Help me get over my fear of LTTs

Discussion of the Bond portion of the Permanent Portfolio

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mathjak107
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Re: Help me get over my fear of LTTs

Post by mathjak107 » Mon Dec 16, 2019 2:04 am

no , a funds duration is the average of all the bonds traded or not ...
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Re: Help me get over my fear of LTTs

Post by vnatale » Sat Mar 14, 2020 6:00 pm

Pet Hog wrote:
Wed Dec 11, 2019 7:30 pm
Hi mdwilson1991

In my opinion, an important part of investing in the PP or GB is considering the performance of the total portfolio, as a whole, and not that of its individual components -- one or more of which will inevitably be sucking at any one time. Perhaps it will be LTTs that will suck in the next few years. Who knows? Try not to fall in or out of love with any of the assets.

Are we in a low-rate environment? Historically, yes. But in a few years we might look back fondly at LTT rates of 2.25% as the good old days. For decades people have been saying that LTT rates have nowhere to go but up. The "low" rates today reflect the consensus opinion of all the investors in the world. So that means rates are neither low nor high, but just right for today's economic conditions, as best as we can judge.

If, however, rates do go up, that means that the value of existing LTTs will go down, and the PP investor will be buying more of them as the lagging asset (either when adding new funds or rebalancing). The investor will now have LTTs earning a higher rate. That's a benefit going forward.

I like to consider the numbers when thinking about these things. Thirty-year treasuries have a yield of about 2.25% today. They have a duration of about 20 years. There's a rule of thumb that duration can be considered approximately equal to the percentage movement of bond value in response to a 1% move in interest rates. Let's say interest rates go up dramatically -- say by 4% in the next 12 months. That's four 1% moves, each time decreasing the bond value by about 20% (i.e., retaining only 80% of the value). That compounds to about 40% bond value after a year. If you have a PP originally worth $400,000, then the $100,000 in LTTs would go down to about $40,000 when the LTT rate reaches 6.25%. Total portfolio value would be $340,000 (assuming no responses from gold, stocks, and cash -- in actuality I'd expect them to soften the blow). That's a PP loss of 15%. Bad by PP standards, sure, but not that bad by traditional investing standards. You'd rebalance by buying $45,000 of new LTTs; you'd now own $85,000 in LTTs earning 6.25%. If rates go down from there, you'll do well; if they go up further, at least you'll be offset by those juicy coupon payments.

Have we instead reached the "good old days" only abou5 3 months after you wrote the above??!!!

Vinny
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Re: Help me get over my fear of LTTs

Post by vnatale » Sat Mar 14, 2020 6:09 pm

Kbg wrote:
Sun Dec 15, 2019 5:06 am
Buy ITTs, skip the cash.
I don't think this is the first time I've read in the forum you advocating that.

For how long have you been doing that?

And, is anyone else doing it, i.e., not doing both cash and long-term treasures but, instead, replacing them both with one intermediate-term treasuries?

Vinny
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Re: Help me get over my fear of LTTs

Post by mathjak107 » Sat Mar 14, 2020 6:20 pm

There is a big difference between using long term and short term bonds vs intermediate term ..

Long term bonds trade not only on rates but greed ,fear and perception.....the moves in long term treasuries can be insane ....we just saw 8-9% moves in a week ... intermediate term bonds are much more subdued at volatile times
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Re: Help me get over my fear of LTTs

Post by pmward » Sat Mar 14, 2020 7:12 pm

They perform so similar that I personally see intermediates as a perfect substitute for a long/short barbell for anyone that is afraid of LTTs or anyone that values the simplicity of having one less asset class: https://www.portfoliovisualizer.com/bac ... tion3_2=50

My 401k I have to hold in intermediates as I do not have enough IRA space for all of the long bonds I would need to do a full 100% barbell. But I do keep my LTT's balanced to my cash holdings. I don't lose sleep over it. Long term treasuries do tend to pack a little more oomph in short term crisis' like this one, but over the long term you can see they are pretty much identical as eventually LTT's will sell off more than intermediates. The downfall of intermediates exclusively is you lose the liquidity of having cash in your portfolio. But one could also do a hybrid, holding enough in a barbell to satisfy liquidity needs and the rest above that in intermediates.
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Re: Help me get over my fear of LTTs

Post by mathjak107 » Sun Mar 15, 2020 2:57 am

i don't show that at all , when fear , greed and perception take over ........

when markets rock the combo of tlt and shy are much more volatile

last week a combo of shy and tlt saw a drop of 3.89 and for the last 3 months a drop of 6.81

IEF getting all the money fell 2.53% last week and just 5,91 the last 3 months .

500k in shy and tlt fell 38,900 last week

1,000,000 in ief fell 25,300

long term averages don't count with assets designed to react very aggressively when it is called upon when you have the bulk of your assets accumulated .

going back to the 1970's , 1980,s mean little to us individually .... heck i grew up in the greatest bull market in history in the 1980's . but few of us regular people had much money invested yet . so the fact an asset shows a huge jump is irrelevant since it is only relevant to how much at the time is invested

today , even a 7% drop wipes out a decade of 401k contributions at catch up .....

so because of sequencing risk what assets do short term is a lot more meaningful than looking at decades .

so i would not consider the volatility of those two the same at all , nor the falling and lifting ability ... the combo is going to be far more volatile and the more accumulated the bigger the effect
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Re: Help me get over my fear of LTTs

Post by dualstow » Wed Mar 18, 2020 10:55 am

TLT dropping at least 2.5% again. Well, I'm grateful for the interest payments.
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