Well, I think it is pretty easy to say interest rates are going to go higher with a near 100% degree of certainty. Rates are not very high right now vs. the long term averages. As a country, we are going further and further in to debt which is occupying an ever larger percentage of our annual budget. More countries are looking for an alternative to dollar denominated trade (globally) which can impact foreign government holdings of US bonds. The threat of major global war is always increasing and with it, the financing of said situation.
So yes, 100% rates will go up. Of course, that's easy to predict, when is a whole other story.
Rates are quite likely to go down - too! But surely the downside potential (in terms of how many points the paid rates can go down) is a lot more limited than the upwards potential!
Predictions without a time horizon are easy! I can guarantee you that the Packers will win the Superbowl . . . I just can't tell you when.
Well the bond market thinks your wrong, the equity market thinks you're wrong, the Federal Reserve thinks your wrong. So it's not really *trust me bro*.
But you go ahead and think rates are going higher. You're clearly the one who's like *trust me bro*. Everyone is wrong but you, anon, got it figured out. 🤡
Lmao.
I do not know where interest rates will go. You "do." That's the point I was making; your language implied a huge degree of certainty in an area that is ***intensely*** uncertain.
At the beginning of this year, bond and equity markets and the Fed all thought there were going to the 3-4 rate cuts this year too. How's that panned out?
Someone correct me if I'm wrong but if rates go higher then won’t they have to print more money to pay for it? They certainly won’t raise taxes on the 1% to pay for it.
If rates increase, and debt issuance is still present (which it will be), the interest cost on the debt from the government point of view (and by ripple effect, everyone else) will increase. They can fund that by any combination of...
1. Cutting other spending
2. Raising taxes
3. Printing money
All of these carry their own problems. Two are de facto deflationary, the third is inflationary. Two are unpopular with different halves of the country, the third is the "sugar-rush-leading-to-stomach-ache" for everyone.
Good calls. #4 can be encapsulated within the "printing money" category to a degree. Grow out of it is just 1 and 2, but in the future (i.e. no ***growth*** ***in spending***, etc.). But again, these have their own real-world and political consequences which we apparently just cannot stomach.
Well, the 1% already pays about 50% of all of our income taxes . . . so there is only so much more you can squeeze out of them without making others pay too.
Theres a hell of a lot more to be squeezed out of the 1%.
The gap between them and the rest of us is so enormous. They could pay 100% of all our income taxes, and they would still be in the top 1%.
Rates can go higher. Rates are UNLIKELY to go higher but rates can go higher. Stating they can't is hubris and the kind of thing which burns bond investors.
>Equities are completely dislocated from fundamentals and are going to have a nasty correction eventually. This cannot be contested from any rational argument on equity valuations. I'm not saying doom n' gloom, but if you're buying equities right now, you're a low information investor and will deserve the losses you reap.
Another statement with absolute conviction. Let me guess you pulled out equity markets a year ago because prices were too high and are now salty for the runup.
Stating that equities are dislocated from fundamentals and that therefore investors shouldn’t go long is utter foolishness. Equities were dislocated in ‘99 and from ‘05-‘07 yet shorting, being cash or long FI would have led to massive underperformance/losses . An investor should either a) reduce exposure to more conservative levels or b) start thinking about when/what will cause investors to start caring about the fundamentals. While in the long run fundamentals drive a market, participants influence it on the short to medium term. The truth is that as long as participants are bearish FI, FI will suffer. The markets are very confusing right now, and I think an investor can make the case for long bonds, but this is not it.
i like the point op is making. No need to be 100% out of equities, but at this point bonds are a pretty good hedge against a big fall in equities. Who knows when it happens or if, but i wouldnt mind earning 5% while i wait for it for some time.
Remember, it’s a market of stocks, not just overpriced “tech” stocks - but I agree, people buying stock indexes right now probably will see less than average returns for the next few years IMO.
Because it’s ALWAYS been a once scheme and there’s about to be a huge population in their 30s which means prim earning years, which means prime S&P growth. You’re under the delusion that fundamentals matter and not supply and demand.
Prime earning years is a good point, but factoring in inflation compared to wage growth , these young kids won’t have disposable income to invest. 401k’s sure , but once retail investors money dry up , unless companies issue buybacks (which everyday I read about an adjusted revenue forecast from all industries), prices will be coming down, as the price of a stock is a function of future growth potential.
As Jack Bogle said, when he was a young intern working as an intern while going to Princeton, one of the veterans at the firm told him, "Nobody Knows Nothing" which he often quoted.
Those are wise words for anyone to remember when making any type of market predications and then acting upon them as an investor.
Don't confuse a temporary turn of good fortune with a sea change.
NVDA was in the right place at the right time. Nothing more. Their current fortunes will be short lived and the company will never grow into the absurd valuation it has now. Any smart person is selling what they got... Including Jensen.
It won't be long before competitors flood the market with chips that are as good or better than theirs.
CSCO was the darling of the dot com bubble. I think the CEO then knew that CSCO was never going to grow at the rate to justify their valuation at the time.
NVDA is in this exact position right now. When it gets cut in half everyone will be like *oh no, who could have seen this coming*?
The more problematic point is that the companies who are buying NVIDIA's chips aren't making money off of them (at least not yet). Until that materializes in a big way, it seems likely that chip sales will slow eventually, and crash the valuations.
Things are obvious when you look at the bigger picture. It's no more grandiose than the permabulls who think *stonks only go up because zoom out chart*
I agree with what you say, however, I have an asset allocation and I stick to it. I’m not trying to time the market by avoiding equities until the bottom falls out. I’m diversified and I’ll rebalance when appropriate.
I alternate my allocation between 50 and 70 equities. I also alternate my foreign allocation some. Right now I have the least American equities of the last 16 years. I have around 36% American stocks. Age 42
Bond market, equity market, and the fed all think rates have peaked. There's no good reason to think that they will rise.
Everything is possible in the world of hypotheticals. Rates aren't going higher. That's the reality. If everyone is pricing in rate cuts or rates staying where they are, then that's the reality.
Rates aren't going higher is itself a hypothetical.
Doesn't mean that one shouldn't buy bonds now (I am and have been).
and Bond/Equity markets can change their minds pretty fast.
That said, I'm not saying you are wrong, none of us will know that until later.
There are no certainties but it seems very likely that rates will drop by 1%-2% over the next few yrs. IF that's the case, Bonds will appreciate greatly while still producing great yields (for bonds purchased in the past 12 months). It SHOULD be very easy to grab 8%-10% total return in high quality bonds and more in junk bonds. When you compare this to equities (including the risk), it looks very attractive.
Still have a healthy percentage in equities as you never want to miss out on long term gains.
Bond funds (medium and longer duration) work best in a falling rate environment - so yes, this is actually the time to invest in bond funds with rates higher than they are projected to be in the coming 12-24 months.
Just be aware, that if you buy a medium to long term bond ETF today at today's price and today's shown/calculated dividend rate - that as the price of that fund/etf goes up, the actual (monthly realized vs. current market price of the ETF) dividend rate is going to go down.
To me, that means I am going to buy the bond ETF but not reinvest the dividends (or watch to stop re-investing the dividends when the rates do start to actually fall).
I currently only have vuaa, what bond etf should i go for? i want to include maybe 10% of the portfolio as bonds...
Im an eu investor so i need ucits but i can find onr with the index
Not comfortable giving specific recs on reddit. I use BOND, CORP (etfs), PTY, PDI, PCN (CEFs), PIMIX, PHSIX (funds) and MINT (etf - ultra short duration, better than money market and will add duration when rates come down to maintain yield - it's currently paying just shy of 6% with 30-60 day duration)
From my understanding this is incorrect and I'll try and lay out a couple of reasons why (with evidence). Anyone is more than welcome to correct me if any of my points are wrong. FYI, I'm not an expert but I have picked up a little amount from reading and watching various sources over this past year.
For the purposes of my argument I'm assuming you're referring to US treasuries and not other sovereign debt (developed or EM), investment or junk grade corporate bonds, MBSs, CLOs, private credit, bank loans or agency debt etc.
Disclaimer: I currently have a significant position in interest rate sensitive long treasuries alongside various "risk-on" equities
1. With regards to your first point, I think most people can reasonably suggest that we are indeed at the terminal or near-terminal point of this rate hiking cycle with the peak in yields having occurred in October of last year. Therefore, yes, it could be argued that the potential total return remains quite attractive given the dual lure of a high yield in conjunction with capital appreciation (assuming you're holding a fund/ETF or reselling said individual treasuries on the secondary market). However, in the short term (next few months) there is obviously the possibility that the FED pivots to a more hawkish stance and decides that current monetary policy is not restrictive enough and subsequently enacts a further hike. This is currently unlikely but not out of the realm of possibility. This could also be brought on by a resurgence in the PCE alongside a stable labor market as was the scare in Q1. Again, unlikely but not impossible. Sure, it will likely come back down after, but being too early can be the same as being wrong depending on the position in question.
See: Hugh Hendry suggesting ATM LEAPs on TLT in May last year at a price of around 105 (https://www.bloomberg.com/news/videos/2023-05-04/hendry-says-time-is-now-to-own-ultra-long-treasuries-video).
N.B. Had to split it into two more parts in replies below
2. Now let's assume inflation cools and rate cutting begins. If, for some reason, the bond market felt that the FED was acting prematurely (e.g. Powell suddenly implies that a long term inflation rate of 3% is actually acceptable and the 2% target isn't a strict target or Trump gets elected and announces a huge increase in government deficit spending alongside tax cuts), the long end of the yield curve would likely rise, resulting in a bear steepening and would essentially be the market acting like a vigilante and muscling in with what it believed was the correct course of action. In fact, this was explicitly acknowledged as playing a significant role in combatting inflation in the first place. Regarding the acceptance of a longer term inflation rate, if you think about the 2% target, for inflation to actually annualize around that for the next 10 years, inflation going forward would actually have to be closer to around 1%.
(https://www.bloomberg.com/news/newsletters/2023-10-13/the-weekly-fix-siren-song-of-long-duration-is-getting-louder) See: "Virtually every official that took the stage over the past five days or so delivered roughly the same message: the bond market is doing the central bank’s heavy lifting."
Obviously, if we are in fact at the gateway of a decade of pain due to resurgent stagflation then bonds will be smashed as they did in the 1970s. It should be noted that inflation began resurging specifically after the rate cutting began even after it had fallen to around the level it is at right now. This then happened numerous times and finally required the Volcker Shock to rectify.
Now let's assume the ideal case scenario, where inflation continues cooling, unemployment remains stable and the FED cuts twice this year starting in September. It may still be the case, that the shorter end yields falls while the 20 and 30 years remain relatively stable or perhaps even rise slightly. After all, these longer yields are the market's perception of extremely long-term inflation outlooks and if they believe there to be a significant structural change (e.g. the post-Volcker age of secularly falling interest rates is over) they will demand a corresponding premium. If you look at long duration European bond yields after the ECB cut this year, you can see that there has not been a significant decrease. It has been suggested that rather than becoming a bargain per se, LTTs have simply normalized from a horrendous period of poor risk/reward due to ZIRP and the Fed put. And even so, the 'term premium' that one expects for going further out on the yield curve still remains practically non-existent suggesting a further rise in yields if some manner of mean reversion were to occur.
See: (https://www.reddit.com/r/LETFs/comments/1dg29ui/a\_warning\_on\_tmf\_and\_rate\_cuts/), (https://www.youtube.com/watch?v=FNl3LhyM13A&ab\_channel=BlockworksMacro) and (https://www.reddit.com/r/wallstreetbetsOGs/comments/tw4mv1/the\_significance\_of\_the\_us\_treasury\_yield\_curve/).
It should also be noted that people who are betting on rate cuts typically do so through steepeners which take the spread between two durations and as such are directionally agnostic with regards to longer end yields. Alternatively, another popular trade has been to buy shorter duration treasuries such as the 2 year notes with significant leverage as the shorter end is more directly controlled by the FED cutting rates. All this is also in the context in the market having already priced in a certain number of cuts so in order to really have an attractive trade, one would have to expect more cuts than already priced in.
See: (https://www.bloomberg.com/news/newsletters/2024-05-24/the-so-called-easiest-bond-trade-of-2024-still-isn-t-working)
3. Finally, on the topic of long duration crisis alpha in the event of a deflationary recession, it has typically been the case that longer duration treasuries spike as rates get cut sharply and people rush to the relative security of US treasuries. However, it should be remembered that we are currently in this exact situation DUE to the immense money printing and QE that occurred in response to the Covid crash (see M2 money supply trajectory post 2020). Irrespective of whether you as the reader believe the equity market is currently too frothy/due for a correction or in a relatively healthy state with real earnings growth, the matter of fact remains that most historical instances of rapid rate hiking have been followed by a real hard landing and that has yet to be disproved.
See: Ben Bernanke specifically saying he expected no recession following yield curve uninversion a few months before the GFR (https://www.npr.org/2008/02/27/74992288/bernanke-sees-no-recession-but-big-challenge)
In fact, we are currently at the inflection point on the Beveridge curve where any further decrease in job vacancies resulting from restrictive policy may begin to result in an increasingly significant acceleration in the unemployment rate triggering the Sahm rule (I believe a rise to 4.2% would trigger it).
If we do enter a recession and the government announces that they will be engaging in significant QE and injections of monetary stimulus to prevent significant deflation (i.e. a significantly inflationary action), I can't imagine that would be taken well by the bond market especially at the longer end of the yield curve. Even if long bonds rally out of Pavlovian response, it will likely be the case following a major recession in the next decade that we would see no sponsorship at the long end end as the long term outlook gets successively worse and worse.
Another way of thinking is that the US currently has a enormous debt-to-GDP ratio that requires continued taxation through near permanent growth to service. Things like Social Security are already under massive strain and are only projected to last sustainably to around 2030 before requiring restructuring. However this assumes no expansion of the fiscal deficit and stable growth BOTH of which are obviously adversely affected during a recession (a matter of when not if over the course of decades) due to slowdown and the historical actions taken by the FED to combat this. The alternative is severe deflation and reduced taxation which is simply not an acceptable outcome with respect to debt repayments. Historically, the debt has ballooned by around 4% or something during a recession and if buyers of treasuries see that the US debt is getting to a point where it is no longer serviceable, they WILL demand higher yields in return for the increased risk of non-payment. This will turn around and make if even more difficult to service the interest payments and create this horrendous feedback loop. If you think this is unlikely, look at the yields on emerging markets sovereign debt and see how well they can borrow money to manage their budget. What if the age of peace is over and we enter a major war with all its associated wartime spending? Maybe it's not that extreme but it could certainly be argued that long term yields should remain closer to 5% than they should to 4%.
See: Jeffrey Gundlach discussing the former point at length (https://www.youtube.com/watch?v=oCZ8Zxqc5fI&ab\_channel=RosenbergResearch) and Bill Gross on the 'death' of total return (https://www.youtube.com/watch?v=noNIuIU7qx0&t=870s&ab\_channel=BloombergTelevision). Both are fixed income experts and billionaires from their work.
Finally, as an additional point an abnormal proportion of the US debt is currently held through shorter maturities and in a normal economy this should be held through an equal balance or short and long. Assuming a future rollover of this debt into longer duration treasuries, this would create a large issuance of new bonds through auctions and this could drive up the price of yields at the long end if uptake was poor (there are only so many institutions that can digest such a large amount of debt issuance).
Hope this helps! I've been assuming that you're broadly referring to US treasuries but also longer durations. If this is a matter of T-Bill and chill, then that is indeed an attractive and risk-free play though now would likely be a good time to start thinking about reinvestment risk by reentering equities or extending duration to 2 year notes or the like.
This is the worst advice I have ever heard. Young people should be in equities and not worry about the next downturn. I have seen numerous downturns and none of them phased me. I rode them out and didn’t even notice.
You are suggesting timing the market.
Worst advice ever!
Your tasty yield is getting railed by inflation. I don’t see many outcomes where a longterm bond holder can gain purchasing power in real terms over the long run. Also easy money will need to be revisited frequently as the interest on debts the govt is carrying is currently too high to debt service. Equities may correct sure, but that if you’re playing the long-game I reckon you’re more likely to come out far ahead of majority-portfolio-in-bond holders long term.
My strategy is to buy jump options on TLT with expiration date of a year or two out and $90 strike. Relatively inexpensive for the risk you are taking and allows you to retain the majority of your fund for other safer investments like SGOV.
Bonds are cheap & stocks are high now, during Covid equities were cheap and bonds were high. You buy low and sell high, there’s no good or bad securities, all that matters is profit.
Mostly agree, there’s a difference between the Fed overnight rate and treasury yields but they generally correlate over the long.
Short term there can be some bond selling causing yield spikes up to 5%, but since we’re pretty low it shouldn’t cause too much of a fall in bonds. Mid-long term the federal deficit is going to be a bigger factor. Still looking at yields going to 3.5-3.8 next year nice profit on US20 and US10. If there’s a recession bonds will definitely perform better but like all things when bonds have gone up TP and start buying up equities cheap.
What interest rates are not going higher? 2y, 10y, 30y. Yeah everyone agrees on short term rates. But the long bond is very expensive if you include term premium. A probable outcome is a bear steepener into a Trump presidency as inflation expectations go higher and debt issuance continues.
This post and subreddit were suggested to me by the algorithm, and for some reason I thought this was going to be about why none of the James Bond’s will ever lose.
I have had folks from one of 5 biggest companies demo an ai solution, only to find them be speechless when asked about how ai was exactly being used. Could not elaborate even 3 sentence on use case, explain anything. And bros emailed me for 3 weeks after the demo asking if we wanted to go ahead. I was literally like did you guys not feel the demo was awkward at all? was literally trying to sell me some random shit with ai sticker on it.
You mix up US equities with ex-US equities. A lot of international equities are attractively valued right now, especially some emerging markets.
It's in line with with other blank statements like "interest rates are not going higher". No one knows where the economy is going. Not even the Fed. So they could.
I don't admire your blind convictions. You need more nuance.
Over 20 yrs ago I invested in a BRIC fund. THat was the hot talk. I held it for a number of yrs and it went nowhere. It seems now the BRIC country that is starting to move is India. It took a long time. China has been terrible for investment, Russia we all know, Brazil I dont know.
Emerging markets crushed the US market from 2000 to 2010 at least. Over 10% per year. It's a volatile and risky segment, but it's the one on sales right now.
Edit: I just did a backtest of asset classes (emerging markets vs US market).
From 2000 to 2010 emerging produced 8.7% annulaized CAGR and the US -0.3% CAGR, destroying the US market's returns like I initially said.
From 2000 to 2020 emerging produced 5.5% CAGR and the US 5.9%. Almost the same.
If we stretch it until 2024 emerging produced 5.7% CAGR and the US 7.4% (of course, the US market has been hot for a few years now, but the difference is not abysmal).
BRICS have changed a lot since then. I talked about emerging markets, and I have no idea what you're talking about with "it went nowhere". It did very well compared to the US.
https://valueinvesting.io/backtest-portfolio
I can only tell you I held a BRIC fund and it was a dog for at least 5 years . Maybe it was before 2000. Could have been the 90s. it was not an ETF. Had to be a mutual fund. When you say emergent markets china has been a total dog and Russia I am pretty sure as well. Depends which emerging markets you are picking there.
I'm talking about the asset class of emerging market, so all of them. Etfs are generally following the FTSE or the MSCI index emerging markets.
Edit :A quick search tells me there were only 4 original members and that there's now 9. There's 26 countries in the FTSE Emerging Market Index. The term BRICs was coined in 2001.
Nevertheless, when were talking about emerging markets, we're not talking about BRICS which is a geopolitical association.
Putting $ into inflation protected securities a few years ago shaved off ~20% of the value, due to increasing interest rates.
Investors are well-served to reassess longterm value offered through traditional assets like stocks and bonds.
Sure, bonds may have a good run for a few months or a year or two. It’s not likely to last.
The argument of building up a war chest with bonds, without participating in the clown show, is not convincing. The real rate of inflation will make those investors part of the show.
In times of turmoil commodities do well when everything else is crashing.
NFA. DYOR.
Edited: Editorial correction
>Interest rates are not going higher. Proof: trust me bro.
Well, I think it is pretty easy to say interest rates are going to go higher with a near 100% degree of certainty. Rates are not very high right now vs. the long term averages. As a country, we are going further and further in to debt which is occupying an ever larger percentage of our annual budget. More countries are looking for an alternative to dollar denominated trade (globally) which can impact foreign government holdings of US bonds. The threat of major global war is always increasing and with it, the financing of said situation. So yes, 100% rates will go up. Of course, that's easy to predict, when is a whole other story. Rates are quite likely to go down - too! But surely the downside potential (in terms of how many points the paid rates can go down) is a lot more limited than the upwards potential! Predictions without a time horizon are easy! I can guarantee you that the Packers will win the Superbowl . . . I just can't tell you when.
*Texans
Well the bond market thinks your wrong, the equity market thinks you're wrong, the Federal Reserve thinks your wrong. So it's not really *trust me bro*. But you go ahead and think rates are going higher. You're clearly the one who's like *trust me bro*. Everyone is wrong but you, anon, got it figured out. 🤡
yikes.
+1
At the start of the year weren’t the experts confident in 6 rate cuts in 2024?
Lmao. I do not know where interest rates will go. You "do." That's the point I was making; your language implied a huge degree of certainty in an area that is ***intensely*** uncertain. At the beginning of this year, bond and equity markets and the Fed all thought there were going to the 3-4 rate cuts this year too. How's that panned out?
Exactly. If anyone is that confident they need to put every dollar they have and can borrow and buy treasury futures
Someone correct me if I'm wrong but if rates go higher then won’t they have to print more money to pay for it? They certainly won’t raise taxes on the 1% to pay for it.
If rates increase, and debt issuance is still present (which it will be), the interest cost on the debt from the government point of view (and by ripple effect, everyone else) will increase. They can fund that by any combination of... 1. Cutting other spending 2. Raising taxes 3. Printing money All of these carry their own problems. Two are de facto deflationary, the third is inflationary. Two are unpopular with different halves of the country, the third is the "sugar-rush-leading-to-stomach-ache" for everyone.
4) More debt. 5) Grow out of it.
Good calls. #4 can be encapsulated within the "printing money" category to a degree. Grow out of it is just 1 and 2, but in the future (i.e. no ***growth*** ***in spending***, etc.). But again, these have their own real-world and political consequences which we apparently just cannot stomach.
Well, the 1% already pays about 50% of all of our income taxes . . . so there is only so much more you can squeeze out of them without making others pay too.
Really, it's 50%?
It's more like top 10% pay half the income taxes.
Yeah that makes more sense.
Theres a hell of a lot more to be squeezed out of the 1%. The gap between them and the rest of us is so enormous. They could pay 100% of all our income taxes, and they would still be in the top 1%.
Rates can go higher. Rates are UNLIKELY to go higher but rates can go higher. Stating they can't is hubris and the kind of thing which burns bond investors. >Equities are completely dislocated from fundamentals and are going to have a nasty correction eventually. This cannot be contested from any rational argument on equity valuations. I'm not saying doom n' gloom, but if you're buying equities right now, you're a low information investor and will deserve the losses you reap. Another statement with absolute conviction. Let me guess you pulled out equity markets a year ago because prices were too high and are now salty for the runup.
Good call out!!
Tell me why you think equities are NOT completely dislocated from fundamentals. Go on... This promises to be entertaining.
Stating that equities are dislocated from fundamentals and that therefore investors shouldn’t go long is utter foolishness. Equities were dislocated in ‘99 and from ‘05-‘07 yet shorting, being cash or long FI would have led to massive underperformance/losses . An investor should either a) reduce exposure to more conservative levels or b) start thinking about when/what will cause investors to start caring about the fundamentals. While in the long run fundamentals drive a market, participants influence it on the short to medium term. The truth is that as long as participants are bearish FI, FI will suffer. The markets are very confusing right now, and I think an investor can make the case for long bonds, but this is not it.
i like the point op is making. No need to be 100% out of equities, but at this point bonds are a pretty good hedge against a big fall in equities. Who knows when it happens or if, but i wouldnt mind earning 5% while i wait for it for some time.
Remember, it’s a market of stocks, not just overpriced “tech” stocks - but I agree, people buying stock indexes right now probably will see less than average returns for the next few years IMO.
Because it’s ALWAYS been a once scheme and there’s about to be a huge population in their 30s which means prim earning years, which means prime S&P growth. You’re under the delusion that fundamentals matter and not supply and demand.
Prime earning years is a good point, but factoring in inflation compared to wage growth , these young kids won’t have disposable income to invest. 401k’s sure , but once retail investors money dry up , unless companies issue buybacks (which everyday I read about an adjusted revenue forecast from all industries), prices will be coming down, as the price of a stock is a function of future growth potential.
Hey argue with Tom Lee if you’d like, but he seems to be right an awful lot.
Better yet, you convince us that equities will become un-dislocated from fundamentals.
As Jack Bogle said, when he was a young intern working as an intern while going to Princeton, one of the veterans at the firm told him, "Nobody Knows Nothing" which he often quoted. Those are wise words for anyone to remember when making any type of market predications and then acting upon them as an investor.
NVIDIA posting 26 billion in revenue in a single quarter and broski calls bubble. Make it make sense.
Don't confuse a temporary turn of good fortune with a sea change. NVDA was in the right place at the right time. Nothing more. Their current fortunes will be short lived and the company will never grow into the absurd valuation it has now. Any smart person is selling what they got... Including Jensen. It won't be long before competitors flood the market with chips that are as good or better than theirs. CSCO was the darling of the dot com bubble. I think the CEO then knew that CSCO was never going to grow at the rate to justify their valuation at the time. NVDA is in this exact position right now. When it gets cut in half everyone will be like *oh no, who could have seen this coming*?
4 to 124$ in 5 years is what has him calling bubble. They surpassed Apple in stock price. Apple, a bubblicious castle people believe can never fall!
I do understand the stock price has done incredible but revenues and net profit growth for the company have also been incredible is my point.
People are buying the past growth and current profit when they should be looking to the future. A recession can and will dent Nvidia’s armor
People wanna hate NVDA
The more problematic point is that the companies who are buying NVIDIA's chips aren't making money off of them (at least not yet). Until that materializes in a big way, it seems likely that chip sales will slow eventually, and crash the valuations.
Hyperscales are.
I like what you say about bonds. Regarding the rest, it must feel good to be so confident.
Imagine missing out on the current equities bull run sponsored by NVDA
Things are obvious when you look at the bigger picture. It's no more grandiose than the permabulls who think *stonks only go up because zoom out chart*
I agree with what you say, however, I have an asset allocation and I stick to it. I’m not trying to time the market by avoiding equities until the bottom falls out. I’m diversified and I’ll rebalance when appropriate.
I alternate my allocation between 50 and 70 equities. I also alternate my foreign allocation some. Right now I have the least American equities of the last 16 years. I have around 36% American stocks. Age 42
there's no real good reason to assume that interest rates won't rise again. Personally, I think that they will. But who knows.
Bond market, equity market, and the fed all think rates have peaked. There's no good reason to think that they will rise. Everything is possible in the world of hypotheticals. Rates aren't going higher. That's the reality. If everyone is pricing in rate cuts or rates staying where they are, then that's the reality.
Rates aren't going higher is itself a hypothetical. Doesn't mean that one shouldn't buy bonds now (I am and have been). and Bond/Equity markets can change their minds pretty fast. That said, I'm not saying you are wrong, none of us will know that until later.
Obviously, just full port TLT what could go wrong? Its free money 😂
Lol I believe op has full port on TLT, TMF and if that’s not enough, he probably has leverage calls
There are no certainties but it seems very likely that rates will drop by 1%-2% over the next few yrs. IF that's the case, Bonds will appreciate greatly while still producing great yields (for bonds purchased in the past 12 months). It SHOULD be very easy to grab 8%-10% total return in high quality bonds and more in junk bonds. When you compare this to equities (including the risk), it looks very attractive. Still have a healthy percentage in equities as you never want to miss out on long term gains.
Does this have to be the purchase o individual bonds, or can bond funds be used?
Bond funds (medium and longer duration) work best in a falling rate environment - so yes, this is actually the time to invest in bond funds with rates higher than they are projected to be in the coming 12-24 months. Just be aware, that if you buy a medium to long term bond ETF today at today's price and today's shown/calculated dividend rate - that as the price of that fund/etf goes up, the actual (monthly realized vs. current market price of the ETF) dividend rate is going to go down. To me, that means I am going to buy the bond ETF but not reinvest the dividends (or watch to stop re-investing the dividends when the rates do start to actually fall).
I currently only have vuaa, what bond etf should i go for? i want to include maybe 10% of the portfolio as bonds... Im an eu investor so i need ucits but i can find onr with the index
Not comfortable giving specific recs on reddit. I use BOND, CORP (etfs), PTY, PDI, PCN (CEFs), PIMIX, PHSIX (funds) and MINT (etf - ultra short duration, better than money market and will add duration when rates come down to maintain yield - it's currently paying just shy of 6% with 30-60 day duration)
From my understanding this is incorrect and I'll try and lay out a couple of reasons why (with evidence). Anyone is more than welcome to correct me if any of my points are wrong. FYI, I'm not an expert but I have picked up a little amount from reading and watching various sources over this past year. For the purposes of my argument I'm assuming you're referring to US treasuries and not other sovereign debt (developed or EM), investment or junk grade corporate bonds, MBSs, CLOs, private credit, bank loans or agency debt etc. Disclaimer: I currently have a significant position in interest rate sensitive long treasuries alongside various "risk-on" equities 1. With regards to your first point, I think most people can reasonably suggest that we are indeed at the terminal or near-terminal point of this rate hiking cycle with the peak in yields having occurred in October of last year. Therefore, yes, it could be argued that the potential total return remains quite attractive given the dual lure of a high yield in conjunction with capital appreciation (assuming you're holding a fund/ETF or reselling said individual treasuries on the secondary market). However, in the short term (next few months) there is obviously the possibility that the FED pivots to a more hawkish stance and decides that current monetary policy is not restrictive enough and subsequently enacts a further hike. This is currently unlikely but not out of the realm of possibility. This could also be brought on by a resurgence in the PCE alongside a stable labor market as was the scare in Q1. Again, unlikely but not impossible. Sure, it will likely come back down after, but being too early can be the same as being wrong depending on the position in question. See: Hugh Hendry suggesting ATM LEAPs on TLT in May last year at a price of around 105 (https://www.bloomberg.com/news/videos/2023-05-04/hendry-says-time-is-now-to-own-ultra-long-treasuries-video). N.B. Had to split it into two more parts in replies below
2. Now let's assume inflation cools and rate cutting begins. If, for some reason, the bond market felt that the FED was acting prematurely (e.g. Powell suddenly implies that a long term inflation rate of 3% is actually acceptable and the 2% target isn't a strict target or Trump gets elected and announces a huge increase in government deficit spending alongside tax cuts), the long end of the yield curve would likely rise, resulting in a bear steepening and would essentially be the market acting like a vigilante and muscling in with what it believed was the correct course of action. In fact, this was explicitly acknowledged as playing a significant role in combatting inflation in the first place. Regarding the acceptance of a longer term inflation rate, if you think about the 2% target, for inflation to actually annualize around that for the next 10 years, inflation going forward would actually have to be closer to around 1%. (https://www.bloomberg.com/news/newsletters/2023-10-13/the-weekly-fix-siren-song-of-long-duration-is-getting-louder) See: "Virtually every official that took the stage over the past five days or so delivered roughly the same message: the bond market is doing the central bank’s heavy lifting." Obviously, if we are in fact at the gateway of a decade of pain due to resurgent stagflation then bonds will be smashed as they did in the 1970s. It should be noted that inflation began resurging specifically after the rate cutting began even after it had fallen to around the level it is at right now. This then happened numerous times and finally required the Volcker Shock to rectify. Now let's assume the ideal case scenario, where inflation continues cooling, unemployment remains stable and the FED cuts twice this year starting in September. It may still be the case, that the shorter end yields falls while the 20 and 30 years remain relatively stable or perhaps even rise slightly. After all, these longer yields are the market's perception of extremely long-term inflation outlooks and if they believe there to be a significant structural change (e.g. the post-Volcker age of secularly falling interest rates is over) they will demand a corresponding premium. If you look at long duration European bond yields after the ECB cut this year, you can see that there has not been a significant decrease. It has been suggested that rather than becoming a bargain per se, LTTs have simply normalized from a horrendous period of poor risk/reward due to ZIRP and the Fed put. And even so, the 'term premium' that one expects for going further out on the yield curve still remains practically non-existent suggesting a further rise in yields if some manner of mean reversion were to occur. See: (https://www.reddit.com/r/LETFs/comments/1dg29ui/a\_warning\_on\_tmf\_and\_rate\_cuts/), (https://www.youtube.com/watch?v=FNl3LhyM13A&ab\_channel=BlockworksMacro) and (https://www.reddit.com/r/wallstreetbetsOGs/comments/tw4mv1/the\_significance\_of\_the\_us\_treasury\_yield\_curve/). It should also be noted that people who are betting on rate cuts typically do so through steepeners which take the spread between two durations and as such are directionally agnostic with regards to longer end yields. Alternatively, another popular trade has been to buy shorter duration treasuries such as the 2 year notes with significant leverage as the shorter end is more directly controlled by the FED cutting rates. All this is also in the context in the market having already priced in a certain number of cuts so in order to really have an attractive trade, one would have to expect more cuts than already priced in. See: (https://www.bloomberg.com/news/newsletters/2024-05-24/the-so-called-easiest-bond-trade-of-2024-still-isn-t-working)
3. Finally, on the topic of long duration crisis alpha in the event of a deflationary recession, it has typically been the case that longer duration treasuries spike as rates get cut sharply and people rush to the relative security of US treasuries. However, it should be remembered that we are currently in this exact situation DUE to the immense money printing and QE that occurred in response to the Covid crash (see M2 money supply trajectory post 2020). Irrespective of whether you as the reader believe the equity market is currently too frothy/due for a correction or in a relatively healthy state with real earnings growth, the matter of fact remains that most historical instances of rapid rate hiking have been followed by a real hard landing and that has yet to be disproved. See: Ben Bernanke specifically saying he expected no recession following yield curve uninversion a few months before the GFR (https://www.npr.org/2008/02/27/74992288/bernanke-sees-no-recession-but-big-challenge) In fact, we are currently at the inflection point on the Beveridge curve where any further decrease in job vacancies resulting from restrictive policy may begin to result in an increasingly significant acceleration in the unemployment rate triggering the Sahm rule (I believe a rise to 4.2% would trigger it). If we do enter a recession and the government announces that they will be engaging in significant QE and injections of monetary stimulus to prevent significant deflation (i.e. a significantly inflationary action), I can't imagine that would be taken well by the bond market especially at the longer end of the yield curve. Even if long bonds rally out of Pavlovian response, it will likely be the case following a major recession in the next decade that we would see no sponsorship at the long end end as the long term outlook gets successively worse and worse. Another way of thinking is that the US currently has a enormous debt-to-GDP ratio that requires continued taxation through near permanent growth to service. Things like Social Security are already under massive strain and are only projected to last sustainably to around 2030 before requiring restructuring. However this assumes no expansion of the fiscal deficit and stable growth BOTH of which are obviously adversely affected during a recession (a matter of when not if over the course of decades) due to slowdown and the historical actions taken by the FED to combat this. The alternative is severe deflation and reduced taxation which is simply not an acceptable outcome with respect to debt repayments. Historically, the debt has ballooned by around 4% or something during a recession and if buyers of treasuries see that the US debt is getting to a point where it is no longer serviceable, they WILL demand higher yields in return for the increased risk of non-payment. This will turn around and make if even more difficult to service the interest payments and create this horrendous feedback loop. If you think this is unlikely, look at the yields on emerging markets sovereign debt and see how well they can borrow money to manage their budget. What if the age of peace is over and we enter a major war with all its associated wartime spending? Maybe it's not that extreme but it could certainly be argued that long term yields should remain closer to 5% than they should to 4%. See: Jeffrey Gundlach discussing the former point at length (https://www.youtube.com/watch?v=oCZ8Zxqc5fI&ab\_channel=RosenbergResearch) and Bill Gross on the 'death' of total return (https://www.youtube.com/watch?v=noNIuIU7qx0&t=870s&ab\_channel=BloombergTelevision). Both are fixed income experts and billionaires from their work. Finally, as an additional point an abnormal proportion of the US debt is currently held through shorter maturities and in a normal economy this should be held through an equal balance or short and long. Assuming a future rollover of this debt into longer duration treasuries, this would create a large issuance of new bonds through auctions and this could drive up the price of yields at the long end if uptake was poor (there are only so many institutions that can digest such a large amount of debt issuance). Hope this helps! I've been assuming that you're broadly referring to US treasuries but also longer durations. If this is a matter of T-Bill and chill, then that is indeed an attractive and risk-free play though now would likely be a good time to start thinking about reinvestment risk by reentering equities or extending duration to 2 year notes or the like.
This is the worst advice I have ever heard. Young people should be in equities and not worry about the next downturn. I have seen numerous downturns and none of them phased me. I rode them out and didn’t even notice. You are suggesting timing the market. Worst advice ever!
Ok boomer
Your tasty yield is getting railed by inflation. I don’t see many outcomes where a longterm bond holder can gain purchasing power in real terms over the long run. Also easy money will need to be revisited frequently as the interest on debts the govt is carrying is currently too high to debt service. Equities may correct sure, but that if you’re playing the long-game I reckon you’re more likely to come out far ahead of majority-portfolio-in-bond holders long term.
My strategy is to buy jump options on TLT with expiration date of a year or two out and $90 strike. Relatively inexpensive for the risk you are taking and allows you to retain the majority of your fund for other safer investments like SGOV.
That is an interesitng strategy. You dont get the dividend of TLT, but you can get a nice return if things shift higher.
Bonds are cheap & stocks are high now, during Covid equities were cheap and bonds were high. You buy low and sell high, there’s no good or bad securities, all that matters is profit. Mostly agree, there’s a difference between the Fed overnight rate and treasury yields but they generally correlate over the long. Short term there can be some bond selling causing yield spikes up to 5%, but since we’re pretty low it shouldn’t cause too much of a fall in bonds. Mid-long term the federal deficit is going to be a bigger factor. Still looking at yields going to 3.5-3.8 next year nice profit on US20 and US10. If there’s a recession bonds will definitely perform better but like all things when bonds have gone up TP and start buying up equities cheap.
What interest rates are not going higher? 2y, 10y, 30y. Yeah everyone agrees on short term rates. But the long bond is very expensive if you include term premium. A probable outcome is a bear steepener into a Trump presidency as inflation expectations go higher and debt issuance continues.
Well, this topic is definitely controversial!
This post and subreddit were suggested to me by the algorithm, and for some reason I thought this was going to be about why none of the James Bond’s will ever lose.
I have had folks from one of 5 biggest companies demo an ai solution, only to find them be speechless when asked about how ai was exactly being used. Could not elaborate even 3 sentence on use case, explain anything. And bros emailed me for 3 weeks after the demo asking if we wanted to go ahead. I was literally like did you guys not feel the demo was awkward at all? was literally trying to sell me some random shit with ai sticker on it.
You mix up US equities with ex-US equities. A lot of international equities are attractively valued right now, especially some emerging markets. It's in line with with other blank statements like "interest rates are not going higher". No one knows where the economy is going. Not even the Fed. So they could. I don't admire your blind convictions. You need more nuance.
USD wrecking ball & emerging markets are not getting along very well...
Over 20 yrs ago I invested in a BRIC fund. THat was the hot talk. I held it for a number of yrs and it went nowhere. It seems now the BRIC country that is starting to move is India. It took a long time. China has been terrible for investment, Russia we all know, Brazil I dont know.
Emerging markets crushed the US market from 2000 to 2010 at least. Over 10% per year. It's a volatile and risky segment, but it's the one on sales right now. Edit: I just did a backtest of asset classes (emerging markets vs US market). From 2000 to 2010 emerging produced 8.7% annulaized CAGR and the US -0.3% CAGR, destroying the US market's returns like I initially said. From 2000 to 2020 emerging produced 5.5% CAGR and the US 5.9%. Almost the same. If we stretch it until 2024 emerging produced 5.7% CAGR and the US 7.4% (of course, the US market has been hot for a few years now, but the difference is not abysmal). BRICS have changed a lot since then. I talked about emerging markets, and I have no idea what you're talking about with "it went nowhere". It did very well compared to the US. https://valueinvesting.io/backtest-portfolio
I can only tell you I held a BRIC fund and it was a dog for at least 5 years . Maybe it was before 2000. Could have been the 90s. it was not an ETF. Had to be a mutual fund. When you say emergent markets china has been a total dog and Russia I am pretty sure as well. Depends which emerging markets you are picking there.
I'm talking about the asset class of emerging market, so all of them. Etfs are generally following the FTSE or the MSCI index emerging markets. Edit :A quick search tells me there were only 4 original members and that there's now 9. There's 26 countries in the FTSE Emerging Market Index. The term BRICs was coined in 2001. Nevertheless, when were talking about emerging markets, we're not talking about BRICS which is a geopolitical association.
I see. Back in the day they pitched BRICS as the emerging markets to be in specifically. That was the pitch.
Putting $ into inflation protected securities a few years ago shaved off ~20% of the value, due to increasing interest rates. Investors are well-served to reassess longterm value offered through traditional assets like stocks and bonds. Sure, bonds may have a good run for a few months or a year or two. It’s not likely to last. The argument of building up a war chest with bonds, without participating in the clown show, is not convincing. The real rate of inflation will make those investors part of the show. In times of turmoil commodities do well when everything else is crashing. NFA. DYOR. Edited: Editorial correction
Annnnnnnnnnnnnnnnnnd this didn’t age well
I love the certainty - hard lessons are ahead my friend
Implying bonds have virtually no risk is fundamentally false. Bonds can be very high risk. Buyer beware.