Bonds are Putting on a Nice Permanent Portfolio Stress Test Demo

Discussion of the Bond portion of the Permanent Portfolio

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MediumTex
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Bonds are Putting on a Nice Permanent Portfolio Stress Test Demo

Post by MediumTex » Tue May 04, 2010 10:50 am

For those who are doing PP tire kicking, right now is a good time to study bond movements in relation to the rest of the PP and as an example of how following market predictions is a truly pointless activity.

Note that this is the same bond market that people said was about to see dramatically higher yields a few months ago.  I'm not saying that yields won't go up at some point, but the 30 year yield has gone from 4.75% to 4.45% since the herd announced that yields had nowhere to go but up.

Anyone remember Nassim Taleb confidently announcing a while back that shorting treasuries was something everyone on earth should do?  I hope that not too many earthlings following his advice.  

BTW, I really like Taleb's writings and enjoy listening to his commentary, but being a smart fellow is no credential when it comes to predicting the future. ;)
Last edited by MediumTex on Thu May 13, 2010 11:48 am, edited 1 time in total.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by pplooker » Tue May 04, 2010 11:19 am

Yes, it's been interesting to see some of the headlines lately.  I don't even read the financial news, so that means it's been creeping into general interest stuff.  Very telling that it's doing so.

As for Taleb, the guy is probably a genius philosopher and a smarter human being than I, although I feel his whole proposal has a paradox embedded in it and I'm not the only one.  But how on earth to use his observations to practical benefit is beyond me.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by MediumTex » Tue May 04, 2010 11:50 am

pplooker wrote: As for Taleb, the guy is probably a genius philosopher and a smarter human being than I, although I feel his whole proposal has a paradox embedded in it and I'm not the only one.  But how on earth to use his observations to practical benefit is beyond me.
I believe that Taleb has basically come up with a set of good, but half-baked ideas.  He has told us that the world is a more uncertain place than some of us previously thought, and his reasoning makes this observation a valuable one.  What he has not done, however, is tell us how we might proceed safely through this world of periodcially occurring unlikely events.

HB, OTOH, seems to use Taleb's final conclusions as a starting point in his analysis--yes, the world is uncertain, sometimes profoundly uncertain, and armed with that insight what can we do to protect ourselves?  This line of reasoning is an excellent introduction to the PP as a remedy for some of these uncertainties in life.

Earlier in the bogleheads thread I used the analogy of Taleb making a dramatic announcement that lightning strikes at random times and in random places, while Harry Browne is going door-to-door in his easygoing manner selling well-built and reasonably-priced lightning rods (with easy to read installation instructions). 

In other words, Taleb's current body of work sells an interestng narrative mostly for entertainment value (considering how hard it is to translate his analysis into concrete action--BTW, I do not consider an options barbell strategy to be of much value to most retail investors), while Harry Browne's work sells a unique perspective on the markets along with a simple, well-designed and durable investment strategy that is perfectly matched to his market perspective.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by 6 Iron » Tue May 04, 2010 4:07 pm

MediumTex wrote: For those who are doing PP tire kicking, right now is a good time to study bond movements in relation to the rest of the PP and as an example of how following market predictions is a truly pointless activity.

Note that this is the same bond market that people said was about to see dramatically higher yields a few months ago.  I'm not saying that yields won't go up at some point, but the 30 year yield has gone from 4.75% to 4.45% since the herd announced that yields had nowhere to go but up.
The longer I am invested with a PP, the less I am bothered by buying an asset class that is currently being denigrated by the financial seers, and the more comfort I draw from staying within my balancing bands.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by MediumTex » Thu May 06, 2010 10:19 am

It looks like treasurys are turning into a Cinderella story. 

At midnight it may all disappear, but I don't have a clue what time it is right now.

Where are all of these bond bears now?  It always surprises me how quickly a market narrative disappears when sentiment shifts.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by craigr » Thu May 06, 2010 12:11 pm

MediumTex wrote:Where are all of these bond bears now?  It always surprises me how quickly a market narrative disappears when sentiment shifts.
Yep. It's easy to come up with plausible explanations after the fact. Nobody ever holds market gurus accountable for their predictions that don't come true.
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Re: Bonds are Putting on a Nice PP Stress Test Demo

Post by Roy » Thu May 06, 2010 2:23 pm

Clive wrote:
My guess is that I wasn't alone in believing that when interest rates are near zero there was only one way for LT's to go.  Only since having partaken in the PP boards have I come to realise that even from 0% base rates that LT's can still rise in price.
Well, eventually your belief will be correct!  Just added fodder about the markets staying irrational longer than many can stay solvent (like those who have been shorting the "Treasury Bubble").  In 1996 Irrational Exuberance is another case in point.  Dump stocks and then miss 3+ more years of great returns.

Roy
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