I knew we hit the top ...

[FinallyRetired]

... when I saw this forum

 

[TromboneAl]

I think you forgot the link again, Soon.

 

[FinallyRetired]

I think you forgot the link again, Soon.

No, I meant this forum, the stock picking forum.

 

[Sam]

That's funny!

 

[dex]

Good point.

 

[brewer12345]

Meh, nothing new. Market goes up, market goes down. There is money to be made in both cases. Since I was up about 30% since mid-january, I can't say it was a huge shock to see a correction. Justwish I had sold a touch more before the downleg started.

What is actually surprising this time is that the bond market has taken it in the butt at the same time as the stock market got hit. Pretty unusual, I would say.

As in just about all the past corrections, a few well chosen purchases when everyone is panicking will almost certainly prove to be very profitable.

 

[FinallyRetired]

As in just about all the past corrections, a few well chosen purchases when everyone is panicking will almost certainly prove to be very profitable.

I agree. I no longer invest in individual stocks, but have dry powder that I'll pour into my balanced funds if we get a significant downleg. We're due for one but, then, we've been due for one for a few years now. When was the last time the S&P had a 10% or more correction? If I'm not mistaken I think it was back when the tech bubble burst.

 

[cute fuzzy bunny]

I have enough dry powder to do some heavy damage to a small country.

 

[Nords]

I have enough dry powder to do some heavy damage to a small country.

Speaking of powder kegs, how's the house sale going?

 

[cute fuzzy bunny]

Painting is almost done. Carpet starts tuesday or wednesday next week. Up for sale by friday, i'd imagine.

Then we'll see how it goes. Should show better than anything else in the same value range, given its got all new paint, carpet and appliances.

 

[bright eyed]

I have enough dry powder to do some heavy damage to a small country.

atchway ethay alktay aboutway ethay ydray owderpay, ethay
atriotpay actway isway atchingway ouyay!

 

[cute fuzzy bunny]

Shoot I had to use the pig latin to english translation page on that one.

Which by the way, the atriotpay folks also probably have engaged...

Imagine if a major terror plot was put upon us and it turned out that all of their communications slipped by the feds because they used pig latin. That'd make our WWII usage of Navajo seem paltry in comparison.

 

[LOL!]

I agree. I no longer invest in individual stocks, but have dry powder that I'll pour into my balanced funds if we get a significant downleg. We're due for one but, then, we've been due for one for a few years now. When was the last time the S&P had a 10% or more correction? If I'm not mistaken I think it was back when the tech bubble burst.

Every other equity category had a more than 10% correction last year from May to June. SPY, MDY, IWM, EFA, EEM were down 8%, 12%, 14%, 16%, and 26%, respectively.

SPY was down more than 10% in the first 3 months of 2003.

 

[bright eyed]

Shoot I had to use the pig latin to english translation page on that one.

Which by the way, the atriotpay folks also probably have engaged...

Imagine if a major terror plot was put upon us and it turned out that all of their communications slipped by the feds because they used pig latin. That'd make our WWII usage of Navajo seem paltry in comparison.

do ya think they're that sophisticated?

and i'm not a total geek, i used the translator too...

 

[bpp3]

Come to think of it, a bond picking forum would be more useful to me at this point, since it seems like that is where all my new money is going these days. (Which is also probably a market top signal, heh.)

 

[brewer12345]

Come to think of it, a bond picking forum would be more useful to me at this point, since it seems like that is where all my new money is going these days. (Which is also probably a market top signal, heh.)

That's a tough one, simply becausethe bond market is not nearly as liquid and open to retail investors as the equity market is. Unless you are buying treasuries at auction or agencies and munis at issue, the [-]brokers screwing you[/-] frictional costs on corporate trades generally eat up much of the potential return. If you are willing to buy beaten down stuff and junk, you may be able to do OK, but you have to be able to do credit analysis.

If you buy stuff other than treasuries/agencies/munis at issue, I would suggest confining yourself to NYSE-listed bonds and stuff that trades on an exchange like a stock.

 

[bpp3]

That's a tough one, simply becausethe bond market is not nearly as liquid and open to retail investors as the equity market is. Unless you are buying treasuries at auction or agencies and munis at issue, the [-]brokers screwing you[/-] frictional costs on corporate trades generally eat up much of the potential return. If you are willing to buy beaten down stuff and junk, you may be able to do OK, but you have to be able to do credit analysis.

If you buy stuff other than treasuries/agencies/munis at issue, I would suggest confining yourself to NYSE-listed bonds and stuff that trades on an exchange like a stock.

What I have available locally is mostly sovereigns (US, France, Germany, Australia, NZ, Canada...), but not at auction. The bult-in markup from the broker for a bond purchased from inventory tends to run around 1%, which for, say, a 5-year holding period comes to roughly an effective expense ratio of 0.2% (more for shorter, less for longer, obviously). This doesn't seem too bad to me, so I have been buying them, but is there anything I may be overlooking here?

Other than that, there is mostly stuff from World Bank and similar entities (Asian Development Bank, State Bank of Bavaria, etc. -- all AAA entities), denominated in various currencies, which can be acquired at issue. Higher yield than the comparable sovereign, but of course somewhat higher risk, presumably. Any opinion on these? I have gone for a couple of these in the past when a sovereign of the desired currency/maturity has not been available.

One thing I stay away from is "step-up" bonds or bonds with complicated maturation rules (the currency of maturation depending on exchange rate movements, e.g.). They look to me like invitations to get skinned. I also avoid corporates, on the principle that there is probably too much equity risk built into them, of which I have already enough via the stock market.

 

[brewer12345]

What I have available locally is mostly sovereigns (US, France, Germany, Australia, NZ, Canada...), but not at auction. The bult-in markup from the broker for a bond purchased from inventory tends to run around 1%, which for, say, a 5-year holding period comes to roughly an effective expense ratio of 0.2% (more for shorter, less for longer, obviously). This doesn't seem too bad to me, so I have been buying them, but is there anything I may be overlooking here?

Other than that, there is mostly stuff from World Bank and similar entities (Asian Development Bank, State Bank of Bavaria, etc. -- all AAA entities), denominated in various currencies, which can be acquired at issue. Higher yield than the comparable sovereign, but of course somewhat higher risk, presumably. Any opinion on these? I have gone for a couple of these in the past when a sovereign of the desired currency/maturity has not been available.

One thing I stay away from is "step-up" bonds or bonds with complicated maturation rules (the currency of maturation depending on exchange rate movements, e.g.). They look to me like invitations to get skinned. I also avoid corporates, on the principle that there is probably too much equity risk built into them, of which I have already enough via the stock market.

Seems like a reasonable strategy. On the sovereigns, just make sure you stick with top shelf credits (AA or better) and you should be fine. I haven't honestly looked at the world bank, etc., but I guess I would pay attention to who the guarantor is and what the entity's credit profile is. I'd probably be comfier with the State Bank of Bavaria and some of the Landesbanks than the ADB or the world bank, personally. I tend to view the Federal Home Loan Bank as equivalent to the US govt, but with a smidge higher yield.

The complicated structures are also best generally avoided. The one area I will play in is shorter term callables. Last month I bought a 1.5 year FHLB bond. It was callable at 6 months (one shot opportunity). For accepting this (minor) risk, I got 35BP more yield than 1.5 year paper and about the same as 6 month paper. If the trade goes against me, its short term AAA paper, so no big deal.

When the credit markets crack (and they will), be ready to buy some corporates. They will become a very attractive deal at some point.

 

[ziggy29]

What is actually surprising this time is that the bond market has taken it in the butt at the same time as the stock market got hit. Pretty unusual, I would say.

Not really. When the stock market is falling mostly because of inflation and interest-rate fears, bonds to tend to "take it in the butt" along with stocks.

When stocks are falling because of slow growth or fears of a recession, that tends to cause interest rates to drop and THAT creates a bull market in bonds. But this market is more afraid of inflation than slower growth, thus betting interest rates will move up if anything...and taking bonds down with stocks.

What's more unusual, IMO, is that gold has also been taking it in the butt lately. Usually when market action is dominated by inflation fears, that would be bullish for gold, but not lately. It seems cash is king right now.

 

[brewer12345]

Not really. When the stock market is falling mostly because of inflation and interest-rate fears, bonds to tend to "take it in the butt" along with stocks.

When stocks are falling because of slow growth or fears of a recession, that tends to cause interest rates to drop and THAT creates a bull market in bonds. But this market is more afraid of inflation than slower growth, thus betting interest rates will move up if anything...and taking bonds down with stocks.

What's more unusual, IMO, is that gold has also been taking it in the butt lately. Usually when market action is dominated by inflation fears, that would be bullish for gold, but not lately. It seems cash is king right now.

I still have not seen any real logical reason for the bond market sell-off. Sure there are reasons why longer maturities should be yielding more, but those reasons have been out there for a while.

I think what we saw was the markets for all risky assets repricing a bit: gold, commodities, bonds, equities, etc. The spooky thing is that everything seems to move in the same direction when things get ugly, so diversification is less useful than it was. The market seem to have stabilized on Friday, though.

 

[bpp3]

Thanks for the feedback, Brewer.

Seems like a reasonable strategy. On the sovereigns, just make sure you stick with top shelf credits (AA or better) and you should be fine. I haven't honestly looked at the world bank, etc., but I guess I would pay attention to who the guarantor is and what the entity's credit profile is. I'd probably be comfier with the State Bank of Bavaria and some of the Landesbanks than the ADB or the world bank, personally. I tend to view the Federal Home Loan Bank as equivalent to the US govt, but with a smidge higher yield.

As far as I can tell, the guarantor for the World Bank is the governments of the developed nations that support it. Though maybe it is more like a Fannie Mae type of thing, and there is no explicit guarantee after all. But they have never defaulted on a bond so far.

BTW, I think the State Bank of Bavaria to which I referred is in fact the Bayerische Landesbank.

When the credit markets crack (and they will), be ready to buy some corporates. They will become a very attractive deal at some point.

Would you be willing to give a heads-up when that becomes the case?

 

[kumquat]

I think the OP was refering to someone on Wall St. (urbun legend perhaps) who sold everything just before the crash of 29 because the elevator boy gave him a stock tip. If (primarily) indexors are picking individual stocks then the markets are irrational.

Was that tour point OP?

 

[brewer12345]

Thanks for the feedback, Brewer.
Would you be willing to give a heads-up when that becomes the case?

Sure, but I think you will know when it happens. Since a lot of equity market upswing is being driven by LBOs, a crack in the credit markets will likely reverberate into the equity markets.

 

[FinallyRetired]

As I was saying ...

 

[kumquat]

No elevator boy in your building?