Gyroscopic Investing

http://thereformedbroker.com/2016/07/12 ... rewritten/

Interesting take

Ha! Bonds may be the new stocks, but I don't accept that stocks are the new bonds.
Very entertaining read.

dualstow wrote:Ha! Bonds may be the new stocks, but I don't accept that stocks are the new bonds.
Very entertaining read.

Certainly not with regard to volatility, but this is one of several places I've seen this assertion being made (stocks being bought for yield). Additionally, there is a theme that cheap money is driving A LOT of share buy backs right now. I sort of buy into this a bit as value and high div stocks are on a tear right now.

This has been going on for a long time. It's not new except maybe to the lamestream media or blogsphere.

Basically, dividend payers and low volatility stocks are second tier proxies for value stocks. Just as momentum is a second tier proxy for growth (real growth not the other end of a multi-factor value screen).

So now that all stocks are overvalued in the aggregate as opposed to just Mega caps in the 90's, they're not going to deliver very bond-like long-term returns going forward anymore than bonds themselves will.

So essentially in a late stage bull market like now you want this cocktail: Large Value with an International Twist, but early after a bear market ends you want Small Growth with a Domestic Twist. It's unfortunate this doesn't really show up as "optimal" in backtests though.

As far as bond yields being issued below zero (still haven't seen it but a 10 year BUND was offered at 0% coupon rate with -.5% YTM yesterday), it's just a guaranteed loss if held to maturity. Anything else relies on the Greater Fool theory. For the PP, I don't think it will matter but it will still be very painful on yields reversing to positive if you don't cap your duration exposure.

Sigh, there's nowhere to turn. I guess I'll buy that new Disney 30-year bond. Or maybe latch on to the 100-year one from the 90s.

dualstow wrote:Sigh, there's nowhere to turn. I guess I'll buy that new Disney 30-year bond. Or maybe latch on to the 100-year one from the 90s.

No, no, wait for the perpetual bond from Japan! Any day now. It'll be stranger than fiction if it is what I think it is.

Is it like the British consols of old?

dualstow wrote:Is it like the British consols of old?

Maybe, but without a coupon rate!