Bridgewater: “Bonds are a terrible place to be.”

[Dtail]

If/when stocks crash 50% I presume people will still run to bonds regardless of interest rate

Perhaps treasuries but not necessarily other bonds.

 

[captain3d]

Fair point

 

[yhoomajor]

*It's different this time*

 

[aja8888]

If/when stocks crash 50% I presume people will still run to bonds regardless of interest rate

I'll bet they run to cash.

 

[NW-Bound]

Agree 100%. If we were in a bear market for stocks, this conversation would be completely different, with comments like "sure, bonds are flat at best, but at least I'm not losing 50% like stock investors".

Well, if bonds are flat at best, I much prefer cash which I know for sure will be flat.

Actually, cash will lose to the tune of inflation, but that's still better than bonds, until the rate stabilizes.

 

[pb4uski]

^^^ Yeah, I'm sitting on an absurd amount of dry powder right now. I'm not keen on equities because they seem bubbly, I'm not keen on long bonds due to interest rate risk and I can't find much that I'm really keen on.

 

[Phroig]

If/when stocks crash 50% I presume people will still run to bonds regardless of interest rate

Some, me included, will run to more stocks!

 

[gcgang]

^^^ Yeah, I'm sitting on an absurd amount of dry powder right now. I'm not keen on equities because they seem bubbly, I'm not keen on long bonds due to interest rate risk and I can't find much that I'm really keen on.

+1

And I hate knowing the value of my “dry powder” is eroding away with inflation raging.

If I knew how to, I might park some of it in some crypto. Then I could watch it double or get cut in half every few days. Lol.

 

[accountingsucks]

I'm Canadian so don't know your bond funds that well but assume BND is one of the big ones. It is down 6.2% from it's 52 week high. How many rate hikes is BND pricing in?

 

[NW-Bound]

I'm Canadian so don't know your bond funds that well but assume BND is one of the big ones. It is down 6.2% from it's 52 week high. How many rate hikes is BND pricing in?

Vanguard lists BND's average duration as 6.9 years.

And its Web site adds the following explanation.

Average Duration: A measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements. For example, if a bond has a duration of 2 years, its price would fall about 2% when interest rates rose 1 percentage point. On the other hand, the bond's price would rise by about 2% when interest rates fell by 1 percentage point.

 

[daylatedollarshort]

^^^ Yeah, I'm sitting on an absurd amount of dry powder right now. I'm not keen on equities because they seem bubbly, I'm not keen on long bonds due to interest rate risk and I can't find much that I'm really keen on.

I am waiting for yields to go up and then plan to buy more individual TIPS. TIPS at a zero real return provide a 3.33% safe withdrawal rate over 30 years. If yields go back to 1 - 2% real returns this year, that is even better and good enough for our retirement plan, especially combined with a fixed rate mortgage.

 

[gcgang]

https://www.wsj.com/articles/tips-what-investors-should-know-treasury-inflation-protected-securities-11643849892

Here’s a good article from WSJ today on TIPs.

They are more complicated than just get your interest plus inflation if you buy in the secondary market.

For sure you want to own them in tax sheltered accounts.

 

[aja8888]

https://www.wsj.com/articles/tips-what-investors-should-know-treasury-inflation-protected-securities-11643849892

Here’s a good article from WSJ today on TIPs.

They are more complicated than just get your interest plus inflation if you buy in the secondary market.

For sure you want to own them in tax sheltered accounts.

Paywall!

 

[NW-Bound]

The just released CPI shows a 7.5% annual gain in Jan. Energy prices were up 27% year-over-year, while electricity prices were up 4.2% month-over-month. Gah!

BND (Vanguard Total Bond Index Fund) down -0.40% today, bringing YTD return to -3%.

See: https://finance.yahoo.com/news/consumer-price-index-cpi-inflation-january-2022-210344769.html

 

[NW-Bound]

The current high inflation should not be surprising.

Just a couple of days ago, there was an article quoting a Goldman Sachs commodity trader saying that the world is facing a shortage in nearly everything.

“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV interview. “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”

 

[chassis]

Commodities and PPI are softening. Labor is flowing into the economy. CPI will ease throughout this year. A Fed member (can’t find the article) says inflation will settle near 2% run rate by end of 2022. I read an economic report done for multibillion dollar companies that calls for 2% inflation in 2023 or 2024. This will return to normal.

 

[NW-Bound]

Supply and demand will have to equalize in the long run. And I hope the equalization is via increasing supply rather than shrinking demand.

Now, as an investor one needs to find the companies responsible for increasing the supplies.

By the way, I also saw a report saying that SUMCO, a Japanese company making big 300mm silicon wafers that ICs are made out of, has its production run bought out way to 2026. Further more, SUMCO said increasing production would not be easy.

 

[Freedom56]

A golden bond buying opportunity (individuals bonds and CEFs) is approaching but we are not there yet. Passive bond funds have no choice but to liquidate their holdings into a pretty illiquid bond market.

 

[NW-Bound]

There's now talk of the Fed dishing out a "supersize" rate hike.

I think it is better to have a strong medicine early rather than dribs and drabs. Just get it over with, so that investors know what they have to deal with.

 

[Fermion]

Commodities and PPI are softening. Labor is flowing into the economy. CPI will ease throughout this year. A Fed member (can’t find the article) says inflation will settle near 2% run rate by end of 2022. I read an economic report done for multibillion dollar companies that calls for 2% inflation in 2023 or 2024. This will return to normal.

I bet we still have over 5% inflation in 2023. The economic reports back in early 2021 were dead wrong, why have faith in them now

 

[timbervest]

Just a couple of days ago, there was an article quoting a Goldman Sachs commodity trader saying that the world is facing a shortage in nearly everything.

Except politicians and market prognosticators!

 

[MichaelB]

There's now talk of the Fed dishing out a "supersize" rate hike.

I think it is better to have a strong medicine early rather than dribs and drabs. Just get it over with, so that investors know what they have to deal with.

I think a higher rate hike is not going to have a material impact on inflation, at least in the short term. Unlike most of the inflation we have seen in the past 2 decades, consumer demand is strong, and Fed interest rate hikes don’t easily (or quickly) supress consumer demand.

Rate hikes may have a greater impact on financial assets than consumer prices.

 

[NW-Bound]

Yes, consumer demand is strong, and needs some suppression.

In another thread, I told of family anecdotes of young professional workers getting big juicy raises as high as 70%. A resort near me had a sign out near the road advertising $15/hr for housekeeper staff, with benefits.

And people like the retirees here make mucho money on the stock market, and are blowing dough like the caterpillar in Alice in Wonderland blowing smoke. And the meme "stonk" and crypto traders...

Too much money sloshing around. You make them less rich, they will pay less for stuff.

 

[Ramen]

In the interest of leaving things as simple as possible for DW when I get on the wrong side of the grass I simply have Vanguard Target Retirement, Wellesley and Wellington in my IRA. No rebalancing, timing or looking at the tea leaves required and I figure these 3 funds will manage their bond components far more competently than I ever could on my own. They certainly seem to be doing so thru current events.

I too like things as simple as possible. Jack Bogle once said there's nothing wrong with using balanced funds for life, even a single one. That's what I do. FIREd at 53 with a ~ 60/40 stock/bond mix averaging 10% total return for the past 30 years. What's so terrible about that?

This is a sincere question. This thread is interesting but mostly over my head. I get the gist, but it seems like some of us with long horizons and limited patience/expertise for portfolio tweaking have done OK with standard balanced funds holding plenty of bonds. Am I missing something?

 

[USGrant1962]

I too like things as simple as possible. Jack Bogle once said there's nothing wrong with using balanced funds for life, even a single one. That's what I do. FIREd at 53 with a ~ 60/40 stock/bond mix averaging 10% total return for the past 30 years. What's so terrible about that?

This is a sincere question. This thread is interesting but mostly over my head. I get the gist, but it seems like some of us with long horizons and limited patience/expertise for portfolio tweaking have done OK with standard balanced funds holding plenty of bonds. Am I missing something?

Not really missing anything except that your experience was during a 40-year-long bond bull market. We may be seeing the beginning of the first sustained bond bear market in 40 years. Or may not be, nobody knows nothing.

With the 10-year now over 2%, it could drop back to 1%