Attention! Mathjak!!!!

[vnatale]

Isn't the below from Bernstein's new book exactly what Mathjak had been telling us over and over and over?

WHACKED BY WYSIATI (WHAT YOU SEE IS ALL THERE IS): WHY THE RECENT PAST IS YOUR ENEMY

I wrote this book in the middle of one of the worst bond market routs in financial history. While there’s generally no avoiding losses in both stock and bond markets, it’s hard to ignore the error made by many fixed-income investors in the past few years.

Start with the “yield curve” of US Treasuries—their yields at each maturity. On June 30, 2020, at the tail end of the longest and most powerful bull market in bonds, a three-month T-bill yielded a painfully low 0.16%, while the 5-year note offered just 13 basis points more: 0.29%.

Let’s unpack what it meant to extend the Treasury maturity from three months to five years to get that 0.13% of extra yield. Over nearly the past century, the 5-year note has had a standard deviation (SD), that is, volatility, of 4.3% per year. In mid-2020, an investor got 0.13% more yield by taking 4.3% of risk, or 0.03% more return for each 1% of extra risk taken.*

Let’s see just how miserly a reward that 0.03% of return for each 1% of risk is by shifting gears to equities. If we assume that the equity risk premium is about 4% and stocks have an annualized SD of 16%, then equities offer roughly 0.25% of return per 1% of risk taken. That 0.25%/1% return/risk ratio provides a handy rule of thumb for deciding how much risk to take on the bond side by extending maturity. Figure 11.1 plots the yield curve in mid-2020.

FIGURE 11.1 Treasury yield curve on June 30, 2020

Extending maturity in search of yield in mid-2020 was clearly a fool’s errand and recalled financial analyst Raymond DeVoe Jr.’s famous maxim that “more money has been lost reaching for yield than at the point of a gun.”16

As I’m editing this chapter in March 2023, the yield curve is “inverted,” offering a peak return of about 5% at six months. Does this mean it’s now unwise to extend maturities beyond this, as was the case in mid-2020? Not necessarily, since in 2023 the much higher yield offers a generous cushion against loss, a cushion that was nonexistent in mid-2020, when interest rates were at the lowest point since they were first recorded five millennia ago.

I took this short detour into bond maturity because it provides a vivid demonstration of the treacherous power of recency. By 2020 bond yields had fallen more or less continuously for four decades, and many investors simply could not envision a dramatic rate rise, let alone a repeat of Keynes’ “euthanasia of the rentier.”

While the 10 years between 1999 and 2008 saw the worst 10-year stock return in US market history, the dramatic market recovery, which saw prices increase sevenfold off the 2009 low by 2021, had also erased the memory of painful losses in the equity markets and of the 17-year history of negative inflation-adjusted stock returns nearly two generations ago—just in time for 2022’s carnage in both stocks and bonds.

[vnatale]

However, on the basis of the below could now be an ideal time to invest in the long-term bonds as part of the Permanent Portfolio plan?



https://www.msn.com/en-us/money/markets ... ark%20rate.

This Could Be the Fed's Last Rate Hike. It's Time to Buy Bonds.
Story by Elizabeth O'Brien • Wednesday

[stpeter]

However, on the basis of the below could now be an ideal time to invest in the long-term bonds as part of the Permanent Portfolio plan?

IMHO, no sentence should include both "permanent portfolio" and "ideal time to invest". ;-)

[vnatale]

However, on the basis of the below could now be an ideal time to invest in the long-term bonds as part of the Permanent Portfolio plan?

IMHO, no sentence should include both "permanent portfolio" and "ideal time to invest". ;-)

You may be correct since part of the philosophy is that there is always going to be a bad investment or two with the converse on the other side.

I'll rephrase to do you think in looking back at it you could have been glad to have made a substantial long-term bond purchase today?

[stpeter]

I'll rephrase to do you think in looking back at it you could have been glad to have made a substantial long-term bond purchase today?

No, because that means I would have been timing the market. Every occurrence of happiness over a successful big purchase would be counterbalanced by an occurrence of regret over an unsuccessful one. I prefer to keep things simple and rebalance when I hit my bands (which for me are 20%/30%, not 15%/35%). To my mind, the greatest value of the PP is that it enables me to temper the ever-present emotions of fear and greed.

[vnatale]

I'll rephrase to do you think in looking back at it you could have been glad to have made a substantial long-term bond purchase today?

No, because that means I would have been timing the market. Every occurrence of happiness over a successful big purchase would be counterbalanced by an occurrence of regret over an unsuccessful one. I prefer to keep things simple and rebalance when I hit my bands (which for me are 20%/30%, not 15%/35%). To my mind, the greatest value of the PP is that it enables me to temper the ever-present emotions of fear and greed.

What if you had decided that it was today you were converting you existing portfolio to the Permanent Portfolio. Would you think that it was a good time to be buying the long-term bond portion?

It never matters regarding the cash portion.

Seems like not that bad a time to be buying the gold portion.

Could possibly be buying the stock portion at a high. Or, not.

With how dire it looked a year ago to be buying the long-term bond portion it seems far better today than last year. I guess, though, that it would have been much better to have been buying the stock portion last year.

So, I'm just illustrating the way that The Permanent Portfolio works!

[stpeter]

What if you had decided that it was today you were converting you existing portfolio to the Permanent Portfolio. Would you think that it was a good time to be buying the long-term bond portion?

It never matters regarding the cash portion.

Seems like not that bad a time to be buying the gold portion.

Could possibly be buying the stock portion at a high. Or, not.

With how dire it looked a year ago to be buying the long-term bond portion it seems far better today than last year. I guess, though, that it would have been much better to have been buying the stock portion last year.

So, I'm just illustrating the way that The Permanent Portfolio works!

Ah yes, the ever-present question of how to enter the Permanent Portfolio waters! :-) Personally I used dollar-cost averaging over a period of 2+ years, but other folks seem to be comfortable taking the plunge all at once. :shrug:

Considering that we have 4 assets to buy or sell, it will always seem that now is either a great time to start ("long-term bonds must be due for a rebound") or a horrible time to start ("stocks sure feel overvalued to me"), or both at once ("I'll jump into the bonds immediately but I'm not comfortable with where stocks are now so I'll delay buying those"). Then you're back at market timing again, which I'll reiterate is anathema to the whole Permanent Portfolio mindset. It can be really difficult to let go of market timing because so much of the financial press focuses on things like asset valuations and analyst forecasts and all-time highs or lows, but letting go is one of the beauties of the Permanent Portfolio.

Just my centigram of silver, of course!

[vnatale]

What if you had decided that it was today you were converting you existing portfolio to the Permanent Portfolio. Would you think that it was a good time to be buying the long-term bond portion?

It never matters regarding the cash portion.

Seems like not that bad a time to be buying the gold portion.

Could possibly be buying the stock portion at a high. Or, not.

With how dire it looked a year ago to be buying the long-term bond portion it seems far better today than last year. I guess, though, that it would have been much better to have been buying the stock portion last year.

So, I'm just illustrating the way that The Permanent Portfolio works!

Ah yes, the ever-present question of how to enter the Permanent Portfolio waters! :-) Personally I used dollar-cost averaging over a period of 2+ years, but other folks seem to be comfortable taking the plunge all at once. :shrug:

Considering that we have 4 assets to buy or sell, it will always seem that now is either a great time to start ("long-term bonds must be due for a rebound") or a horrible time to start ("stocks sure feel overvalued to me"), or both at once ("I'll jump into the bonds immediately but I'm not comfortable with where stocks are now so I'll delay buying those"). Then you're back at market timing again, which I'll reiterate is anathema to the whole Permanent Portfolio mindset. It can be really difficult to let go of market timing because so much of the financial press focuses on things like asset valuations and analyst forecasts and all-time highs or lows, but letting go is one of the beauties of the Permanent Portfolio.

Just my centigram of silver, of course!

That is one of the prime keys to success for any chosen portfolio. After you chose it ... stay with it!

[dualstow]

However, on the basis of the below could now be an ideal time to invest in the long-term bonds as part of the Permanent Portfolio plan?

IMHO, no sentence should include both "permanent portfolio" and "ideal time to invest". ;-)

I have been guilty of that, but mainly of saying it’s an ideal time to invest in the (entire) pp.

[stpeter]

IMHO, no sentence should include both "permanent portfolio" and "ideal time to invest". ;-)

I have been guilty of that, but mainly of saying it’s an ideal time to invest in the (entire) pp.

There's an old proverb: the best time to plant a tree was 80 years ago; the second best time is today.

I wish I had read Fail-Safe Investing when it was first published in 1999, since by that time I had read several other books by Harry Browne and had even voted for him during his two runs for president. It took the crash of 2008 to spur enough reading on my part that I finally discovered the Permanent Portfolio. You live, you learn.

[mathjak107]

it just made sense to me that with rates having no where to go except up it was going to be an awful ride extending out maturity and durations .

the only hope we had was really equities running with the ball and i always said that long term bonds would destroy most of the traction equities got

well hindsite shows that is just how things played out , not that i can predict but it just made sense

[dualstow]

Bernstein's new book

Which book is it, by the way?
The New Four Pillars isn’t out yet, and the others that I could find aren’t quite new.

[vnatale]

Bernstein's new book

Which book is it, by the way?
The New Four Pillars isn’t out yet, and the others that I could find aren’t quite new.

The 2nd edition of The Four Pillars came out in hardcover almost three weeks ago on July 11, 2023.

I had to wait in agony for another two weeks - July 25, 2023 - for the Kindle edition to finally become available.

Since I've had access access to it on Tuesday I read it twice between Tuesday and Friday.

If you search this forum for Bernstein I believe you will find a topic that I created regarding this book.

[vnatale]

This is the topic that has much regarding the new Bernstein book in it.

viewtopic.php?f=9&t=13041

[vnatale]

it just made sense to me that with rates having no where to go except up it was going to be an awful ride extending out maturity and durations .

the only hope we had was really equities running with the ball and i always said that long term bonds would destroy most of the traction equities got

well hindsite shows that is just how things played out , not that i can predict but it just made sense

Have you changed your opinion now that the rates have gone up so tremendously in such a compressed amount of time? Somewhat unprecedented? Or, maybe not since the early 80s?

[vnatale]

Not including the recent increase here are those rapid increases in rates:

Capture.JPG (30.51 KiB) Viewed 2414 times

The amounts I am now earning in my various Vanguard VUSXX (Treasury Money Market) accounts are breathtaking compared to what I'd been earning from 2008 to 2021!

[mathjak107]

it just made sense to me that with rates having no where to go except up it was going to be an awful ride extending out maturity and durations .

the only hope we had was really equities running with the ball and i always said that long term bonds would destroy most of the traction equities got

well hindsite shows that is just how things played out , not that i can predict but it just made sense

Have you changed your opinion now that the rates have gone up so tremendously in such a compressed amount of time? Somewhat unprecedented? Or, maybe not since the early 80s?

yes , i do own a position in LT BONDS since the big fall

[vnatale]

it just made sense to me that with rates having no where to go except up it was going to be an awful ride extending out maturity and durations .

the only hope we had was really equities running with the ball and i always said that long term bonds would destroy most of the traction equities got

well hindsite shows that is just how things played out , not that i can predict but it just made sense

Have you changed your opinion now that the rates have gone up so tremendously in such a compressed amount of time? Somewhat unprecedented? Or, maybe not since the early 80s?

yes , i do own a position in LT BONDS since the big fall

Via a fund or direct ownership? If the latter what terms and at what rates?

[mathjak107]

TLT AT 105.75 as an average cost, down a little but considering it fell from 165 not down much.

long term holders got crushed

[vnatale]

From three months ago:

https://www.morningstar.com/bonds/long- ... nger-fools

Long Bonds Are No Longer for Fools
Prospects have improved for 30-year Treasuries.


John Rekenthaler
Apr 13, 2023

Wrapping Up

In recent years, I have advocated that investors use cash or short-term notes instead of long bonds to diversify their equities (along with alternative investments). That includes an article from last summer, which acknowledged the surge in long Treasury yields but panned them nevertheless. Their payoffs were still too low, I argued, and inflation was raging.

Since then, yields have risen further, while inflation, although still uncomfortably high, appears to be receding. That combination compels me to release long Treasuries from their penalty box.

Would I buy them myself? Probably not. I am optimistic enough about the Federal Reserve’s resolve to believe that a 3.6% yield will make for a small positive real return, but not so optimistic as to bet my future on that event. Thirty years is an awfully long time to be locked into a below-market yield, should that prove to be the case.

But for the first time in several years, one can at least make an argument for long Treasuries. That is a welcome change.