Gyroscopic Investing

pmward wrote: ↑Tue May 05, 2020 12:13 pmOil is not the top weighting in the CPI for arbitrary reasons.

This is an important point. The price of oil has a lot to do with the price of many other things. Anything that requires transportation, or whose inputs require transportation, for example.

Xan wrote: ↑Tue May 05, 2020 12:22 pm

pmward wrote: ↑Tue May 05, 2020 12:13 pmOil is not the top weighting in the CPI for arbitrary reasons.

This is an important point. The price of oil has a lot to do with the price of many other things. Anything that requires transportation, or whose inputs require transportation, for example.

Exactly. Oil, like it or not, better or worse, is really at the heart and center of our entire economy. Oil prices are down because economic activity is down. It's impossible to have true inflation without any economic activity. The velocity of money is a key aspect in true inflation. Any price increases we get in a period of anemic money velocity are an unsustainable blip.

Institutional bond traders are astute enough to know this. The increasing cost of food is both common knowledge and old news. It's already priced into the cake. I mean, we had the Treasury come out and announce 3T in debt offerings in the next 3 months... yet TLT is only down ~60bps today? The fact that TLT can be that resilient to news of massive incoming treasury supply is a bullish signal in my book.

pmward wrote: ↑Tue May 05, 2020 12:15 pm

StinkyToes wrote: ↑Tue May 05, 2020 12:10 pm

pmward wrote: ↑Tue May 05, 2020 12:00 pm

StinkyToes wrote: ↑Tue May 05, 2020 11:58 am bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

In your opinion. The market however seems to disagree with you quite strongly. It's folly to ignore what the aggregate opinion of the market is telling you. What makes your valuation right, yet the entire aggregate markets valuation wrong?

I think I am right and, yes, I think the entire aggregate market is wrong.

Good luck. Just beware that almost everyone who ever said that throughout history was proven wrong... Also, do keep in mind that being early is the same thing as being wrong...

You make a lot of good arguments. I still think I'm right. I'll hold out until the CPI and PPI reports come out and then I'll likely buy back all the bonds I had sold previously.

StinkyToes wrote: ↑Tue May 05, 2020 12:47 pm

pmward wrote: ↑Tue May 05, 2020 12:15 pm

StinkyToes wrote: ↑Tue May 05, 2020 12:10 pm

pmward wrote: ↑Tue May 05, 2020 12:00 pm

StinkyToes wrote: ↑Tue May 05, 2020 11:58 am bonds are priced for perfection. I think even temporary inflation will cause bond prices to fall.

In your opinion. The market however seems to disagree with you quite strongly. It's folly to ignore what the aggregate opinion of the market is telling you. What makes your valuation right, yet the entire aggregate markets valuation wrong?

I think I am right and, yes, I think the entire aggregate market is wrong.

Good luck. Just beware that almost everyone who ever said that throughout history was proven wrong... Also, do keep in mind that being early is the same thing as being wrong...

You make a lot of good arguments. I still think I'm right. I'll hold out until the CPI and PPI reports come out and then I'll likely buy back all the bonds I had sold previously.

I also want to mention that I don't think it is impossible for inflation to kick in in the coming years (I mean my active VP is heavy on metals and miners after all). But we are in a deflation right now, and the switch doesn't just flip from deflation to inflation overnight. It takes time. Who knows what treasuries will do? The chart is very difficult to read at the moment. But for now, bonds are holding up strong... even while food prices increase, treasury supply increases, and the stock market rallies. All that stuff considered, and all TLT has done so far is simply take a pause. In the meantime, what happens if something causes another stock market temper tantrum? What happens if a big company or two file for bankruptcy (I mean, every day it seems there's a handful of companies filing)? What happens if the virus does turn out down the road to be the catalyst for a bigger debt crisis, likely in corporate bonds? TLT skyrockets again. If nothing else, TLT is a great equity and uncertainty hedge. There is a lot of uncertainty at this time. It's really hard to make any all in bets in any direction really. It's become very popular to hate on bonds here lately... yet bonds have been the saving grace for everyone here, and in the event of further economic trauma, they are likely to be the saving grace once again.

pmward wrote: ↑Tue May 05, 2020 10:55 am

AdamA wrote: ↑Tue May 05, 2020 9:22 am

pmward wrote: ↑Tue May 05, 2020 8:16 amTo add to what everyone else is saying... oil is by far the biggest weight You're not going to see any "inflation" in the official data until oil starts to go up.

Very good point.

These types of predications have a way of tricking everyone.

Even though it seems like a no-brainer that we'd have inflation with all of the "money printing" going on, it's a good idea to remain a bit skeptical when something seems a little too neatly logical, especially in the world of investing.

Yes, exactly. The aggregate opinion on this forum has never once gotten a market timing call right. Seeing all the hate on LTT's here is a bullish clue, imo. The markets never do the thing the majority of people think they have to do. Case in point, the current stock market rally. When we were down at 2350 everyone though the market just *had* to go lower with the virus and the economy shut down. People here were putting off their rebalancing because they thought the market had to go lower, and they in turn missed the entire opportunity to rebalance. The market never does the obvious thing. It's job is to confound as many people as possible. There's a good chance that those that sell their LTT's right now will live to regret it down the road.

pmward!

A belated "Glad you came back"! I was reading a lot of you when I was going through the archives but you were absent, preventing me from experiencing the live you. Now I get to regularly experience in live time gems like the above!

Vinny

WSJ article (behind a pay wall) says home prices are still rising: https://www.wsj.com/articles/why-home-p ... lead_pos12

This rings true to me. I've noticed no price decline so far in my city. This is another reason why bonds may be overpriced. The market is likely assuming deflation in housing prices, but sellers just aren't lowering their prices.

Has anyone noticed that oil prices are rebounding? "U.S. oil prices jumped nearly 20% on Tuesday, with the June futures contract for West Texas Intermediate crude reaching $24.56 on its fifth straight day of gains."

https://www.forbes.com/sites/sarahhanse ... 195c752de6

StinkyToes wrote: ↑Wed May 06, 2020 2:56 am Has anyone noticed that oil prices are rebounding? "U.S. oil prices jumped nearly 20% on Tuesday, with the June futures contract for West Texas Intermediate crude reaching $24.56 on its fifth straight day of gains."

https://www.forbes.com/sites/sarahhanse ... 195c752de6

It's only the front month. The back months (what really matters) have not been as volatile. Not ironically, USO rolled most of their front month contracts to 2-3 month out contracts... and as soon as they did that the front month started going up. Coincidence? I think not. Poor USO holders have gotten destroyed and have not participated in the rebound. Also, just because oil prices have been going up for a week or two doesn't mean the bear market is over. It could just be a fake out bull trap. Oil got very oversold, it had to bounce. But is that bounce permanent or just working off the oversold condition so it can fall further (only this time have the later months fall as well, which would be where the true devastation begins)?

we have never had a modern day recession when oil prices were not high

San Francisco Bay Area home prices still rising:

https://mortgage.originalandsafe.com/ev ... me-prices/

"Median sale prices in the region increased 1.5%, led by year-over-year gains in the counties of Alameda (5.1%), San Mateo (6.5%) and Santa Clara (4.8%), according to a Zillow analysis. Contra Costa County home prices grew 1.9% from the previous March."

StinkyToes wrote: ↑Wed May 06, 2020 8:59 pm San Francisco Bay Area home prices still rising:

https://mortgage.originalandsafe.com/ev ... me-prices/

"Median sale prices in the region increased 1.5%, led by year-over-year gains in the counties of Alameda (5.1%), San Mateo (6.5%) and Santa Clara (4.8%), according to a Zillow analysis. Contra Costa County home prices grew 1.9% from the previous March."

SF houses rising. Water wet. This has been going on for decades and still has not had any real impact on inflation.

pmward wrote: ↑Thu May 07, 2020 11:40 am

StinkyToes wrote: ↑Wed May 06, 2020 8:59 pm San Francisco Bay Area home prices still rising:

https://mortgage.originalandsafe.com/ev ... me-prices/

"Median sale prices in the region increased 1.5%, led by year-over-year gains in the counties of Alameda (5.1%), San Mateo (6.5%) and Santa Clara (4.8%), according to a Zillow analysis. Contra Costa County home prices grew 1.9% from the previous March."

SF houses rising. Water wet. This has been going on for decades and still has not had any real impact on inflation.

Well, maybe it does if you want to live in SF

Then again, think about how much cheaper those tech companies would be to operate if they didn't concentrate themselves in such an expensive location. Maybe Stripe could charge a lower fee if they didn't locate in downtown San Francisco. Maybe Google could charge less for ads if they didn't locate in San Jose? Nothing about those places is required to run a tech company; it seems they could be much more profitable if they weren't there.

It's not just San Francisco and Silicon Valley. Someone in my family bought a house in Maryland last week. She said 32 potential buyers signed up for private showings of the house on the first weekend. Out of those, 13 of them submitted offers. This was during a lockdown.

She said the large number of showings and offers was because most of the people who live in that part of Maryland work for the government, so they're still getting paid. Real estate conditions are heavily local.

Tortoise wrote: ↑Thu May 07, 2020 1:33 pm It's not just San Francisco and Silicon Valley. Someone in my family bought a house in Maryland last week. She said 32 potential buyers signed up for private showings of the house on the first weekend. Out of those, 13 of them submitted offers. This was during a lockdown.

She said the large number of showings and offers was because most of the people who live in that part of Maryland work for the government, so they're still getting paid. Real estate conditions are heavily local.

Was it Bethesda or Chevy Chase?

I, for one, think it's really cool that Maryland named a municipality after Chevy Chase.

StinkyToes wrote: ↑Thu May 07, 2020 4:35 pm Was it Bethesda or Chevy Chase?

Neither -- Silver Spring. But I guess they're all pretty close to each other?

Kriegsspiel wrote: ↑Thu May 07, 2020 4:41 pm I, for one, think it's really cool that Maryland named a municipality after Chevy Chase.

Naming a municipality after an asshole... interesting concept.

Tortoise wrote: ↑Thu May 07, 2020 5:10 pm Naming a municipality after an asshole... interesting concept.

Wasn't it named after the front hole? It wasn't called National Lambutthole, you know.

The latest consumer price index update is out: https://www.bls.gov/news.release/cpi.nr0.htm

What I got right:
- food at home prices jumped in April, rising 2.6% month over month.
- medical care services prices are still rising, up 0.5% month over month.
- shelter prices did not fall (flat month over month).
- energy prices plunged, as expected.
- transportation prices plunged, as expected. Who cares. Nobody is flying.
- long-term treasury prices are roughly 4-5% lower today than when I sold.

What I got wrong:
- apparel prices plunged more than I expected (down 4.7% month over month)
- the bond market yawned at the report -- apparently traders had already factored in the big increase in food prices.

All in all I'm not upset with my little attempt at market timing. I did prevent a 4-5% decline in my LTT holdings. At the same time, I do not feel I hit the bullseye and gains were probably mostly luck. Clearly, there is no panic about stagflation and/or rising food prices. Accordingly, I plan to reinstate my long LTT position within the next day or two.

StinkyToes wrote: ↑Tue May 12, 2020 11:56 am The latest consumer price index update is out: https://www.bls.gov/news.release/cpi.nr0.htm

What I got right:
- food at home prices jumped in April, rising 2.6% month over month.
- medical care services prices are still rising, up 0.5% month over month.
- shelter prices did not fall (flat month over month).
- energy prices plunged, as expected.
- transportation prices plunged, as expected. Who cares. Nobody is flying.
- long-term treasury prices are roughly 4-5% lower today than when I sold.

What I got wrong:
- apparel prices plunged more than I expected (down 4.7% month over month)
- the bond market yawned at the report -- apparently traders had already factored in the big increase in food prices.

All in all I'm not upset with my little attempt at market timing. I did prevent a 4-5% decline in my LTT holdings. At the same time, I do not feel I hit the bullseye and gains were probably mostly luck. Clearly, there is no panic about stagflation and/or rising food prices. Accordingly, I plan to reinstate my long LTT position within the next day or two.

Sometimes you get lucky. But trading bonds generally is very hard

Finance porn, but thought of you...

Prices are tumbling at an alarming rate

https://www.cnn.com/2020/05/12/economy/ ... index.html

ochotona wrote: ↑Tue May 12, 2020 12:36 pm

StinkyToes wrote: ↑Tue May 12, 2020 11:56 am The latest consumer price index update is out: https://www.bls.gov/news.release/cpi.nr0.htm

What I got right:
- food at home prices jumped in April, rising 2.6% month over month.
- medical care services prices are still rising, up 0.5% month over month.
- shelter prices did not fall (flat month over month).
- energy prices plunged, as expected.
- transportation prices plunged, as expected. Who cares. Nobody is flying.
- long-term treasury prices are roughly 4-5% lower today than when I sold.

What I got wrong:
- apparel prices plunged more than I expected (down 4.7% month over month)
- the bond market yawned at the report -- apparently traders had already factored in the big increase in food prices.

All in all I'm not upset with my little attempt at market timing. I did prevent a 4-5% decline in my LTT holdings. At the same time, I do not feel I hit the bullseye and gains were probably mostly luck. Clearly, there is no panic about stagflation and/or rising food prices. Accordingly, I plan to reinstate my long LTT position within the next day or two.

Sometimes you get lucky. But trading bonds generally is very hard

Yes. Of all the charts I analyze, bonds are by far the most difficult to get a read on.