Gyroscopic Investing

Reub wrote: I made a decision on Feb. 10th that the stock market was ready for a huge rise and so I sold about a third of my TLT as I went heavily into stocks. I don't anticipate a recession any time soon and think that rates may soon start to rise or remain flat. With equities and gold rocketing recently while bonds have been mostly unchanged I think that we're all laughing our way to the bank right now.

For now, yes...
Let's see what tomorrow brings.
I'm sticking with LTT's for what it's worth.

Wrong so far.
LTT's continue to slide, but as long as it's not gold I'm OK.
Hopefully continue to get downside equity protection and have already reduced FI duration (LTT's + Cash to 5.6 years.
Stocks are about 11% off the lows. Some are buying while others are selling to harvest those gains.

buddtholomew wrote: LTT's continue to slide,

Still not bad, though.
( yahoo finance link )

New lows in Swiss government bond yields:

20Y: -0.012%
30Y: 0.114%
50Y: 0.208%

Brave new world we're living in.

EDIT: They 50 year yield is now at 0.18%.

Lang wrote:New lows in Swiss government bond yields:

20Y: -0.012%
30Y: 0.114%
50Y: 0.208%

Brave new world we're living in.

Give the Swiss gov't your money for 20 years and pay them for the privilege, where do I sign up?

This actually reminds me of the Good Ol' Days, and by that I mean the mid-1800's in the US, where a secure bank was literally a place to keep your physical money, so it would not be stolen from you. Of course it makes sense to pay someone to guard your money in this case, but nowadays we are all so used to getting interest.

Lang wrote:New lows in Swiss government bond yields:

20Y: -0.012%
30Y: 0.114%
50Y: 0.208%

Brave new world we're living in.

And now even lower:

20Y: -0.07%
30Y: 0.1%
50Y: 0.15%

Imagine the 30 year US Treasury yield at 0.1%...

Lang wrote: And now even lower:

20Y: -0.07%
30Y: 0.1%
50Y: 0.15%

Imagine the 30 year US Treasury yield at 0.1%...

Where does demand for 50-year bonds @ .15% come from? I mean, how the hell can anyone be so depressed that they see no real economic growth over the next 50 years? That's just batshit insane. What is the current rate of inflation?

-0.4%. Inflation has been mostly negative since 2009.

The only way it makes sense is if you expect the negative interest rate (currently at -0.75%) to persist for most of the next 50 years. 0.15% is a poor yield relative to 0% on cash, but if cash is yielding -0.75% (and you can't stuff it under your mattress), then 0.15% is not so bad...

As for the specific buyers, I'm guessing it's mostly pension funds. They are the only ones interested in bonds with such long maturity.

Swiss bond yields update:

10Y: -0.47%
20Y: -0.09%
30Y: 0.06%
50Y: 0.13%

Lang wrote:Swiss bond yields update:

10Y: -0.47%
20Y: -0.09%
30Y: 0.06%
50Y: 0.13%

Thanks for these updates, Lang.

Any of you European PP investors want to share your YTD numbers here? I'd be curious to see how bonds have done in the European PP (though it's admittedly a short amount of time).

I've been following the performance of the Swiss PP here:

http://www.gyroscopicinvesting.com/foru ... 82#p149882

Thanks Lang.
Barrett, I have been watching LTT's with much interest as well.
The only option I have considered is switching a portion of TLT for EDV, capturing the capital gains to offset 2015 gold losses and placing the proceeds in cash.
6/2011-current (personal holding time frame), TLT has increased 35%+ without reinvesting dividends.
Interesting times for sure.

All Swiss government bonds with maturity of 26 years or lower are now trading at a negative yield.

The US 30 year treasury's yield is down to 2.43%, which is below the lowest yields during or after 2008. I have no idea the last time it was down this far. The great depression maybe??

Supposedly this is about the Brexit vote on June 23rd. Maybe next week would be a good time to check the portfolio and rebalance, especially if a band is crossed.

sophie wrote:The US 30 year treasury's yield is down to 2.43%, which is below the lowest yields during or after 2008. I have no idea the last time it was down this far. The great depression maybe??

Supposedly this is about the Brexit vote on June 23rd. Maybe next week would be a good time to check the portfolio and rebalance, especially if a band is crossed.

Sophie, rebalancing makes sense but I'm curious whether any PP investors are close to a LTT rebalancing band (>35%).

buddtholomew wrote:

sophie wrote:The US 30 year treasury's yield is down to 2.43%, which is below the lowest yields during or after 2008. I have no idea the last time it was down this far. The great depression maybe??

Supposedly this is about the Brexit vote on June 23rd. Maybe next week would be a good time to check the portfolio and rebalance, especially if a band is crossed.

Sophie, rebalancing makes sense but I'm curious whether any PP investors are close to a LTT rebalancing band (>35%).

With gold going up so much this year as well, my LTT bands are not near being hit myself. I suspect other people are probably in the same boat. If the stock market dives that is a different story, but for now it's steady as she goes.

I doubt I'll be hitting 35% either. My gold and bonds were both around 23% at the end of May. But it'll be fun to check, with stocks diving like they have and probably diving more in advance of the Brexit vote.

sophie wrote:The US 30 year treasury's yield is down to 2.43%, which is below the lowest yields during or after 2008. I have no idea the last time it was down this far. The great depression maybe??

Sophie, The yield actually hit 2.25% at the end of January of 2015. The 2.43% still seems like a good deal to me when I look at other options around the world.

I still maintain that narrower rebalancing bands (at least for bonds) make sense in a low interest rate environment. I just don't see a high probability of bonds moving from 25% to 35%. Seems to me that there are some profits to be made in the trading range we've seen on long bonds since 2008. But I don't have any data on this and am happy to be shouted down.

Thanks for that info, barrett.

I must say it's going to be REALLY difficult to buy long bonds when I go to invest next month's PP contribution.

sophie wrote: I must say it's going to be REALLY difficult to buy long bonds when I go to invest next month's PP contribution.

FWIW I followed your recent suggestion when my wife made her Roth contribution for 2015... just closed my eyes and bought some TLT, some IAU and some S&P 500 shares. Don't even know the purchase prices but those TLT shares have gone up.

sophie wrote:Thanks for that info, barrett.

I must say it's going to be REALLY difficult to buy long bonds when I go to invest next month's PP contribution.

Ouch...a disciple caves??? :-)

On a more serious note, Cullen Roche had an excellent post on bonds and rising interest rates at pragcap.com. The bottom line was if you are in intermediate treasuries don't worry about it. He provides math and an illustration...and I'm always a fan of facts over opinions. Our local boy MG had some follow up questions as well.

There has been much debate about ITTs vs. the barbell approach of LTTs and cash. His article really got me thinking about that option.

The bond market is extremely efficient. It is way more efficient than the stock market in my opinion. The math on them is what it is in terms of duration and interest.

The biggest benefit with the barbell over ITT is that nice wad of cash for riding out market turmoil, plus the ability to rebalance out of volatile bonds into a safe pot of cash when needed.

I find it much easier to handle LTT bond volatility when I have the cash sitting there not doing anything crazy. If I was all in ITT I think that benefit is lost.

craigr wrote:The bond market is extremely efficient. It is way more efficient than the stock market in my opinion. The math on them is what it is in terms of duration and interest.

The biggest benefit with the barbell over ITT is that nice wad of cash for riding out market turmoil, plus the ability to rebalance out of volatile bonds into a safe pot of cash when needed.

I find it much easier to handle LTT bond volatility when I have the cash sitting there not doing anything crazy. If I was all in ITT I think that benefit is lost.

Using ETFs since 2005/annual rebalance it is pretty close...

50% IEF/ 25%GLD /25% SPY - 7.67/-15.11DD
Standard PP - 7.56/-13.99DD

Within the context of a PP the thing I like about LTT's is the negative correlation to stocks when stocks are tanking. If one projects rising rates, then the practical risk consideration is LTT and stock correlations going forward.

Kbg wrote:On a more serious note, Cullen Roche had an excellent post on bonds and rising interest rates at pragcap.com. The bottom line was if you are in intermediate treasuries don't worry about it. He provides math and an illustration...and I'm always a fan of facts over opinions. Our local boy MG had some follow up questions as well.

In my backtesting of market timing stocks, I've found that the best substitute for 30 Day was 10 Year and not 30 Year. A lot of that may have to do with duration risk since it's changed over time (i.e. decreased then increased). There is probably a sweet spot in terms of duration risk that should always be maintained, but I know of no research into this. The thing that worries me about the barbell approach is when rates rise, you're not getting those higher yields except minusculy on 30 Day which is a 25% chunk. Whereas the other 25% 30 Year chunk is blasted into oblivion. A more moderate approach would be like a 1-30 Year Ladder which I've considered before, but the stock hedging ability sucks vs 30 Year. What we really need is more research into what the best bond strategy is during a period 1940-1980 period, but again I've seen little to none at all. I know that Hedgewise looked into that and made some improvements based on duration exposure, but they have not publically disclosed it to my knowledge.

OTOH, I know we all love to think of 30 Year's as a hedge for stocks, but it really isn't because before the mid-90's it was a very poor performer above cash for that purpose. Again, duration risk may be the factor

The question is what happes to short term rates when long term rates are rising to the stratosphere.
I assume they would rise as well so 25% of the portfolio in cash is benefiting from a rise in interest rates and 25% is experiencing the opposite effect.