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"You're never going to ever achieve the necessary pool of money that you need (by) buying...

"You're never going to ever achieve the necessary pool of money that you need (by) buying bonds," says BlackRock CEO Larry Fink, whose February call to be 100% invested in equities came just about the time it paid to be 100% invested in bonds. The U.S. 10-year yields 1.56% vs. the S&P yield of 2%.
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Comments (20)
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    If you are 45 years old you probably will never see the 10 year Treasury yield more than 5% ever again during your lifetime.
    8 Jun 2012, 07:40 AM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    You forgot to add that if someone buys a portfolio full of T-bills, now, at 1.5% yield, and they "only'' go to 5% in coming years, that person will either need a rich uncle or will be cutting their lifestyle back very substantially.

     

    As for your prediction, just remember that 30 years ago, 10-year T-bills were yielding >15%. It might be tempting fate to suggest that your 45-year-old guy has no risk of such, again.
    8 Jun 2012, 12:00 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    15% will NEVER happen again because that would mean interest payments FAR higher than the U.S. GDP which would mean dissolution of the United States and no more sovereign debt.
    8 Jun 2012, 09:24 PM Reply Like
  • Graybeard44
    , contributor
    Comments (130) | Send Message
     
    How about making some kind of MEANINGFUL comparison.
    Like, for example, bonds vs. utility stocks, REITS or some other group of equities whose members all pay dividends.

     

    I'll put the performance of my MMM, CVX, DOW, ED, GE, INTC, and VZ up against your treasury bills any time.
    8 Jun 2012, 08:24 AM Reply Like
  • 2MuchDebt
    , contributor
    Comments (253) | Send Message
     
    I recall making a similar point last Friday.
    8 Jun 2012, 08:51 AM Reply Like
  • bbro
    , contributor
    Comments (10325) | Send Message
     
    Ok you buy the 10 year on Feb. 8 at 2.01%....today it is1.60%...you
    are up 4%,,,what do you do now??? Aren't treasuries at these levels
    just another trading vehicle??? Moving to cash is now the only "safe"
    asset...
    8 Jun 2012, 11:36 AM Reply Like
  • 2MuchDebt
    , contributor
    Comments (253) | Send Message
     
    Agreed. It is clearly a short term play. Treasury yields can't fall much farther for long.
    8 Jun 2012, 11:47 AM Reply Like
  • T_J62
    , contributor
    Comments (21) | Send Message
     
    Whats to stop us from waiting for the 2013 interest rate hikes the
    Fed has promised, and then buying TIPS its only a year away. Unless
    you want to keep risking chasing an 8-10% potential upside in stocks
    and a 200% downside risk in a bad market.
    8 Jun 2012, 05:23 PM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    Fink is a total idiot. He said the same thing ''100% in stocks'' in the spring of 2011 just a couple of weeks before the market collapsed. The guy is just a salesperson - he gets paid when people invest. You can't trust him at all.
    8 Jun 2012, 05:36 PM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    Don't "trust" anybody; use common sense. Do you want to buy bonds at all-time record prices (low yields) or equities, many of which are selling at substantial discounts to their previous historical performance?

     

    Unless your time horizon is a very short one, the answer is obvious.
    8 Jun 2012, 06:13 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    The answer is simple.

     

    If you have massive gains on your T-Bonds simply:

     

    -Split your winnings in half

     

    -Convert one quarter from bonds to bills

     

    -Take one quarter and buy the JAN14 TLT $100 strike LEAPS put for a mere $4

     

    -Take the other half and build a CD ladder
    8 Jun 2012, 09:33 PM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    DVL:

     

    I guess I'm missing the brilliance in this strategy. To wit:

     

    -- Converting 1/2 of gains to short-term T-bills provides better downside protection than longer bonds, but for virtually no return or upside. Might as well be cash.

     

    -- Using 1/4 of winnings to speculate on a distant way-OTM put on TLT is a very high-risk bet, not much of a hedge on your total position. The premium is 100% time value, so unless some TLT meltdown is early, deep and precipitous, the put will have little appreciation, and TLT would have to drop below 96 nearing maturity for the put to make any money at all. A look at the TLT chart indicates that it's never been below 90 in the last ten years, except for very short periods.

     

    -- 1/4 for a CD ladder, again, is safe as you can get, but so is putting cash in a Maxwell House coffee can. As Clare Peller used to say in the famous Wendy's commercials, "where's the beef?"

     

    And, the foregoing is just talking about "winnings," according to your post. So, where's all that original principal going to go, both to avoid Treasury exposure and/or to make future capitals gains and decent income?

     

    I guess I'm at a loss how the foregoing is very good, either for capital preservation or for making future gains. The only thing that appears to have any sizable upside is the TLT put, and that would take a dramatic move and could just as easily see the premium paid, 1/4 of your previous winnings, evaporate into thin air.
    8 Jun 2012, 11:27 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    I wish I can take your second point and apply it while negotiating premiums with my insurance company!

     

    Also this plan is for preservation of capital during a bond collapse not for speculating on fixed income growth or capturing high yields.

     

    Options aren't for everybody and if you don't understand them then I advise to STAY AWAY!

     

    I also don't advise putting cash in a "Maxwell House coffee can" as you accrue "burglary risk". FDIC guaranteed deposits work great here.

     

    Of course one is free to keep fingers firmly crossed and remain in bonds if they wish...
    9 Jun 2012, 11:12 AM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    DVL:

     

    I'm not a Treasury-bond investor. I've never owned a single Treasury, directly or through funds. I'm merely making an analytical appraisal of your plan

     

    What would make you think that I don't understand options? I sell lots of them, although am rarely a buyer. A long-dated deep-OTM option is a very poor hedge because substantial losses must be incurred first before the price will even budge, and time works relentlessly against you. Someone hedging against short-term losses would be better served buying a shorter ITM put or selling an ITM call. There's a lot less leverage, but a lot more protection of near-price and time events.

     

    I'm entirely with you on your last sentence, as I see sizable risks in holding low-yielding Treasuries. I just don't think that your prescription for what to do provides lots of protection (as I said, you didn't even address original principal) nor does it provide for a new path for gains.

     

    In that last regard, it would seem that making new gains, is a perpetual challenge for all investors, or does your example investor now just retire with his gains from the prior Treasury run-up. If your plan isn't a longer-term redeployment plan, then when is the investor supposed to change course?
    9 Jun 2012, 11:25 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    I don't know you. Why are you personalizing a comment I made to the board in general and not you personally?

     

    Why are you commenting on a Treasury thread if you have "never owned a single Treasury, directly or through funds"?
    9 Jun 2012, 11:31 AM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    DVL:

     

    I could not care less about you personally and am not attacking you. I am questioning the strategy that was outlined for investors. Is that not permitted?

     

    I have been investing for many decades and am very knowledgeable about equities, preferreds, bonds and ETF's. That I choose not to have purchased Treasuries isn't due to some ignorance; it's a conscious choice, as they never met my objectives. I hardly think the lack of ownership of Treasuries disqualifies me from making an assessment about their likely direction, any more than it would disqualify a renter from commenting on the future of the housing market.

     

    I'll leave unchanged my original objective criticisms of the written strategy, outlined in your post above. If you think my concerns about why that strategy might not be effective warrant rebuttal, go to it. Otherwise, leave it for the readers to assess who's correct, but don't try to convert my objective responses on the subject matter into a personal attack on yourself.
    9 Jun 2012, 11:50 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    You wrote "What would make you think that I don't understand options?"

     

    You took a general comment for everyone and made it a personal debate for some reason.

     

    I don't know why you decided to do this but for those of us who actually invest in Treasuries and have a stake in these discussions and aren't just looking to start arguments please cut it out.

     

    Of course you are free to comment on anything you like and I wouldn't want to impede on that freedom but good does it serve a non-Treasury investor to intervene on a particular fixed income discussion?
    9 Jun 2012, 07:28 PM Reply Like
  • Tack
    , contributor
    Comments (14311) | Send Message
     
    I have no personal argument with YOU. However, I think the proposed strategy outlined in your post is ineffectual. I shouldn't say this? I shouldn't try to educate others, as to why that proposal written might fall short? What's the problem? Only you can educate folks?

     

    As I suggested, you are free to point out to readers where my critique is all wet, and I don't know what I'm talking about. Apparently, they're still waiting.
    9 Jun 2012, 07:33 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9638) | Send Message
     
    When did I say you couldn't post?

     

    I just don't understand why somebody who doesn't invest in a whole asset class would stalk a discussion about that very asset class.

     

    I don't trade forex. So it would be strange if I started talking about what the naira is going to do against the rupiah over the next three trading sessions after a forex article or forex news update.

     

    The people who actually trade forex would say, "what are you doing here?" and they'd be very justified in doing so.
    9 Jun 2012, 07:36 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    picking up pennies in front of a steamroller

     

    E
    9 Jun 2012, 10:20 AM Reply Like
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