Why Hold Long Bonds Now

[dualstow]

dualstow, did you do something with your hair? You look different somehow. Younger actually.

  I'd give *all* my hair for two of those Kate tickets that just sold out. Or even one ticket.

[MachineGhost]

The PP has yet to be battle tested whereas both stocks and bonds are simultaneously at least the 85th percentile of being overvalued.  Don't say I didn't warn you.

[MachineGhost]

The PP has yet to be battle tested whereas both stocks and bonds are simultaneously at least the 85th percentile of being overvalued.  Don't say I didn't warn you.

And yet, just a few weeks back, you were recommending LT bonds.    Which is it?

... Take heed.  This is your final warning.

What I also know is that I'll be smart this fourth time and just buy long-term bonds...

Bonds hedge equities.  Short term.  PP is a long-term proposition.

[buddtholomew]

The PP has yet to be battle tested whereas both stocks and bonds are simultaneously at least the 85th percentile of being overvalued.  Don't say I didn't warn you.

What are you suggesting a PP investor do at this point (sincere question)? How has the portfolio not been battle tested? Is holding additional cash an option?

[dualstow]

The PP has yet to be battle tested whereas both stocks and bonds are simultaneously at least the 85th percentile of being overvalued.  Don't say I didn't warn you.

And yet, just a few weeks back, you were recommending LT bonds.    Which is it?

I thought the same thing. MG, weren't you very recently buying up LT bonds but not gold?

[MachineGhost]

I thought the same thing. MG, weren't you very recently buying up LT bonds but not gold?

I think y'all miconstrued what I originally said.  When the stock market corrects, I'll buy LT bonds.  So far, it hasn't done it yet and I'm not eager to jump and get burned.  It would merely be a short-term phenomenom since equity corrections rarely last more than 2-3 years.  Long-term, the outlook is not good for both stocks and bonds as both are simultaneously overvalued at the 85th percentile which has never happened before historically.  All of the PP's history since the current incarnation was instituted in 1987 has been in a secular bond bull market.  We simply do not know what will happen to the PP.  The 1970's is not a good example because of the dollar being delinked from gold.

So yes, more cash is about the only defense I can think of until more clarity.

One of the major risks is a decoupling of bonds as a hedge for equity as happened last year after the QE tapering announcement.  If that happens as a fundamental change, the PP is FUBARed.

[murphy_p_t]

  Long-term, the outlook is not good for both stocks and bonds as both are simultaneously overvalued at the 85th percentile which has never happened before historically. 

What is the basis of this claim? (Not that I disagree...in fact i've been thinking of late that LTT AND stocks are pushed to extremes...I'm just interested in how this is measured and against historical data)

[murphy_p_t]

http://finance.yahoo.com/blogs/talking- ... 26290.html

The second guest makes a bullish case for bonds.

[buddtholomew]

Why are interest rates falling as the FED continues to taper? Does the retail investor have a voracious appetite for fixed income investments?

[Kshartle]

Why are interest rates falling as the FED continues to taper? Does the retail investor have a voracious appetite for fixed income investments?

The RMB has been falling against the dollar while other currencies are rising (Euro, Pound, Aussie, Swissy, Loonie)

Perhaps the Chinese are picking up the slack, printing RBM to buy LTBs. I doubt there are any reliable numbers for their treasury holdings currently. Chinese food and energy price inflation would be a good hint.

[tnt]

Gold and bonds were blistered last year and there are enough people who do not believe in the economy to keep gold and bonds up.  Until something breaks, we are unable to restore any semi normal relationship to the markets.  Stocks need to crash 50% and stay down until a good economy supports growth without the government delaying the inevitable, it will happen, that is my theory. When it does, I will transfer some assets from gold and long bonds to equities.

[dualstow]

What is Bill Gross advocating? Because I want to rush to do the opposite.

[Roberto]

I started into the PP a couple of months ago feeling 100% certain that long bonds would be a complete loser: now my bonds are up almost 7%, while my stocks and gold have gone nowhere.  Who'd a thunk it?  I guess that's why the rest of you are still here.  Of course to be a good newsletter writer, I should state the 7% gain as "42% annualized," in order to prove my brilliance as a market guru.

[dualstow]

... Of course to be a good newsletter writer, I should state the 7% gain as "42% annualized," in order to prove my brilliance as a market guru.

Exactly! 

[barrett]

Roberto, I started my PP in January and was only 98% sure that long bonds were going to tank. Now I am only 90% sure despite their strong performance. Hoping to just not give a damn soon.

[buddtholomew]

There has been a voracious appetite for treasuries. The latest bid appeared to coincide with articles on yields and tapering. You mean...yields can go lower when the FED stops purchasing? Ignore history at your own peril.

[barrett]

I was reading somewhere recently where interest rates on debt in Italy & Spain (maybe Greece too?) are really low right now. I would think US debt looks good by comparison. Any thoughts on this?

[MachineGhost]

What is the basis of this claim? (Not that I disagree...in fact i've been thinking of late that LTT AND stocks are pushed to extremes...I'm just interested in how this is measured and against historical data)

I think it was the current position relative to the entire historical range.

[dualstow]

As I type, TLT is over 114. Wow!

Nervous Investors Pile Into Bonds
May 15, 2014

Global bond rates dropped to their lowest levels of the year Wednesday, as central bankers signaled their determination to jolt the world's largest economies out of their malaise.
Investors piled into U.S., German and British government bonds—used to price everything from mortgages to car loans—driving down their yields.

http://online.wsj.com/articles/interest ... 1400110990

[buddtholomew]

MG, when do you plan to make your LTT purchase? The stock market is falling...watching with great interest as my bond holdings are within .5% of surpassing my equities. Gold, as usual, is the wildcard.

[MachineGhost]

MG, when do you plan to make your LTT purchase? The stock market is falling...watching with great interest as my bond holdings are within .5% of surpassing my equities. Gold, as usual, is the wildcard.

I don't know...  the breadth isn't very impressive to the downside yet.  I may just stay in cash as I really don't feel like being bitchslapped again if I buy bonds alone.  Besides, I can't come up with a timing model that makes more money than by and hold when including the bear market, so I'm like why even bother?  I do have half the allocation invested in duration-managed bonds, so its fine.