mellon,
Like I said, when that times come I will probably pass, even though you have been very rude, if not downright nasty to me. My emotions at that point will as they are now, mostly neutral as to the decisions you make.
Igy
mellon,
Like I said, when that times come I will probably pass, even though you have been very rude, if not downright nasty to me. My emotions at that point will as they are now, mostly neutral as to the decisions you make.
Igy
Of course they can go lower. They already have. But its not even a matter of the stated rate. Its the rate relative to inflation. Therefore, if you have DEflation than even 0% bonds have good value. That said I agree that rates are probably going to keep going up for the forseeable future. But I if they go up much more, I would probably add to my Vanguard LT bond fund. Just to rebalance my allocation. If you think we are going back toward 1981 double digit interest rates and inflation, then I think you are in fantasy land. Anything is possible. But I believe we are fundamentally in a deflationary era. The very fact that we have had large budget deficits, QE and years of 0% rates, yet inflation remains tame shows that.Trump's proposed policies may be an inflationary force. But there are deflationary forces that could more than counteract that. For one thing, the proposed "border adjustment" tax concept would raise the value of the dollar an estimated 20%. It could wreak havoc in the emerging markets where a lot of debt is borrowed in dollars. U.S. bonds would become a safe haven. We are also seeing the problems of Greece and Italy reemerge. More generally there is the question of whether investors really trust the integrity of the economic system. Since the financial crises I think that remains low and I don't see Trump helping to improve that whatsoever. That is significant because no matter how many trillions of dollars the Fed floods into the market place to inflate the economy, there is the risk that all of it becomes frozen in banks because nobody trusts anyone else to pay back loans and generate returns. In that situation a bond where the federal government guarantees the principal plus a 3% interest rate is golden.
Maturity is king wrote:
Ghost of 29 wrote:If you own a 30 year 3% $1000 bond and rates go up one percent, the value of your bond will drop to $882.24. So, you got your $30, but your asset's value dropped almost $120. Rates can't go any lower than they are now. They can only go up. And they will.
The bond will return $1000 plus interest after 30 years.
agip wrote:
your opinion is in fact not worth anything.
Here's an example of rudeness.
I know! It didn't come from you.
Ghost of Igloi wrote:
agip and Maserati,
Lacy Hoisington of Hoisington Asset Management argues that low GDP growth and demographic trends make it virtually impossible to accelerate inflation. On top of that, any hit to equity markets provides support for the bond market.
http://www.mauldineconomics.com/outsidethebox/hoisington-quarterly-review-and-outlook-4q2016#We have a warming trend here, in the 50s today. We will cool off overnight, which will be good for a little Saturday evening skiing.
Have a good weekend.
Igy
Ryan,
I posted this piece last week. Your outlook is similar to the views of Lacy Hunt and Hoisington Asset Management. Hoisington is a Texas bond shop with a great record. Also, Gary Shilling, Shilling Asset Management, shares a similar deflationary view, and very negative on stocks by the way. You can read some of Shilling's pieces on Bloomberg. Both are longtime market participants (in their 70s I believe) in a variety of markets, unlike most of the opinions you get today.
Igy
Barron's listed 2017 S&P 500 price targets for ten Wall Street firms. Of course the price target are typically a 8-10% mark-up of the previous year. Already four of the ten have reached their 2017 year-number.
David Kostin, Goldman Sachs 2,300
Tobias Levkovich, Citi 2,325
Adam Parker, Morgan Stanley 2,300
Savita Subramanian, Bank of America 2,300
Ghost of Igloi wrote:
Crowell,
Of course anyone that relies on real data and believes the stock market is a proxy for any real investment, realizes Hussman is right and you are a fool. Of course one can believe that Netflix, Amazon or Tesla for example, can spend $Billions in the promise that one day their stock prices will be representative of financial principles. In the meantime, like the market, they are lottery tickets, where one believes that there is always a higher selling prices. Of course, even the Tulip Bubble hundreds of years ago, showed this was flawed thinking.
Igy
ðŸ‘ðŸ‘ðŸ‘ðŸ‘
If that is lambs headed to slaughter, well that is the right icon.....
I couldn't find an icon of lambs already slaughtered. Or, better yet, lemmings.
GoI,
The idea that we are in a deflation or low inflation environment is at this point well established by many experts with long experience. Its coming from people who remember very well the high inflation from the 1970s and early 80s. What I'm saying is fairly standard.
The only doubts I have is that theoretically if governments create enough money out of thin air then high inflation should happen. I would like to know more specifically what keeps it from happening.
I remain a believer that if we were to calculate inflation today like we did in the late 1970s, inflation would be higher. So in a way inflation has been ever present.
The way I look at it is that inflation has already happened. This 50 year period of sustained inflation (give or take) is unprecedented in history. much of that time it has been higher than the 2% target of the Fed. Now you have the sheer weight of all the inflation hanging over the present and its hard to generate more. Remember that before the 1930s back to pretty much the dawn of time deflation was just accepted. It may have been bad for business but nobody thought to fight against deflation.
Regarding governments creating money out of nothing, hasn't that been true since the end of the gold standard -- at least for the US?
Ryan,
Central bank monetary policies triggered the yield seeking bubble you see today. So certainly their policies have inflated the prices of stocks, bonds, commercial real estate and housing. Household wealth has exploded and corporations have used the environment to borrow for stock buybacks, dividend increases, acquisitions, mergers, venture capital, IPOs, etc. On the other hand, none of this actions resulted in rapid economic growth because it is a demographic and demand problem.
Igy
Does it really matter if the economic growth is 'rapid' or not? The economy is growing and that's a good thing. The Fed deserves credit for that.
fan,
I disagree. In my view stayed accommodative too long creating an Everything Asset Bubble. The Fed was complicit in the last two asset bubbles (technology and housing). Like the last two, this one will not turn out well for investors or the economy.
Igy
prod price index keeps rising - up 1.6% y/y now
those short term bonds could be in danger if the fed speeds up its hikes.
agip,
Sorry, but I don't understand why you think a Fed speed up in rates hurts short term bonds? Is your thinking it will only be the short end that rises?
Igy
Ghost of Igloi wrote:
agip,
Sorry, but I don't understand why you think a Fed speed up in rates hurts short term bonds? Is your thinking it will only be the short end that rises?
Igy
well yes
the Fed controls the short end of the curve - not the long end.
I think a very likely scenario if the fed raises rates is that short term bonds take a hit but longer term bonds do little to nothing. Maybe they even rise in price since the risk of inflation would be lower.
You and I disagree fundamentally on the influence of the Fed on interest rates. I think intermediate and long term rates are determined 99% by the market. You seem not to think that way.
agip,
OK, but...
The history of this cycle is that central banks have aggressively cut interest rates, embarked on QE, resulting in $Trillions of negative interest rate debt. I hardly think the market has determined interest rates in this cycle. Negative interest rates have not been a function in thousand of years of financial markets. On the other hand, the aggressive policies of central banks in this cycle, including in some cases holding 25-35% of the debt issued, and buying stock, are certainly representative of this unusual phase.
I would assume if the market moves in response to Fed actions, long rates will be affected as well. That is what has happened over the last six months. Granted rising of rates in the US regardless of the influence, will makes Treasuries more attractive relative to other sovereign debt, damping the effect on the long end.
Igy
nothing I have read suggests that QE had much of an effect on interest rates or even the economy. And in the US QE has been over for a long time.
agip,
QE ended fall of 2014, since then S&P 500 EPS has declined 17% (9/30/2014 through 9/30/2016). The influence on bonds, stocks, housing and commercial real estate is well documented. This chart shows the influence on the S&P 500:
https://ftmdaily.com/investing/stocks/chart-the-impact-of-feds-qe-on-the-sp-500/
Igy
Ghost of Igloi wrote:
agip,
QE ended fall of 2014, since then S&P 500 EPS has declined 17% (9/30/2014 through 9/30/2016). The influence on bonds, stocks, housing and commercial real estate is well documented. This chart shows the influence on the S&P 500:
Igy
take oil company earnings out of that and the picture is completely different.
giant losses in the oil sector has nothing to do with the economy
That's why the Sp500 is up 18% plus divs from Sept 2014. So much for QE propping up the stock market.