Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-28-2013, 10:14 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,983
Quote:
Originally Posted by clifp View Post
Too bad I didn't pay attention to or fully understand bonds around 1980...though fortunately equities did well also for the most part.
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-28-2013, 10:37 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,616
Quote:
Originally Posted by Midpack View Post
Too bad I didn't pay attention to or fully understand bonds around 1980...though fortunately equities did well also for the most part.
Don't beat yourself up. The CPI in 1980 was 13.51%, so even at these bond rates the government bonds were net losers. And if we think back to the mood of the country at the time, things looked pretty gloomy. If bond rates ever go really high again it will be during a similar period of great uncertainty and probably high inflation, it will take an optimistic, contrarian spirit to dive in for the long term under such circumstances. And, as you point out, stocks did pretty well.
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 04-28-2013, 11:18 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,536
Quote:
Originally Posted by rec7 View Post
But rates started going down in 1981 not 2008. They sped up in 2008 but that is not where they started.
That's what confused me too - 1981 would be the year.

Never mind - he's talking about after major financial crises, like 2008.

For the record - most of my bond funds are intermediate duration.

IMO, the warnings of near term rises in interest rates have been greatly exaggerated, and I think deflation is at least an equal risk.

I figure we're in for a long bottoming process.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 04-28-2013, 12:27 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,437
Other than reversion to the mean I can't really see any reason why interest rates will rise for the foreseeable future. The gov't really needs to keep rates low to finance the debt. I have a feeling that savers would quickly grab an increase in yield which should keep the rates suppressed as well. However these are basically just hunches since I don't have an accurate picture of the macro situation out there.
My own plans count on a zero real return for bonds and maybe a 1-2% real return for equities.
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 04-28-2013, 01:55 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,983
Quote:
Originally Posted by audreyh1 View Post
IMO, the warnings of near term rises in interest rates have been greatly exaggerated, and I think deflation is at least an equal risk.

I figure we're in for a long bottoming process.
And coincidentally, Dr Hunt agrees with you there too. http://www.hoisingtonmgt.com/pdf/HIM2013Q1NP.pdf
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 04-28-2013, 02:08 PM   #26
Full time employment: Posting here.
dtbach's Avatar
 
Join Date: Apr 2011
Location: Madison
Posts: 753
Quote:
Originally Posted by samclem View Post
Don't beat yourself up. The CPI in 1980 was 13.51%, so even at these bond rates the government bonds were net losers. And if we think back to the mood of the country at the time, things looked pretty gloomy.
Sounds like now, eh? Who knew at the time that the next 20 years would be great for both stock AND bond owners?? I think the worst is past us (2000-2009), with cheap energy and new technology advances the future is starting to look better.
__________________
Wild Bill shoulda taken more out of his IRA when he could have. . . .
dtbach is offline   Reply With Quote
Old 04-28-2013, 02:21 PM   #27
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
Quote:
Originally Posted by audreyh1 View Post

For the record - most of my bond funds are intermediate duration.

IMO, the warnings of near term rises in interest rates have been greatly exaggerated, and I think deflation is at least an equal risk.

I figure we're in for a long bottoming process.
That's what I think too. Rising interest rates would kill the "recovery". With the trillions of dollars we are spending to prop up the system, we are barely achieving positive economic growth. I think that deflation is a real risk whether brought on by austerity measures, bond vigilantes, or another economic downturn.
__________________
FIREd is offline   Reply With Quote
Old 04-28-2013, 02:29 PM   #28
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
Quote:
Originally Posted by audreyh1 View Post
IMO, the warnings of near term rises in interest rates have been greatly exaggerated, and I think deflation is at least an equal risk.

I figure we're in for a long bottoming process.
IMHO deflation continues to be the greater risk.
__________________
MichaelB is offline   Reply With Quote
Old 04-28-2013, 03:57 PM   #29
Full time employment: Posting here.
bjorn2bwild's Avatar
 
Join Date: Mar 2013
Location: Western US
Posts: 690
Dr hunt makes a very convincing argument for the slow growth "ice age" future.
With all the central bank money creation, the significance of the Taibbi article (to me), is that there will not be a reliable market signal when/if inflation returns.
I have been buying both EE and I bonds with new money. I still have a ? about what to do after that.
__________________
How's it going to end..............
bjorn2bwild is offline   Reply With Quote
Old 04-28-2013, 06:32 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,906
I think the Japan scenario looms large. Dr. Bernake studied both the Great Depression and the Japan scenario extensively and had many constructive ideas which he implemented as best he could. I think that the end result (so far) of the experiment after several years is that economic theory knows how to deal with inflation reasonably well. Deflation and how to deal with it apparently still baffles the brightest economic minds.
__________________
ejman is offline   Reply With Quote
Old 04-29-2013, 05:27 AM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by Ready View Post
Interesting, but I don't follow how a bond holder would have lost 80%. If they owned individual bonds they would have been repaid their principal at maturity. If they owned bond funds, then a fund with a 5 year duration would be replacing about 20% of its holdings each year, and with rates rising so fast, the replacement bonds would have a higher yield, offsetting the reduction in NAV. After five years, all of the lower rate bonds would have been flushed out.

In addition, we have to pay attention to the rise in rates as a percentage of the current rates. When rates shot up 7% in two years, the current rates were much higher than the almost zero rates we see now. In proportion, it was not as significant as if the current rates went from near zero to 7%, which I still say is highly unlikely.
First of all I did say after tax real returns, not nominal, because after tax real returns are really the only ones that matter. A 1971 dollar was only worth $.44 ten years latter. Second there were very high tax rates for interest in the 70s 44% (for incomes above $32,000) all the way up to 70%. So counting state income tax I was assuming that > 1/2 of all interest payments were lost to taxes. Finally, my assumptions was a bond fund with a duration of 10 years not 5, which would have suffered roughly a 60% drop in value when in interest rates went from 5 to 15.5%. Although I guess it would be more accurate to characterize that as long bond fund.
__________________
clifp is offline   Reply With Quote
Old 04-29-2013, 10:10 AM   #32
Recycles dryer sheets
kmt1972's Avatar
 
Join Date: Mar 2013
Location: Scarsdale
Posts: 175
Speaking of after tax returns, I did some research on this as well. I started from the point of view that since everyone has a different marginal tax rate the best way to look at it is to look at real after inflation muni returns. Doing research on my Bloomberg terminal I was able to get the Bloomberg 10 year Muni yield index and then substract CPI from yet and get the average over each year. Of course the duration of 10 year is longer then what most of us would invest in so this number would inflate the returns in Munis relative to how we might invest, but it is a good indicator. I only could get data after 2000. Doing so I got

2001 1.3%
2002 2.5%
2003 1.4%
2004 1.1%
2005 0.3%
2006 0.6%
2007 1.1%
2008 -0.3%
2009 3.8%
2010 1.2%
2011 -0.4%
2012 -0.4%
2013 0.1% YTD

2008 had high inflation so that expains the negative return. 2009 negative CPI did distort things a bit upward but I did remember 2009 as a very good years in NY Munis. I bought a lot of Munis in 2009 as a hedge for NY state raising taxes so I remember. My logic was if NY state would raise taxes it meant I lose some $$$ but I can make it back by investing in NY Munis which would most likely rise if NY state raised taxes.

Anyhow, 2011 and onward even real Muni yields are negative or near zero.
__________________
"There are no solutions...there are only trade-offs." - Thomas Sowell

Looking to retire or semi-retire by 45 based on our net worth going to $6 million outside our house.
kmt1972 is offline   Reply With Quote
Old 04-29-2013, 04:25 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,906
Quote:
Originally Posted by MichaelB View Post
IMHO deflation continues to be the greater risk.
Which makes EE bonds somewhat of a no-brainer steal right now.

A couple can buy $20K per year of EE bonds, locking in a return of 3.57% if held 20 years, which *should* beat inflation by 1% over the next 20 years if some of the conclusions in this thread pan out. The ability to turn in the bond without losing prinicpal makes it that much better until about year 12, when you start thinking about losing the doubling feature.

I have seriously considered only buying 20K of Ibonds and 20K of EE bonds each year with the rest of our money in the stock market.
__________________
Fermion is offline   Reply With Quote
Old 04-29-2013, 04:46 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,387
Quote:
Originally Posted by Fermion View Post
Which makes EE bonds somewhat of a no-brainer steal right now.

A couple can buy $20K per year of EE bonds, locking in a return of 3.57% if held 20 years, which *should* beat inflation by 1% over the next 20 years if some of the conclusions in this thread pan out. The ability to turn in the bond without losing prinicpal makes it that much better until about year 12, when you start thinking about losing the doubling feature.

I have seriously considered only buying 20K of Ibonds and 20K of EE bonds each year with the rest of our money in the stock market.
It would take you so long to do this, that by the time you are into your process the reality on the ground likely will have changed enough to make the transition meaningless or negative. Unless Ben can actually freeze events for as long as he wants, which I think is forever, as nothing much seems to be changing in a way that would indicate to someone with his beliefs a more market oriented stance.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 04-29-2013, 04:54 PM   #35
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,906
Quote:
Originally Posted by haha View Post
It would take you so long to do this, that by the time you are into your process the reality on the ground likely will have changed enough to make the transition meaningless or negative. Unless Ben can actually freeze events for as long as he wants, which I think is forever, as nothing much seems to be changing in a way that would indicate to someone with his beliefs a more market oriented stance.

Ha
Maybe. The real thing I don't like about EE-bonds is the fact that all of your taxes are deferred until year 20 (or I guess you can wait at near no yield a few more years) then you get the doubling and a big 1099 interest gain. It is nice that it is exempt from state and local taxes though.

It is totally fruitless to predict Obamacare out 20 years, but for some people, having 20K in interest gains roll in to them in one year might put them above certain subsidy levels.

You can pay the tax on the EE bond each year, but only on the normal rate, which is 0.2%. Kind of pointless.
__________________
Fermion is offline   Reply With Quote
Old 04-29-2013, 08:17 PM   #36
Recycles dryer sheets
 
Join Date: Dec 2011
Posts: 388
Quote:
Originally Posted by MichaelB View Post
IMHO deflation continues to be the greater risk.
It does begin to look that way:

__________________
Khufu is offline   Reply With Quote
Old 04-29-2013, 08:27 PM   #37
Recycles dryer sheets
 
Join Date: Apr 2013
Location: ORL
Posts: 156
IR will continue to go down, rem. Japan = 20+ years (it's deflation). But the purchasing power of the USD (contrary to thinking) will go up. Just invert Dow or S&P and you can see what the USD is / will be doing.
__________________

__________________
rjohnla is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 01:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.