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interesting enough , quite a few respected opinions like robert kessler and gary shilling see the fall in bond values way over blown .
they think 30 year treasury's may be the investment gods gift to investors today . they can reap nice capital gains if things play out the way they anticipate . .
they don't think much of the projected inflation from trumps win will pan out and once the market hoopla fades we can see long term bond yields close to 1% and more in line with he rest of the world . .
i bought TLT and added more gold this past week after this crazy sell off the last 3 months . most of the damage was this past month . double digit losses in treasury bonds in such a short period of time are a phenomenon ..
as to why kessler thinks this , here is his reasoning . kessler has been incredibly right about treasury bonds for years now as i have been following his interviews regularly .
"Conclusion
We haven’t seen such a rush to judgement of boundless higher rates that we can remember. Its noise-level is correlated with its desire, not its likelihood. While we cannot call the absolute top of this movement in interest rates, it is limited by these enduring factors and thus, we think it is close to an end. In a sentence, not only will the Trump-administration policies not be enacted as imagined, but even if they were, they won't have the net-positive effect that is hoped for. We think that a 3.0% 30yr UST is a rare opportunity buy."
:
If you reach a ridiculous conclusion, rethink your model or assumptions. Any model that tells you to buy a 3.0% 30-year UST fails this test.
Beyond that, why would you ever buy TLT over DLR/O/WY*? The yield is still better even if you're paying 30% in taxes and you have some degree of protection from inflation. Even if the low-rates-forever hypothesis is true treasuries still are terrible.
*not that I would recommend buying those, just talking relatively
what do you think happens in a recession or downturn with O OR DLR ? they are stocks and plunge like stocks .
the idea behind TLT is long term treasury's generally soar when stocks fall . 2008 saw TLT AND treasury's soar 45% .
long term treasury's fly fighter cover over the portfolio .
the long term treasury's perform a very specific function which canno6 be duplicated by stocks .
the belief here is that interest rates are going to come back down once the trump hoopla dies . and with corporate profits sliding since 2014 we are likely headed for a downturn .
but you don't bet the ranch on that . the portfolio is diversified enough that the long term treasury's just fly fighter cover .
in 2008 while stocks dipped 40% long term treasury's were up 45% and gold was up actually giving that model a decent year .
you don't use stocks like O or dlr to protect a portfolio.
no one has found a way to repeal the business cycle yet . historically after 5 years of good times the odds of a recessuion increase at the rate of 20% a year . by that measure we are at about a 60% chance at this point of sliding backwards . corporate profits seem to be reflecting that fact as they slid down 13% from 2014 .
for those who do not want to spend a bunch of years just clawing back, a more bullet proof portfolio may give them a shot at profiting no matter what direction we go . these days it looks like the scale can tip in any of a few directions running from prosperity to inflation to recession .
Last edited by mathjak107; 11-27-2016 at 03:13 AM..
what do you think happens in a recession or downturn with O OR DLR ? they are stocks and plunge like stocks .
the idea behind TLT is long term treasury's generally soar when stocks fall . 2008 saw TLT AND treasury's soar 45% .
long term treasury's fly fighter cover over the portfolio .
the long term treasury's perform a very specific function which canno6 be duplicated by stocks .
the belief here is that interest rates are going to come back down once the trump hoopla dies . and with corporate profits sliding since 2014 we are likely headed for a downturn .
but you don't bet the ranch on that . the portfolio is diversified enough that the long term treasury's just fly fighter cover .
in 2008 while stocks dipped 40% long term treasury's were up 45% and gold was up actually giving that model a decent year .
you don't use stocks like O or dlr to protect a portfolio.
no one has found a way to repeal the business cycle yet . historically after 5 years of good times the odds of a recessuion increase at the rate of 20% a year . by that measure we are at about a 60% chance at this point of sliding backwards . corporate profits seem to be reflecting that fact as they slid down 13% from 2014 .
for those who do not want to spend a bunch of years just clawing back, a more bullet proof portfolio may give them a shot at profiting no matter what direction we go . these days it looks like the scale can tip in any of a few directions running from prosperity to inflation to recession .
Okay, I get preferring bonds over stock if you are looking for ballast for your portfolio / spending money & dry powder in a crisis (I'm ~20% in cash and the friends I've spoken to even more so) rather than yield, but you should cut that duration down.
TLT has a duration of 17.75 years. That means if interest rates move down or up by 1%, you would expect to make/lose 17.75%. To repeat the '08 performance nominal rates would need to drop to ~ -1%. Which in theory could happen with intentional manipulation by central banks as is going on in Europe & Japan but that's not a natural state of affairs that will occur without intentional central bank buying to drive the rates negative -- and given both the failure of QE to support the real economy in a way at all proportional to it's size and the populist backlash I don't think that's something to bet on repeating, especially in the USA under Trump. Meanwhile, if rates go up to say 3.5% you're going to take a ~18% hit. Very high risk, that measly ~2.3% after expenses isn't worth it, if your purpose is to have something that will hold value in a stock crash a shorter duration fund or cash is a much better way to go (gold is okay -- it's basically a different form of currency, I just don't trade in it because I don't understand it).
the idea of the above portfolio i mentioned is not to rip out the individual compomponents . they all work together as a team .
it basically take's the 4 major outcomes we can have :
recession
depression
prosperity
high inflation /weak dollar
and assigns a very powerful asset class to react very strongly when it's day in the sun comes WITHOUT GUESSING WHICH ONE IS NEXT ON DECK ..
it has worked amazingly well through our history . while in the short term you can have 2 assets move down together things always resolve in to one of the major 4 .
sure rates can go higher but if you actually implement the golden butterfly portfolio you are bar belling short term bonds or cash with long term treasury's. what you have is a duration on par with an intermediate term bond fund but with far more pulling power when things turn down and a higher yield.
barbelling can work quite well in times things can go either way .
the portfolio is weighted towards prosperity . i have been monitoring it since the bonds and gold flipped . the small cap component has soared and the s&p is up and it is still up almost 7% ytd despite the pounding in gold and bonds .
in case you missed it the portfolio is :
20% gold
20% long term treasury's
20% s&p 500
20% small cap value
20% cash . or very short term bond (this acts both as a barbell to shorten duration on the LT bonds and as a call option on cheaper asset prices but with no expiration date )
Last edited by mathjak107; 11-27-2016 at 12:28 PM..
I agree with AOC. Investing in TLT seems crazy to me. In fact investing in any bond fund for capital gains seems crazy to me. I pretty much invest by the maxim that "stocks are for gain and bonds are for safety". The shorter the duration, the more safe a bond fund is. The longest duration bond fund I have is about 5.5 years and that even makes me nervous.
not so crazy when things cycle around and tumble as they always do eventually . it is a speculation if you do it alone outside of a bullet-proof portfolio concept .
I agree with AOC. Investing in TLT seems crazy to me. In fact investing in any bond fund for capital gains seems crazy to me. I pretty much invest by the maxim that "stocks are for gain and bonds are for safety". The shorter the duration, the more safe a bond fund is. The longest duration bond fund I have is about 5.5 years and that even makes me nervous.
TLT barbelled as i mentioned above has a duration of about the same as an intermediate term bond fund . but with a lot more pulling power when those flight to safety comes . yield is a bit higher too
Okay, I get preferring bonds over stock if you are looking for ballast for your portfolio / spending money & dry powder in a crisis (I'm ~20% in cash and the friends I've spoken to even more so) rather than yield, but you should cut that duration down.
TLT has a duration of 17.75 years. That means if interest rates move down or up by 1%, you would expect to make/lose 17.75%. To repeat the '08 performance nominal rates would need to drop to ~ -1%. Which in theory could happen with intentional manipulation by central banks as is going on in Europe & Japan but that's not a natural state of affairs that will occur without intentional central bank buying to drive the rates negative -- and given both the failure of QE to support the real economy in a way at all proportional to it's size and the populist backlash I don't think that's something to bet on repeating, especially in the USA under Trump. Meanwhile, if rates go up to say 3.5% you're going to take a ~18% hit. Very high risk, that measly ~2.3% after expenses isn't worth it, if your purpose is to have something that will hold value in a stock crash a shorter duration fund or cash is a much better way to go (gold is okay -- it's basically a different form of currency, I just don't trade in it because I don't understand it).
1. Short term treasuries are not that different from cash. They don't rise much during a market downturn. Think of a market downturn as a spill of acid. Cash and short-term treasuries are like water. They can dilute the acid but not do anything more. Long term Treasuries are like baking soda. They can neutralize the acid.
2. If interest rates rise 1%, that means a reflating economy (and not a fake reflation built on QE), which should be good for stocks (not just in the U.S but in emerging markets as well). If all my stocks do well, I don't care if my long term Treasuries lose 20%. The stock gains will compensate. And, I can use the stock capital gains to buy more Treasuries at the higher yield.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Quote:
Originally Posted by snowmountains
I've had a long term bond fund in taxable account that I used to park my extra cash that's not needed in the next year or so. The NAV has been going down every day. Should I sell it now for tax loss, or hold it to continue earning the dividend (will the dividend decrease, too?). Any idea how much lower the NAV will continue to go, and for how long?
You have 3 choices:
1: Stand Pat.
2: Sell. take tax loss. 2a)look for another buy; or 2b)hold cash.
3. Buy more to dollar cost average.
YMMV
For me, it's not that I don't like bonds, but bonds move too quickly for me. I already have my head filled up with stock strategies on just 10 companies :, couple of indexes , and a bunch of bankrupt companies , No bonds, anywhere.
YMMV
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, and a bunch of bankrupt companies 
, No bonds, anywhere. 
