cash out some LTT in March 2020 and purchase a huge amount of stocks at the absolute bottom of the market. Mostly luck, but if I hadn't been invested in 4 asset classes that tend to move independent of each other I may not have had that chance (or more importantly the intestinal fortitude to do it right in the middle of a once in a century pandemic).

We all have to invest how we see fit. To each his own. You do you. Whatever the saying du jour is. And I am certainly not predicting the future returns of the PP, other than to say that I am 100% confident that it will not be the best performing portfolio over the next 10 years, and also 100% confident that it will not be the worst performing portfolio over the next 10 years. But your comments implying you're on a forum full of lemmings with no idea what they're investing in don't add much to the conversation in my opinion. Neither does stating every day some variation of 'kryptonite' and 'rising rates' and 'PP'......

[mathjak107]

you do know you dont have to read my comments ... why do you bother ? it makes no sense to read them and complain ... my posts have a lot more informative info then your needless complaining does since you admit to reading what you dont want to read

[dockinGA]

you do know you dont have to read my comments ... why do you bother ? it makes no sense to read them and complain ... my posts have a lot more informative info then your needless complaining does since you admit to reading what you dont want to read

You've posted 3802 times. In every single conversation that takes place on this board. It's awfully hard to avoid your comments.

And please check my 5 comments from the previous post. Those are in direct refutation/answer to your thoughts on the PP. If you don't think there's any informative info there, that's fine, maybe there's not.

I'm not a forum expert, so maybe this is a simple question, but can someone tell me if there's a 'block' button? If so, I might try it, but at that point it could be hard to follow all these discussions.

[Hal]

Hey Mathjak,

How about taking the approach discussed at the 23:30 mark which discusses how to profit from a rise in interest rates?
Something positive

Time to dust off that old variable portfolio.....

https://www.youtube.com/watch?v=JoyRL0VDvbo