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Old 12-19-2013, 08:59 PM   #21
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I wouldn't get used to it. In my opinion, 2014 is not going to be a good year for equities. Yeah, I know, it's impossible to time the market, but I just think this market has been propped up for way too long by the Fed's manipulation. Something has to give eventually, and when it does, the correction could be pretty sudden and drastic. Personally, I have cut way back on my exposure to equities for a while. If I'm wrong, that's okay; I'd rather sleep well at night and earn 3% on my PenFed CDs, at least for now.
What's your allocation to equity now?
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Old 12-19-2013, 09:03 PM   #22
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Bonds were more or less flat yesterday, but they took a bit of a beating today. Especially the 5 year Treasury which moved up to 1.64% today from 1.51% yesterday - that's a pretty good jump. 10 year - it crossed that 2.9% line it had stayed under since last September. A delayed reaction.

Stocks - I think they are reacting to reduced uncertainty (taper and budget) plus the Fed is clearly seeing an improving economy PLUS inflation remaining low for at least the next year. Stocks like both things.

Bonds - they are anticipating more supply I think (so prices drop, yields rise). I don't think the 10-year can go that much higher given the low inflation. The shorter term bonds? - I suspect they could move quite a bit higher - in other words have the yield curve flatten a bit.
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Old 12-20-2013, 10:05 AM   #23
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I'm guessing the short bonds (2yr duration) will not go up for a few years. I'd imagine it all depends on whether there appear to be distortions (inflation, excess speculation) developing in the economy.

Right now the spread in 5yr and Tbills is 1.5%. Pretty high and supposedly above 1% it has paid to move out on the yield curve. At least according to Swedroe and DFA.
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Old 12-20-2013, 12:18 PM   #24
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I'm guessing the short bonds (2yr duration) will not go up for a few years. I'd imagine it all depends on whether there appear to be distortions (inflation, excess speculation) developing in the economy.

Right now the spread in 5yr and Tbills is 1.5%. Pretty high and supposedly above 1% it has paid to move out on the yield curve. At least according to Swedroe and DFA.
Do you have a link so I could read about this?

Ha
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Old 12-20-2013, 12:24 PM   #25
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Do you have a link so I could read about this?

Ha
Maybe check out the Bogleheads site with "shifting maturity" as a start to a search. Swedroe covers this in his bond book The Only Guide to a Winning Bond Strategy You'll Ever Need (stupid title but he says he didn't choose it) on page 76-77 :
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...DFA imposes an arbitrary rule that a longer maturity must provide at least twenty basis points per annum in higher expected returns in order for DFA to extend maturity.
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Old 12-20-2013, 12:59 PM   #26
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What's your allocation to equity now?
It's quite low (less than 30%). But, my situation is probably different than many others, in that my basic expenses are covered by a COLA'd pension. I also have a 401k that is invested mostly in a stable value fund, and that provides some additional monthly income.

If that was not the case, I'd likely have to bump up my exposure to equities, although I would be nervous doing so. No one knows how this $4 trillion-dollar Fed QE "experiment" is going to end, because nothing like this has ever been done before. That means looking at the history of market returns for guidance as to what may happen in the near-term future is not particularly useful right now, at least in my view.
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Old 12-20-2013, 08:38 PM   #27
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I'm guessing the short bonds (2yr duration) will not go up for a few years. I'd imagine it all depends on whether there appear to be distortions (inflation, excess speculation) developing in the economy.

Right now the spread in 5yr and Tbills is 1.5%. Pretty high and supposedly above 1% it has paid to move out on the yield curve. At least according to Swedroe and DFA.
Actually, I'm expecting the shorter term including the 5yr to go up while the 10yr doesn't move much.
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Old 12-20-2013, 11:02 PM   #28
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Maybe I'm just buying the conventional wisdom that rates will go up very gradually in 2014. I'd be surprised if they galloped upwards, but I've been wrong before.
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Old 12-21-2013, 05:10 AM   #29
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Maybe I'm just buying the conventional wisdom that rates will go up very gradually in 2014. I'd be surprised if they galloped upwards, but I've been wrong before.
If they do, I'm just expecting the shorter end to go up faster than the 10-hr.
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