Down goes the Dow

Ghost of Igloi wrote:

"I have written frequently that the election has been the stock market’s biggest uncertainty. That’s why stocks have gone nowhere for three months. With Election Day in sight, we’ll know soon enough whether all the anxiety was justified."

Gold,

Sorry my bad. I didn't know "stock market" only referred to United States. It seems to me like very little of the anxiety has gone away. Certainly there is anxiety in bond proxies, currencies, bonds, and emerging markets.

We will see how long the domestic stock market rides the Trump wave.

Igy

You are cherry picking, which I understand is a problem with you. The article is clearly focused on the US and any rational person would understand the implication.

The time is also irrelevant. The post-election surge has happened. The author was right and you were wrong. There is no denying this.

Gold,OK, you win. Beat your chest for the day.Igy

Ghost of Igloi wrote:

Gold,

OK, you win. Beat your chest for the day.

Igy

GoId wrote:

You are cherry picking, which I understand is a problem with you. The article is clearly focused on the US and any rational person would understand the implication.

The time is also irrelevant. The post-election surge has happened. The author was right and you were wrong. There is no denying this.

Graciousness in defeat.

Gold,

Sure no problem. You earned it.

Igy

Ghost of Igloi wrote:

Gold,

Sure no problem. You earned it.

Igy

Do you always need to have the last word?

Narcissist,

You asked the question, but no.

Igy

Dang it .. I put all of my 401K into cash a while back when the DOW was about 17,900. Thought I had hit pay dirt on election night .. only to see it all turn around and now it's flirting with 19,000.

Folks .. do NOT try to time the market. However, I'm still happy. The thought of Bernie Sanders as Secretary of State or Elizabeth Warren as head of anything is SCARY. What a sweet relief to dodge those bullets as a nation.

Crooked Hillary wrote:

Dang it .. I put all of my 401K into cash a while back when the DOW was about 17,900. Thought I had hit pay dirt on election night .. only to see it all turn around and now it's flirting with 19,000.

Folks .. do NOT try to time the market. However, I'm still happy. The thought of Bernie Sanders as Secretary of State or Elizabeth Warren as head of anything is SCARY. What a sweet relief to dodge those bullets as a nation.

you ah know that the economy and stock market does better during democratic admins, right?

agip,

Interesting article on the bond market rout which was the big market news of the week, in my view.

http://wolfstreet.com/2016/11/11/government-bond-rout-inflation-trade-greater-fool-as-trump-looms/

The last couple of weekends I have been doing yard lean-up, window washing, etc., all in preparation or winter. Looking forward to just an easy morning run Saturday,

Best,

Igy

Ghost of Igloi wrote:

agip,

Interesting article on the bond market rout which was the big market news of the week, in my view.

http://wolfstreet.com/2016/11/11/government-bond-rout-inflation-trade-greater-fool-as-trump-looms/

The last couple of weekends I have been doing yard lean-up, window washing, etc., all in preparation or winter. Looking forward to just an easy morning run Saturday,

Best,

Igy

yeah the bond market has been hurt badly this week - my conservative clients lost money despite the stock market being so strong.

I've been watching inflation climb so I've been very overweight TIPS, which have helped - they are still up 5-6% this year. Heck, even intermediate treasuries are still up 3%, so it's not a disaster yet for investors. But it stings, losing money in treasuries this week.

So I agree with the article - I'm overweight TIPS and BKLN which is a floating rate fund. It's a bet on higher interest rates in a solid economy. Which seems like a good bet to me.

Hope you are healthy and back at it soon.

I think I'm in a very good place runningwise - 100% healthy and I've had some great training runs. Mostly the long tempos have been excellent. So I can run at 10 mile race pace very comfortably. But when I get down to 10k pace or faster...it feels less good. So I think I have the base...I just have to do some short fast work and then I should have a good 3-4 months ahead of me.

Yeah, I own a Vanguard long term bond fund. Its gotten crushed the past few days. As that link mentions, these are bonds that have a 3+% yield and the principal is virtually guaranteed. It goes to show the power of interest rate risk. But the key thing is that my intention is to own it long term so that it will pay off in the long run. I'm actually still sitting on a healthy gain in the fund having bought it 3 years. Plus, its an effective hedge against deflation and owning equities. For some reason the stocks I own have done great the past few days. A large part of my portfolio is made up of Ford, GM, GE, Nordstroms, and Union Pacific. They have all done great. I was able to buy more Ford on Wednesday morning through a limit order I had set weeks ago. Now I'm up 10% in just a few days. It made up for my loss in bonds and then some, so the week ended good. It was just a little crazy.

Ghost of Igloi wrote:

agip,

Interesting article on the bond market rout which was the big market news of the week, in my view.

http://wolfstreet.com/2016/11/11/government-bond-rout-inflation-trade-greater-fool-as-trump-looms/

The last couple of weekends I have been doing yard lean-up, window washing, etc., all in preparation or winter. Looking forward to just an easy morning run Saturday,

Best,

Igy

If your plan is to be in bonds for the long run, why not just buy actual bonds instead of a fund. That way your returns are guaranteed, short of a default.

I thought about that. And I might do that at some point. But a bond mutual fund fits my purposes. It gives me a mix of fed bonds and high grade investment bonds without having to do it myself. Its just one part of a balanced portfolio. I also own a short term bond fund too. But mostly stocks and cash to take advantage of opportunities when the arise. So the volatility of a long term bond fund doesn't bother me in the greater context. Its more a question of how much I want to own. For months I had actually been taking the yield and putting it into cash. So in a small way I had already been paring it down.

Admittedly I was caught off guard by the Trump win and the sudden expectation of higher inflation. But I'm also not convinced that we have entered some new long era of greater inflation. So I continue to like owning this fund.

agip, Ryan and wondering,

My thoughts on bonds is pay attention to quality and duration. Lower quality issuers will eventually be hurt by rising rates as it makes the cost of doing business greater and impairs their business model. Duration, or the measurement of bond sensitivity to interest rates is a key valuation metric. A bond portfolio should be slanted toward a 2-3 year duration. Of course having an allocation to intermediate bonds will take advantage of lower for longer. Bank loans or floating rate bonds are indexed to LIBOR or PRIME and will move higher with rates. The risk on these bonds is they are high yield and many of these bonds come with weaker covenants (protection for investors in default). TIPS seem like a good inflation hedge with higher quality.

Lastly, I assume the Trump honeymoon has an end, interest rates will settle down. If that is near future, stocks will trend down, Treasuries will attract flows and the Ten Year could fall back into the 2% level. Under that scenario intermediate bonds would be the best asset class among the ones mentioned.

agip glad your running is well. I am trying to build my base but life has had other plans lately.

Ryan good to see your stock portfolio doing well. I think limit orders for target buy levels is a great idea.

Well I am off for a 6-7 mile run in the Boise foothills. Fall home projects are about completed. I can have a weekend to relax.

Have a great weekend.

Igy

Makes sense. Good luck.

Warren Buffett seats stocks will continue to rise...

http://www.marketwatch.com/story/trump-critic-warren-buffett-says-stocks-will-continue-to-rise-2016-11-11?mod=MW_story_latest_news

Buffett makes the same statement all the time.

The Buffett Indicator on the other hand shows stock valuations two standard deviations above the norm.

Igy

Well, you take long term bonds for what they are. To say bond should all be of short duration is wrong. I'm not a pension fund. I'm not retired. So the volatility of long duration bonds is fine with me. And these are the highest quality bonds. So there is virtually no default risk. You are talking long term bonds as if its deep water oil drilling. Its nothing like that. The fund I'm in is actually rated medium risk by Vanguard. Less risky than any stock mutual fund. And again, LT bonds are a nice counterbalance to stocks in a balanced portfolio. Specifically a high quality LT bond fund is a great hedge against the risk of a stagnating economy with low inflation or deflation. I maintain that is still a real risk despite Trump's election. I think fundamentally we have entered a deflationary era. Trump represents a switch to fiscal policy over monetary policy to artificially economy. But I think it could ultimately end with the same results Obama got.

Ryan,

I think you missed my point. I am not against any type of bond. I was just outlining the risks of each category. Short, intermediate and long term bonds all have a duration calculation which consists of bond term and coupon. A 30 year 2% coupon bond has a longer duration than a 30 year 3% coupon bond. That is because the higher coupon results in a shorter bond duration (maturity value - interest payments).

If your bond fund has a duration of ten years, a 1% increase in interest rates will result in a 10% loss in value of your bond fund. Earlier this year, the 10 Year Treasury moved from about 2.1% to 1.37% resulting in large capital appreciation in bonds, some driven by interest rates and others by capital flows.

Duration calculation for bonds is as important as Price/Earnings for stocks.

Igy