Justifiable heresy? This fund as a LTT/STT substitute?

[Kevin K.]

So here's a follow-up on the article I shared recently that showcases the fund run by the two Treasury bond fund managers profiled:

https://wasatchglobal.com/wasatch-hoisi ... sury-fund/

Dig into the prospectus and returns and you can see that these folks have been switching between long and ultra-short Treasury holdings in light of market conditions successfully for a long time. And their market analysis, it seems to me, is pretty compelling.

Not to say that paying .69% for an actively managed bond fund is going to be a winning proposition with PP'ers but I'd love to have them managing my bonds if I could get the service a bit more cheaply.

[ochotona]

Dr. Lacy Hunt is with Hoisington. Recent podcast at macrovoices.com. It's great.

[Kevin K.]

Dr. Lacy Hunt is with Hoisington. Recent podcast at macrovoices.com. It's great.

Great minds think alike and all that! Here's Dr. Hunt's latest newsletter. Truly great stuff:

https://hoisingtonmgt.com/pdf/HIM2020Q1NP.pdf

[Kevin K.]

My take-away from these two pieces is to own LTT's in the PP for now but watch rates like a hawk. Convexity is our friend right now and deflation seems all but guaranteed in the short run, with LTT's very likely being pushed into negative yields in the short term. Conversely time to go all-cash in the barbell the minute there's a sign of interest rate spikes?

If nothing else I'll certainly be reading Dr. Hunt regularly from now on. I'm a bit amazed the Fed can get away with what seem clearly illegal conduct but given the political environment maybe they think they need to break the law just to fit in.

[mathjak107]

My take-away from these two pieces is to own LTT's in the PP for now but watch rates like a hawk. Convexity is our friend right now and deflation seems all but guaranteed in the short run, with LTT's very likely being pushed into negative yields in the short term. Conversely time to go all-cash in the barbell the minute there's a sign of interest rate spikes?

If nothing else I'll certainly be reading Dr. Hunt regularly from now on. I'm a bit amazed the Fed can get away with what seem clearly illegal conduct but given the political environment maybe they think they need to break the law just to fit in.

the problem is interest rates always spike ...we have not had a real bear market in bonds in my investing lifetime and i have been doing it for 33 years .. those spikes were speed bumps in a long slide down so we can't even say sell on a spike ..

we can't tell noise from the real reversal . so we will likely never know when a long term reversal is happening until after the fact

[Hal]

Dr. Lacy Hunt is with Hoisington. Recent podcast at macrovoices.com. It's great.

You are right. It's great.
https://www.macrovoices.com/podcasts-co ... s-podcasts

[pmward]

we can't tell noise from the real reversal . so we will likely never know when a long term reversal is happening until after the fact

You can tell the reversal from that very chart right there. Matter of fact a trend-follower would love to be long looking at that chart. When the yield goes above that multi-year trend line, it is time to sell. Until then, it is time to stay long. And with that long and strong of a trend, a test of the trend line is likely to reverse lower. In other words, when we get near that trend line, that is a time to load up on bonds and place a stop just the other side. Looking at this chart, there is nothing at all to fret over for anyone with a holding period longer than a year or two. An increase in yields back to that trend line is an opportunity to buy on the PP timeframe.

[mathjak107]

Keep in mind the greatest minds in the bond arena like Bill gross , gundlach,,etc called it wrong over and over and supposedly those guys are as good at it as it gets ...no way they called those minor bumps correctly and they paid the price for it.

Timing interest rates is insane .....Peter Lynch said he can pick stocks all day .but guess when rates are turning , forget it

[pmward]

Keep in mind the greatest minds in the bond arena like Bill gross , gundlach,,etc called it wrong over and over and supposedly those guys are as good at it as it gets ...no way they called those minor bumps correctly and they paid the price for it.

Timing interest rates is insane .....Peter Lynch said he can pick stocks all day .but guess when rates are turning , forget it

Right... but my point is you don't have to guess. You already know what you need to know with that chart. You have a multi decade long clean trend line that has never once been breached. If you want to play trying to time bonds, you stay long as long as it's below that trend line. You buy like crazy near the trend line. You sell if it breaks above the trend line. Riding the long term trend is what matters more than whether or not rates are going to temporarily go up for the next year or two. For all the wailing and gnashing of teeth around here about bonds lately you would think they were performing like crap. The wind is still at the back of bonds as long as we are below that trend line.

[mathjak107]

I put zero faith in to trading by squiggles ,charts and lines ...sorry. If only it was that easy

[pmward]

I put zero faith in to trading by squiggles ,charts and lines ...sorry. If only it was that easy

For 40 years the market has turned the very moment it hit that line. Do you really think that is random happenstance? Hint: it is not. Trading systematically by "squiggles" is far better than trading by feelings. For 30 years and going peoples feelings on bonds have been wrong, but the "squiggles" have been right. And here's the kicker... in order for peoples feelings on bonds to become right... they have to first violate the "squiggles" in the process. So the people trading by the "squiggles" will continue to profit as long as the bull goes, and they will get out of the way before the eventual bear does too much damage.

[dualstow]

Keep in mind the greatest minds in the bond arena like Bill gross , gundlach,,etc called it wrong over and over and supposedly those guys are as good at it as it gets ...no way they called those minor bumps correctly and they paid the price for it.

Timing interest rates is insane .....Peter Lynch said he can pick stocks all day .but guess when rates are turning , forget it

+1

[ochotona]

Today's 30 years are yielding 1.29%. If the rate goes up only to 2%, the holder takes a 16% capital loss. That's way shy of the trend line. If you get up to the trend line, like 3%, you've taken a 34% hit. No fun at all. I think any reasonable person would have bailed long before then. LT bonds are wicked, evil instruments. Someday the tears will flow. I don't know when. I have TLT but in a tactical strategy. Not hodl.

If the 10 year goes from 1.29% to 3%, you take a 15% hit.

[pmward]

Today's 30 years are yielding 1.29%. If the rate goes up only to 2%, the holder takes a 16% capital loss. That's way shy of the trend line. If you get up to the trend line, like 3%, you've taken a 34% hit. No fun at all. I think any reasonable person would have bailed long before then. LT bonds are wicked, evil instruments. Someday the tears will flow. I don't know when. I have TLT but in a tactical strategy. Not hodl.

If the 10 year goes from 1.29% to 3%, you take a 15% hit.

There's risk... just like there is risk in every other asset. Even cash can lose 34% of its value. A strong 40 year long term trend needs to be respected, and you of all people should know that. "The trend is your friend until the bend at the end". Can the "bend at the end" be right now? It's possible. But, on a strong 40 year trend... one has to assume that the odds are that no it is not. I would be incredibly surprised if the top for the 40 year bull market was in on bonds. Now, as always, timeframe is important. For a short term trader, it might make sense to sell long bonds *if* they start to break down short term and look to buy back in as it gets closer to the trend line. But from the long term holders here on this forum (the long bonds in a PP are as long-term as it gets) the wailing and gnashing of teeth is getting really old. Bonds have been the best performing asset, and instead of being thankful for them doing the job they were supposed to do, everyone here wants to just hate and stress about it. Rebalancing is the very magic that makes the PP work. Those trying to market time in their PP are really defeating the whole purpose of the portfolio. I market time every day, but I do it in my VP. If someone is really that worried about bonds, then maybe the answer isn't to sell the bonds... maybe the answer is that they need a VP like me and you have where they can keep their speculations segregated from their long term holdings? The PP doesn't have to be all in or all out, but a portfolio without long bonds is not a PP.