Chart of the Day

[Running_Man]

UK 40 year bond

The is England government 40 year bond, these were the darling of issuance for capital gains a few years ago now down to 25 from 100 a 75% loss on long term England Bonds. Part of the reason the 10 year return on S&P's Global Developed Soveriegn Bonds have a 10 year return of just 0.7% down about 25% to inflation.

 

[copyright1997reloaded]

The is England government 40 year bond, these were the darling of issuance for capital gains a few years ago now down to 25 from 100 a 75% loss on long term England Bonds. Part of the reason the 10 year return on S&P's Global Developed Soveriegn Bonds have a 10 year return of just 0.7% down about 25% to inflation.

On a similar vein, US zero-coupon 25 year treasury ETF down over 50%:

 

[jldavid47]

A simple graph showing the progression of the yield curve during 2022. Data source: https://home.treasury.gov/resource-...reasury_yield_curve&field_tdr_date_value=2022

 

[Running_Man]

Worldwide income by household. In an inflationary environment, the scarcity of resources relative to wealth causes demand destruction or else debt escalation.

 

[Running_Man]

And this chart of Venezuela shows what rampant inflation does to the earnings of the average person after 15 years of very good years through debt implementation.

The original shock of dropping 25% led to doubts; the 60% drop to 193 in 2014 seemed to it's citizens the worst that could possibly happen but a financial solution for a country with the large oil reserves and the ongoing boom at the time with $120 oil should be possible. When the price of oil in 2015 collapsed and the debt of Venezuela destroyed the financial capabilities of the country real poverty became a country wide fiscal problem. It would require a 85X improvement to get back to that 2015 disaster today. This was a major country of 30 million people.

 

[MichaelB]

And this chart of Venezuela shows what rampant inflation does to the earnings of the average person after 15 years of very good years through debt implementation.

The original shock of dropping 25% led to doubts; the 60% drop to 193 in 2014 seemed to it's citizens the worst that could possibly happen but a financial solution for a country with the large oil reserves and the ongoing boom at the time with $120 oil should be possible. When the price of oil in 2015 collapsed and the debt of Venezuela destroyed the financial capabilities of the country real poverty became a country wide fiscal problem. It would require a 85X improvement to get back to that 2015 disaster today. This was a major country of 30 million people.

RM, the loss of real wage levels in Venezuela (what the chart shows) was not the result of inflation or debt, it was the natural outcome of governmental thuggery and incomprehensible policies combined with deep and pervasive corruption and widespread economic pillaging. There’s no economic message to draw from Venezuela that has any significance to the western / developed world, except perhaps that the rule of law matters and thr petroleum sector requires continued investment just to maintain current levels of production.

 

[Running_Man]

RM, the loss of real wage levels in Venezuela (what the chart shows) was not the result of inflation or debt, it was the natural outcome of governmental thuggery and incomprehensible policies combined with deep and pervasive corruption and widespread economic pillaging. There’s no economic message to draw from Venezuela that has any significance to the western / developed world, except perhaps that the rule of law matters and thr petroleum sector requires continued investment just to maintain current levels of production.

https://www.macrotrends.net/countries/VEN/venezuela/external-debt-stock
https://latinlawyer.com/guide/the-guide-restructuring/second-edition/article/refinancing-venezuelas-debt-local-legal-and-policy-issues
No it was the mathematical outcome of increasing debt by 400% over those 15 good years with no means to repay other than rolling over and increasing the debt, which became impossible. If you think the result in any country would be different if they could not roll over and increase their debt you would be mistaken. It is the same philosophy almost every pension fund is using to pay it's obligations. And in actuality the debt of Venezuela increased a mind boggling 100X from 1975-2016 from $100 per citizen to $10,000 per citizen which today is 5 years of household income. It is a major math problem. US debt is up 55X in that time from $2,000 per citizen (2 months of household income) in 1975 to $100,000 (One year 2 months household income) today. Inflation gets the debt and income back in balance. If interest rates were to hit 7 percent, the necessary payment is one months of household income to merely pay interest. At 2 percent we were paying a week's income. This is what math does to the model of consumption caused by inflation. Controlling interest rates appears a valid method as long you can buy from other countries what you can't produce for promises of debt. It is the halting of additional debt that ends the process for any country.

At present the claims against Venezuela are several multiples of it's GDP. Now it may be true that much of the wealth was stolen, but the 15 good years were the crumbs left over. Now there is no cookies or crumbs and it is due to the debt, not the politics which is a separate conversation, but politics change the debt lasts forever until repudiated.

 

[Running_Man]

Downdraft in financial assets greatly exceeds 2008

 

[Markola]

Phew, that red chart reflects a lot of blood, sweat and tears.

What goes up must come down
Spinnin’ wheel got to go ‘round
Talkin’’bout your troubles, it’s a cryin’ sin
Ride a painted pony, let the spinnin’ wheel spin.


That’s why we try to own a little of as many spinning wheels as we can, because they are all usually on spin cycles of different timing, with one going up while another goes down. Right now, panicked money is coming out of all of them into cash, so that’s the only one going up. Hopefully, panicked investors will mop up some of the central bank money printing that has gotten out of hand around the world, perhaps in perfect inverse to this plunging chart.

 

[11522914]

https://i0.wp.com/lplresearch.com/wp-content/uploads/2022/05/blog-3-1.png?ssl=1


Which bear market are we in?

 

[MichaelB]

https://www.macrotrends.net/countries/VEN/venezuela/external-debt-stock
https://latinlawyer.com/guide/the-guide-restructuring/second-edition/article/refinancing-venezuelas-debt-local-legal-and-policy-issues
No it was the mathematical outcome of increasing debt by 400% over those 15 good years with no means to repay other than rolling over and increasing the debt, which became impossible. If you think the result in any country would be different if they could not roll over and increase their debt you would be mistaken. It is the same philosophy almost every pension fund is using to pay it's obligations. And in actuality the debt of Venezuela increased a mind boggling 100X from 1975-2016 from $100 per citizen to $10,000 per citizen which today is 5 years of household income. It is a major math problem. US debt is up 55X in that time from $2,000 per citizen (2 months of household income) in 1975 to $100,000 (One year 2 months household income) today. Inflation gets the debt and income back in balance. If interest rates were to hit 7 percent, the necessary payment is one months of household income to merely pay interest. At 2 percent we were paying a week's income. This is what math does to the model of consumption caused by inflation. Controlling interest rates appears a valid method as long you can buy from other countries what you can't produce for promises of debt. It is the halting of additional debt that ends the process for any country.

At present the claims against Venezuela are several multiples of it's GDP. Now it may be true that much of the wealth was stolen, but the 15 good years were the crumbs left over. Now there is no cookies or crumbs and it is due to the debt, not the politics which is a separate conversation, but politics change the debt lasts forever until repudiated.

Venezuela is not a good example of the evils of debt and inflation. The facts on the ground and knowledge of the local economic conditions matter. The chart on real wages is based on data that is deeply flawed. If anything, the real numbers are likely much worse. Debt is probably higher, the GDP is probably lower, real wages closer to valueless. I’m not arguing that debt or inflation don’t matter. I am suggesting Venezuela is a bad example and has no parallel or bearing to the US or any developed global economy.

Venezuela is a good example of the consequences of no rule of law, incoherent policy making, kleptocracy, and a total absence of governance. The dramatic increase in new debt beginning in 2006 was not part of any normal economic activity and the proceeds were not used to invest in the economy.

 

[Markola]

I was in line for a Delta flight on Friday and noticed the young woman in front of me was holding a Venezuelan passport. I felt bad for her, given how she is too young to remember when her country was the stable, prosperous model of democracy for all of Latin America and the Caribbean.

 

[acronymous]

Venezuela is a good example of the consequences of no rule of law, incoherent policy making, kleptocracy, and a total absence of governance. The dramatic increase in new debt beginning in 2006 was not part of any normal economic activity and the proceeds were not used to invest in the economy.

No doubt, Venezuela is a mess. However, our country has not been immune from all of the above to some degree. Neither government nor business are blameless.

 

[Running_Man]

worst 60/40 portfolio performance of any year in the history of the stock market

 

[MichaelB]

worst 60/40 portfolio performance of any year in the history of the stock market

Vanguard total stock market VTI is down 23% and total bond market BND is down 15%, so a 60/40 portfolio gives me a YTD return of around -20%. (About the same as the 60/40 return in ‘08 of -20%). Data from Yahoo finance.

This is a large decline but not the greatest, also not what is depicted in the chart, which shows more than 30% decline. It also shows ‘08 with a small single digit decline. What numbers are the using for equity and fixed income returns?

 

[copyright1997reloaded]

Vanguard total stock market VTI is down 23% and total bond market BND is down 15%, so a 60/40 portfolio gives me a YTD return of around -20%. (About the same as the 60/40 return in ‘08 of -20%). Data from Yahoo finance.

This is a large decline but not the greatest, also not what is depicted in the chart, which shows more than 30% decline. It also shows ‘08 with a small single digit decline. What numbers are the using for equity and fixed income returns?

"2022 YTD is annualized"

 

[NW-Bound]

I never maintained the 60/40 portfolio nor had much bond, so did not realize it did so well in the 2000 tech bust and the 2007-2008 financial meltdown.


PS. When I used Portfolio Visualizer with SPY for stocks and VBMFX for bonds, it said the 60/40 portfolio lost 20% in 2008. In 2002, it lost 10%. These numbers are much worse than shown in the B of A chart.


See: https://www.portfoliovisualizer.com...bol2=VBMFX&allocation2_2=100&allocation2_3=40

 

[tulak]

Keep in mind that YTD results from this year will look worse since we were at a high on Jan 1st. That’s a bit unfortunate, since usually a market high occurs somewhere in the year.

I haven’t researched it, but I suspect that’s a rare occurrence, maybe one that’s never happened before?

 

[marko]

worst 60/40 portfolio performance of any year in the history of the stock market

I don't understand this chart. It shows 2008 as a minor down blip; maybe 5%. Not my recollection! Could that be because the GR straddled two years?

For my 70/30, I'm down ~16% YTD but was down 23% in '08. I doubt there was/is an enormous difference between 70/30 and 60/40. At least not enough to account for my discrepancy.

 

[big-papa]

I don't understand this chart. It shows 2008 as a minor down blip; maybe 5%. Not my recollection! Could that be because the GR straddled two years?

For my 70/30, I'm down ~16% YTD but was down 23% in '08. I doubt there was/is an enormous difference between 70/30 and 60/40. At least not enough to account for my discrepancy.

Maybe they used Long Term Treasuries in 2008. They did spectacularly well then.

 

[MichaelB]

Maybe they used Long Term Treasuries in 2008. They did spectacularly well then.

That could explain the ‘08 result. TLT, the 20 year Treasury ETF, increased 33.7% in ‘08, according to Yahoo finance.

To use the 20 year Treasury as the sole asset for the fixed income allocation is a stretch IMO. To annualize the 2022 results is wrong.

 

[copyright1997reloaded]

Bonds YTD - 4th worst year EVER

Bonds YTD - 4th worst year EVER:

 

[Markola]

Oh well, those charts show we tend to have several good years following the periodic plunges, so zzzzzzZZZZZZZZZzzzzzzz….

 

[copyright1997reloaded]

[-]Not a chart (too lazy),[/-] but 3's/10's just went inverted.

Uh oh.

Well, ok, here's the chart:

 

[jldavid47]

[-]Not a chart (too lazy),[/-] but 3's/10's just went inverted.

Uh oh.

Well, ok, here's the chart:

Hmm. If you look at the data here:

https://home.treasury.gov/resource-...reasury_yield_curve&field_tdr_date_value=2022

It shows the 3/10 initially inverting in the middle of June and being persistently inverted since the middle of July. I'm not sure why there is a difference.