Send Message
View as an RSS Feed
  • Everyone Hates Bonds  [View article]
    6228371 - Agreed: Inflation will be higher. On top of that, there is also the opportunity cost of being invested at a lower yield when the yields are higher and going even higher. But some people seem to think that it is all fine as long as they don't show an outright loss in their portfolio.
    Nov 7, 2014. 02:43 PM | Likes Like |Link to Comment
  • Everyone Hates Bonds  [View article]
    kor1870 - Short term? I don't think so. Yields are so low right now and so likely to go up next year that you would easily end up with a lower price for 10 years, or even longer. So, yes, you would be forced to hold the bond to maturity to avoid loses. BTW, 10 years is not even long term; 20 to 30 years is. The question, naturally, would be, why would you do such a thing if, instead, you can easily buy shorter term bonds and roll them as the yield goes up without tacking any risks?
    Nov 7, 2014. 02:19 PM | Likes Like |Link to Comment
  • Are Markets More Stable With QE?  [View article]
    "It will be interesting to see, however, if volatility in asset prices increases now that the Fed’s implicit support is gone and whether that prompts actions to initiate a new round of balance sheet expansion."

    That, in a nutshell, is what many fear the Fed has been doing all along: It has significantly helped pump asset prices up, with the hope that the underlaying fundamentals would catch up to the prices and, hence, eventually support them without further Fed intervention. The problem, naturally, arises when, without the Fed's stimulus, said asset prices go down and volatility increases.

    The real question your assertion posses is: Why would the Fed, in the first place, even consider a new round of balance sheet expansion, if volatility increases or the financial markets go down, if that is nowhere near the Fed's mandate?
    Nov 4, 2014. 07:12 PM | Likes Like |Link to Comment
  • Everyone Hates Bonds  [View article]
    Since this is not a hypothetical conversation about the merits of bond investment but, rather, a disagreement about a real investment advise given ("buy longer term investment grade bonds"), which has real-life consequences, let's make a deal: Let's have this conversation again a year from now. If, at that time, Bond yields are at the same level as today, or lower, I will be more than happy to stand corrected and publicly say that I was wrong. On the other hand, if then, Bond yields are higher than today, you will extend me the same courtesy and clearly state that you where wrong.

    Do note, though, that if I am wrong, my advise would have some opportunity cost. If, however, you are wrong, your advise would cause straight forward monetary losses.
    Nov 4, 2014. 06:56 PM | Likes Like |Link to Comment
  • Everyone Hates Bonds  [View article]
    Long term bonds right now? Sorry that's not good advice unless he is willing to wait 15-20 years, and even then, may still not be good advice as he would be paying a huge opportunity cost of being invested in the current low yields with raising yields and inflation around. So, if for whatever reason he has to sell his bonds, he will, almost certainly lose money. Even if he doesn't, with the current yield, inflation is likely to eat away most of the expected profit.
    If you want to invest in bonds right now, do staggered investments in short term bonds, hold them to maturity, and roll the investment to higher yield bonds as they mature. This way you guarantee that you will not have any loses and will be able to move up in yield as the yields move up.
    Oct 31, 2014. 11:15 AM | 1 Like Like |Link to Comment
  • Everyone Hates Bonds  [View article]
    "The line that really jumps out is that 91% negativity about US Treasuries... 91% looks more than a bit unusual. And it certainly isn't consistent with an excessive euphoria."

    Cullen, given the current circumstances the negative outlook is not unusual, at all. In fact, it is the rational investment position.
    Perhaps you are simply drawing the wrong conclusion from the data. I would suggest that, by now, most investors realize that Treasury bond yields have been pushed down and held down artificially by the Fed for a very long time, and that absent the Fed's intervention and left to the free flow of the market, Treasury bond yields are bound to move back up. When they do, current prices will go down and bondholders will suffer loses. Hence, unless you expect Treasury yields to continue to stay at these low levels in the future, the rational position is to have a negative outlook on Treasury bonds. Wouldn't you agree?
    Oct 27, 2014. 06:37 PM | Likes Like |Link to Comment
  • Removing The FED Premium  [View article]
    Very good post. Thank you.
    Oct 18, 2014. 04:53 PM | 1 Like Like |Link to Comment
  • The Fed's 'Own Goal'  [View article]
    Sure, Jason, the crisis was everyone's fault except for the banks' management. I guess I am the populist, then. It could have been worse, you could have accused me of being an economist. Anyway, I must be in the wrong business, so please keep it low, otherwise I will get kicked out of the hedge fund business.
    Jun 24, 2014. 02:21 PM | Likes Like |Link to Comment
  • The Fed's 'Own Goal'  [View article]
    Jason, I love your rant and how easily you blame and disqualify people who have a different opinion. What facts? Poor bankers as the victims of the crisis? That's rich. Who are the guilty parties, in your opinion, then? I think the overall criticism of the banking industry is fair. But what do I know, anyhow.
    Jun 21, 2014. 03:14 PM | 2 Likes Like |Link to Comment
  • The Fed's 'Own Goal'  [View article]
    Interestingly, in spite of the contentious back and forth between the two of you about semantics, I put it to you, respectfully, that you seem to have, both, completely missed the real meaning of the broad complain against most banks having been bailed out and, hence, not having learned their lesson: The complain isn't that the banks' shareholders didn't suffer enough or that they didn't learn their lesson. The complain is that banks' management, who were truly at fault, didn't.
    And, so, we are likely to find ourselves in a similar mess again in the future.
    Jun 21, 2014. 07:20 AM | 1 Like Like |Link to Comment
  • The Fed's 'Own Goal'  [View article]
    Excellent article, Mike. Excellent.
    Jun 19, 2014. 05:06 PM | 2 Likes Like |Link to Comment
  • They Came To Play  [View article]
    ¨...but is actively taking steps to make sure that the liquidity being added to the system is flushed, rather than leaked, into the transactional money supply.¨

    This, IMO, is the most significant difference between previous steps the ECB or the Fed have taken. A common and valid complain about how central banks have managed the crisis is that while they have done practically anything to help and prop up the banks, they have done almost nothing to make sure that their actions pass through to the bank's customers and the real economy (other than unnecessarily pushing up financial markets). The banks have highly profited from the central banks' actions but didn't do anything to help their customers or the real economy. The ECB's actions, this time around, hope to change that. Perhaps they should have thought along these lines from the very start.
    Jun 6, 2014. 05:45 PM | 4 Likes Like |Link to Comment
  • Apple: Reality Bites, So Time To Sell  [View article]
    Less than 10 months later and AAPL is already almost 50% higher and it seems ready to crack $700 again.

    As I wrote in my original post: "the timing of your advise to sell Apple is horrendous."
    Jun 5, 2014. 04:52 PM | Likes Like |Link to Comment
  • Worried About Not Being Worried  [View article]
    Well Mike, apparently the Fed is, finally, also worried about everyone not being worried. Surprisingly, the Fed also seems to accept that they have been the main cause of such complacency.

    Hilsenrath speaking up on the issue is significant, IMO, as he is the Fed's preferred megaphone.

    "Hilsenrath Confirms Fed Angry At Itself For Making "Market" Too Risk-Free."

    Jun 3, 2014. 05:21 PM | 1 Like Like |Link to Comment
  • What's The Bond Market Telling Us?  [View article]
    "So, what is the bond market telling us? The bond market is telling us that inflation is currently low."

    Well no, you had it right the first time around, before you oversimplified it:

    "...the assumption is that lower yields are a sign that inflation expectations are low..."

    Bond market prices are, indeed, more closely correlated with future inflation expectation. The problem is that current bond prices would indicate future near-term low inflation that most experts believe will not be the case. How much of a divergence between the current bond prices and near-term inflation is the real issue. Being that yields are so low (and prices so high), get the inflation part wrong, and you are bound to lose money.

    As wether equity or bond traders are right or wrong, you haven't considered a third option: That the bond market is mispriced and bond traders are right but short treasuries. So, it is more likely that bond trades are short (and right, if the market is mispriced and yields will rise), and investors, who are long treasuries, are wrong and will lose money.

    BTW, you can apply the same principle to the equity markets where retail investors who buy at these levels will, in all likelihood, end up holding the bag.
    May 30, 2014. 08:24 PM | Likes Like |Link to Comment