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Reaching for Yield - Clever Metaphor
Old 04-03-2013, 07:09 PM   #1
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Reaching for Yield - Clever Metaphor

Maybe everyone else has heard this one, but in yet another thread/forum about reaching for yield** by taking on more risk (more dividend/equity, HY bonds, etc.) in anticipation of the eventual interest rate hike and bond fund NAV hit, I thought this metaphor was clever...

Yes, you may be able to pick up a few handfuls more of quarters running in front of the steamroller, but don't confuse outcome with strategy.

** vs staying the course with total bond funds and other traditional fixed income assets, at low or negative real returns
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Old 04-03-2013, 07:17 PM   #2
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That metaphor leaves some people flat.
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Old 04-04-2013, 12:02 PM   #3
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I think the point missed by most high-yield bond investors is that while in line ahead of the stock holders, you are concentrating risk with the worst companies. OTOH the fed is encouraging us to come out from under the bed and take on more risk.
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Old 04-04-2013, 12:16 PM   #4
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IMHO- The widespread risk-aversion despite easy-money policy of (essentially) world-wide low interest rates is worrisome to me. And apparently I'm not alone- at least in Europe. The 1-2 yr German bonds have recently traded at NEGATIVE interest rates (i.e. worse than hiding under the mattress )
German Government Bonds - Bloomberg
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Old 04-04-2013, 02:04 PM   #5
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Old 04-04-2013, 08:26 PM   #6
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While we are thinking pessimistically (remember that my tag line used to be "Murphy was an optimist."):

It seems that the FED has at least attempted to change the rules by forcing us to take on more risk (at least to have any hope of even keeping up with inflation.) So, if we can't do it through normal CD type savings vehicles and we can't do it through the traditional bond route or even their fancy "inflation protected" bonds, and most of us don't want to go the 100% stock route, what kinds of investments does that leave?

Should we borrow a bunch of their worthless dollars (Ooooops! I mean "cheap" dollars) and buy RE? Should we "speculate" on commodities, PM, foreign currencies, collectibles? Or is it time to just hunker down and pray they don't also raise all of our taxes to take a second bite at our ER stashes (or find some legal way to pull a "Cyprus" on us)?

While some folks will get through this and actually make money, I think in hind sight, that will be a matter of luck rather than good planning. IMO the "bill" for all the wild spending is coming due. Most of us will pay at least some of that bill out of our stash, while some will muddle through relatively unscathed, and, as always, some will come out way ahead. To me, it continues to argue for diversification, but even that is our puny effort to change the odds toward our favor - not to get out of playing the game. YMMV
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Old 04-05-2013, 10:57 AM   #7
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Quote:
Originally Posted by Koolau View Post
While we are thinking pessimistically (remember that my tag line used to be "Murphy was an optimist."):

It seems that the FED has at least attempted to change the rules by forcing us to take on more risk (at least to have any hope of even keeping up with inflation.) So, if we can't do it through normal CD type savings vehicles and we can't do it through the traditional bond route or even their fancy "inflation protected" bonds, and most of us don't want to go the 100% stock route, what kinds of investments does that leave?

Should we borrow a bunch of their worthless dollars (Ooooops! I mean "cheap" dollars) and buy RE? Should we "speculate" on commodities, PM, foreign currencies, collectibles? Or is it time to just hunker down and pray they don't also raise all of our taxes to take a second bite at our ER stashes (or find some legal way to pull a "Cyprus" on us)?

While some folks will get through this and actually make money, I think in hind sight, that will be a matter of luck rather than good planning. IMO the "bill" for all the wild spending is coming due. Most of us will pay at least some of that bill out of our stash, while some will muddle through relatively unscathed, and, as always, some will come out way ahead. To me, it continues to argue for diversification, but even that is our puny effort to change the odds toward our favor - not to get out of playing the game. YMMV
I don't think you are being pessimistic. To emphasize your point - more like uncharted water. Metaphors aside, when has the market ever been at all time highs with interest rates at all time lows?
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Old 04-05-2013, 10:59 AM   #8
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I was only sharing IMO a clever metaphor, not hoping to revive a reaching for yield debate again (there have been dozens), but carry on as you wish...
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Old 04-05-2013, 12:36 PM   #9
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Quote:
Originally Posted by Midpack View Post
I was only sharing IMO a clever metaphor, not hoping to revive a reaching for yield debate again (there have been dozens), but carry on as you wish...
Yikes!
I imagine every major subject has been covered multiple times. I guess us young-ins should just sit on the bench and watch the pros play.
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Old 04-05-2013, 12:39 PM   #10
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Originally Posted by slaternuthink View Post
Yikes!
I imagine every major subject has been covered multiple times. I guess us young-ins should just sit on the bench and watch the pros play.
Nah.

Take advantage of the search function, read up a bit on what's been posted in the past to get a taste for how the subject has been addressed, then wade right in...
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Old 04-05-2013, 01:37 PM   #11
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Yikes!
I imagine every major subject has been covered multiple times. I guess us young-ins should just sit on the bench and watch the pros play.
Fair enough. For those who have been here for a while, it's hard to watch some topics repeated over and over, but that's not fair to newbies. That's why some long contributing members just disappear eventually I guess. I don't really have a good answer on how best to cater to new and experienced members, wish I did.
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