Gyroscopic Investing

Think about that.

In the depths of the 2008 crisis, we were only a few basis points lower than we are now.

What does that tell you about what the "smart money" is thinking?

German 30 year bonds are on the brink of dipping below 2%.

If we have 30 year bond yields at these levels during a relatively stable period (no war, economic collapse or other disaster seems imminent), imagine what rates would do if something crazy was actually happening.

If current rates aren't proof that the future is utterly unpredictable, I don't know what is.

I'm lucky enough to be refinancing within the next week.  I'm going with a 5 or 7 year ARM and saving about 1.1% over a 30-year fixed... I'd say "I did it for doodle," but I'm doing it for me... and my econo-ego.

30 Year Canadian Treasury is at 2.4%.  http://www.pfin.ca/canadianfixedincome/Default.aspx

It still wrecks my brain that we are this low.

I think it was around 2.9 (Edit: 3.5%) when I first started the PP back in April 2011, and I was convinced that this would obviously be the losing asset (there is always one bad apple).  But I held my nose and bought it anyway.  Here we are in May 2012 and the LTT's are the best performing asset with a 29% gain (not including interest).

MediumTex wrote: What does that tell you about what the "smart money" is thinking?

Unfortunately, nothing.  Wish that I knew!  I suppose this is why I'm the "dumb money" and go with a balanced and diversified portfolio. 

MediumTex wrote:German 30 year bonds are on the brink of dipping below 2%.

Isn't that incredible?  Few dislike LTTs more than I do but this and Japan shows that there's still plenty of potential room below for US LTTs.  Wild stuff.

Lone Wolf wrote:

MediumTex wrote: What does that tell you about what the "smart money" is thinking?

Unfortunately, nothing.  Wish that I knew!  I suppose this is why I'm the "dumb money" and go with a balanced and diversified portfolio. 

I should have just said "the money", since it takes a lot of smart and dumb money to push yields this low.

i recall the Fed wanted to get approval to offer negative rate T Bills...do they have the green light?

Every "expert" that I hear on TV and radio has been saying that LTT's are a reckless and dangerous investment and they have all been wrong.

Reub wrote: Every "expert" that I hear on TV and radio has been saying that LTT's are a reckless and dangerous investment and they have all been wrong.

A while back I called in to the Renzy wealth radio show to talk about the PP  he was saying that you should not hold long term bonds, because they were going to go down, My postiton in EDV went up about 70% since then.

Any prediction will be right if you wait long enough.

MediumTex wrote:
What does that tell you about what the "smart money" is thinking?

Ha, I just read an article about that.

Smart Money Sheds Stocks

...

So what are the wealthy doing with their money?

Increasingly, they’re looking for hard assets, collectibles and real-estate.

...

http://dailycapitalist.com/2012/05/17/s ... ds-stocks/

Every "expert" that I hear on TV and radio has been saying that LTT's are a reckless and dangerous investment and they have all been wrong.

When I set up my 4x25 PP, I got a friendly series of phone calls from Fidelity asking if I needed investment advice.  I think they thought I was nuts buying gold ETFs and 30 year treasuries.  (So did I but that's another matter.)

Speaking of which, has anyone noticed that PRPFX has had a lousy time of it for the past 12 months?  Especially the past 6 months?  I ran a back simulation with 10% EDV/90% PRPFX, and that definitely made a difference.  For anyone who is curious, rebalancing at 40% bands for EDV (roughly 5%/15%) turned out best.  Provided that Yahoo Finance's data are correct, of course.

So...hello EDV, welcome to my portfolio.

sophie wrote: So...hello EDV, welcome to my portfolio.

Sophie--

Careful with EDV.  It's good to add it to PRPFX as you described, but if you hold it in a taxable account, make sure you understand the tax ramifications. 

An alternative to EDV is to keep some cash handy and try buying the dips.  It's not very scientific, but I think if you're reasonable about it, it can juice your returns a bit and keep you from paying taxes on a fund like EDV.

AdamA wrote:

sophie wrote: So...hello EDV, welcome to my portfolio.

Sophie--

Careful with EDV.  It's good to add it to PRPFX as you described, but if you hold it in a taxable account, make sure you understand the tax ramifications. 

An alternative to EDV is to keep some cash handy and try buying the dips.  It's not very scientific, but I think if you're reasonable about it, it can juice your returns a bit and keep you from paying taxes on a fund like EDV.

True EDV pays big dividends and in a taxable account you have to pay tax on it. Its not the worst thing in the world to get a large amount of income and pay tax on it at least EDV gives you the money to pay rather then phantom income from zero coupon bonds where you pay tax on income you didn’t even get. 

sophie wrote: When I set up my 4x25 PP, I got a friendly series of phone calls from Fidelity asking if I needed investment advice.   I think they thought I was nuts buying gold ETFs and 30 year treasuries.  (So did I but that's another matter.)

  I have LTT in my Fidelity account and very little else. I think they just wanted a chance to sell you funds. 

I do hold PRPFX in a taxable account.  By my calculations, PRPFX's last dividend in 2011 was about 0.9%, and long term capital gains was about 0.6%.  About 2/3 of dividends are from US treasury securities, which should be exempt from state and local taxes, correct?  EDV pays dividends of about 4% annually, judging from the last two payments, all (presumably) from Treasury securities.  But, following Medium Tex's advice (sorry, should have given due credit in my last post!!), EDV is only 10% of the total.  So, the dividend for the EDV/PRPFX combination is 1.2%, of which slightly over 1% is exempt from state/local taxes, and another 0.5% for long term gains.  I can live with that.  Note that in my situation (NYC resident), state and local taxes are > 10%, so Treasury dividends are not necessarily worse for me than cap gains.

I'm a bit afraid to start playing with timing PRFPX - I figure my wrong/right ratio would be pretty close to half.  I did take another look at the price chart though.  It seems there is a "support" level at 45, and a "resistance" level between 49 and 50.  Has anyone here tried buying and selling using these levels?  We're approaching a support level now, so it would be interesting to see if starts increasing soon.  And it would make sense that people would start getting more interested in PRPFX when they see what the stock market has been doing lately.

sophie wrote: I'm a bit afraid to start playing with timing PRFPX - I figure my wrong/right ratio would be pretty close to half. 

Yeah, I understand.  If I have some extra cash I'm looking to invest, though, sometimes I will buy PRPFX if it's taken a recent dive (like this past month).  Certainly not scientific, and certainly not a guarantee.

sophie wrote: I do hold PRPFX in a taxable account.  By my calculations, PRPFX's last dividend in 2011 was about 0.9%, and long term capital gains was about 0.6%.  About 2/3 of dividends are from US treasury securities, which should be exempt from state and local taxes, correct?  EDV pays dividends of about 4% annually, judging from the last two payments, all (presumably) from Treasury securities.  But, following Medium Tex's advice (sorry, should have given due credit in my last post!!), EDV is only 10% of the total.  So, the dividend for the EDV/PRPFX combination is 1.2%, of which slightly over 1% is exempt from state/local taxes, and another 0.5% for long term gains.  I can live with that.  Note that in my situation (NYC resident), state and local taxes are > 10%, so Treasury dividends are not necessarily worse for me than cap gains.

I've never used EDV, so I'm not really sure about the tax treatment.  In 2009, however, it had a pretty big end-of-year distribution (like $11 a  share).  For some perspective, it was $1.46 in 2008 and $.03 in 2010, so you can see it's a little unpredictable. 

I'm not saying not to do it  (it's better to pay taxes on gains to have losses) just understand that EDV's tax treatment is more complicated than it seems...and unpredictable. 

Record low yields across the globe today. Absolutely stunning.

My refinance application is being reviewed as we speak and I'll probably lock in tomorrow.  7/1 ARM (hey, I have to flex my prediction muscle somewhere) at somewhere around 2.6%.

Sorry, just had to express my glee.  Bonds are officially more fun than stock to watch.

I've never used EDV, so I'm not really sure about the tax treatment.  In 2009, however, it had a pretty big end-of-year distribution (like $11 a  share).  For some perspective, it was $1.46 in 2008 and $.03 in 2010, so you can see it's a little unpredictable. 

I guess I will find out come December.  The fund needs to stay in taxable, though, in order to allow rebalancing with PRPFX, which is the point of holding it in the first place.  I'm counting on PRPFX's tax efficiency to overcome any issues with EDV.

And, speaking of EDV...unbelievable what happened to bonds today!

The bond market is getting scary. If I were a speculative investor I would be losing sleep over this. I see what LTTs are doing and all I can think of is the tech bubble of the very late 90's. Seriously I would be looking elsewhere if I were inclined to speculate. Maybe VDIGX. Historically when the yield on the 10yr Treasury has fallen below the yield for the S&P 500 it has been a buy signal for stocks. Hell the spread between investment grade and higher end speculative bonds (BB rated) is starting to make even junk bonds attractive.

Ad Orientem wrote: The bond market is getting scary.

I love the bond market.

Gumby posted this quote a while back:

"I like the bond market because it’s smarter, bigger, and faster than the stock market.  It’s like the older brother who graduated top of his class at Yale and was captain of the crew team and now leads the M&A department at a major bank.  He’s little unapproachable to the average investor.  He’s austere, academic, and aloof.  But he knows his stuff and is usually the first one to do anything about anything.  The investor at home prefers to watch the stock market.  That’s the colorful younger brother who dropped out of school to join the Poker tour and sells car insurance at the local strip mall.  He’s charismatic — if a little manic depressive — and easier for the average investor to share a beer with.  He’s what people talk about on TV." — Jeffrey Dow Jones

Seems truer than ever. 

AdamA wrote:Seems truer than ever.

I love that quote.

I had to rebalance into 30-year bonds earlier this month when they were yielding 2.95%.  I felt like such a sucker having to do that.

Look at em now.  Crazy stuff.

Keep in mind, of course, there will come a day when this asset just won't seem to be able to stop stinking up the joint.  It's the nature of the beast.  Looks like that day ain't today, though.

i've taken profits off LTT some months ago & out of EDV a few days ago...so I'm running this close to the 15% band...expecting a correction before I increase allocation...kind of market timing, I know....anyone else trying something similar?

Lone Wolf wrote: Keep in mind, of course, there will come a day when this asset just won't seem to be able to stop stinking up the joint.  It's the nature of the beast.  Looks like that day ain't today, though.

That's one thing I like about the PP.  The diversification conditions you to expect at least one asset to stink at any given time, but distracts you with a shiny performance in another.  Noone seems to be talking today about stocks falling again. 

Long-term treasuries are the asset class I most look forward to checking each morning.

It would be better to make money from stocks/prosperity, but if I didn't have treasuries I'd be losing big this month. If I didn't have the pp, I wouldn't have treasuries.