My holdings in ICF, the iShares REIT index fund, are up over 18% year-to-date. I thought that one was my boring REIT holding, but it's been stellar. I sold my ARCP shares a couple of weeks ago, lesson learned...
I don't really understand your numbers. TLT is up just over 9% in 2014, and TMV is down just over 29%. Holders of TLT also receive quarterly distributions, so their total return has been just over 10%. I prefer to buy my bonds directly, and my bond portfolio is up about 10.5% (12%, including interest) year to date. But all of my bonds are 30Y maturity, unlike the holdings of TLT, so TLT pretty much performs as advertised. TMV has been a complete and utter disaster in 2014.
Everyone knew it was coming, so a lot of it was already priced in. But who knows what the unintended consequences of insane central bankers will be, so I'm sure we'll see more repercussions eventually. The yield on 10Y Irish bonds is now lower than the US 10Y and the yield on the Spanish 10Y is only 28 pips higher. it's a crazy world...
Haha, good for you. But if you had bought TMV (the triple inverse bond fund) like I suggested, you would have made even more! Once upon a time I tried to time markets, but I could never pull it off...
I don't remember Lacy ever talking about "hyper-inflation". Which report was that?
Of course he's talking his own book. He's the primary strategist at Hoisington, and they are overweight long bonds because that's where he sees the opportunity. At the point in time he sees rates rising in a sustainable way, he'll argue shorter duration bonds. Just curious, did you take the time to read any of his reports? The 3Q 2013 and 4Q 2013 reports are particularly good, because they summarize several of his recurring themes.
I actually do. Treasury yields are low despite the Fed's efforts, not because of them. At the completion of every single iteration of quantitative easing (QE1, QE2 and Operation Twist), yields actually fell (look at a chart). The fact that yields have been falling as the Fed tapers also supports this view.
I think short term moves are impossible to predict, which is why I don't bet on them. But if I had to, I'd guess that the 10Y is ultimately headed to 2% and the 30Y is headed below 3%. If one is inclined to short bonds, I'd wait until yields reached those levels before starting a position.
The yield on the 30Y is headed below 3%, just like it's done the past 3 years in a row. Maybe that will be the time to start building a short position.
I read the article today in which Larry says it's a good time to short bonds (with a double inverse bond fund, which is an excellent way to lose money twice as fast). He mentions 7 reasons why bonds have rallied and yields are low. But every single one of those reasons is still in place and don't seem to be going anywhere, so his call really makes no sense.
Japanese investors are reportedly part of the reason for the rally in US Treasurys. When you've been looking at a 10Y yield of 0.6% on Japanese bonds for years, the 2.5% on the US 10Y starts to look pretty attractive. By the way, foreign investors only own about 8% of US bonds with maturities over 10 years; their holdings are concentrated on the short end of the yield curve (maturities of less than 2 years). The market for long-term US treasurys is principally a domestic market.
For anyone genuinely curious about the bond market, who is puzzled as to why so many “experts” wrongly predicted that interest rates would rise this year, may I suggest you try reading some of Lacy Hunt’s quarterly reports at the Hoisington Management website (they’re free). Lacy is a brilliant economist (a former chief economist of the Dallas Fed) and a historian of US treasurys. His 5-page reports are like a grad-school level refresher course in economics and bond market. He was a lone voice in the wilderness back in the fall, predicting that the rise in interest rates last year was unsustainable, and that they would soon resume their decline (and he’s been nothing but right so far). He’s also on record predicting that the yield on the 30Y will fall below 3% this year, and that sometime over the next few years will eventually approach 2%.
I think you can still find that paper on the BCG website somewhere. Although I obviously disagree with their solution, the paper does a great job of summarizing the scope of the problem. And it's not just public debt that's the problem, it's private debt too. For anyone who happens to read the paper, keep in mind that the data on debt levels that the authors use are from the end of 2009 or 2010. The debt levels now are much higher than then, so the problem is even worse.
You underestimate the imaginations of government bureaucrats. There was a notorious paper issued by the Boston Consulting Group in September of 2011 called ‘Back to Mesopotamia’, in which the authors address the very issue you bring up (not only in the US, but also Europe, where combined private and public debt is even higher). The authors arrived at a stunning “solution” to the problem. They recommended massive debt restructuring for all public and private debt (in other words, partial reductions/defaults on a certain percentage of all existing debt). Since this would essentially wipe out the capital of the banking system, they also recommended a one-time wealth tax of up to 30% on all financial assets (to help recapitalize the banks), as well as additional taxes on real estate transactions and real estate income. In other words, you would wake up one morning, check on your Schwab account, and find that it had been reduced by 30%. It’s the stuff revolutions are made of, yet I’m sure some IMF types read that paper and thought, hmm, not a bad idea. Here’s a direct quote from the paper, in which they justify the tax on financial assets:
“Taxing existing financial assets would acknowledge one fact: these investments are not as valuable as their owners think, as the debtors (governments, households, and corporations) will be unable to meet their commitments.”
A chilling conclusion, and a good argument for holding at least a portion of one’s assets in physical gold…
ICF is the iShares REIT ETF. It's up 16% year to date, while ARCP is down 4%. Interest rates have fallen dramatically this year, so it makes sense that the average REIT would be up. So that's it for me, something is deeply wrong with ARCP...
Because the computer algorithms detected the words "cancels" and "dividend" in the same press release, and automatically started selling shares.
Double inverse bond funds are for kids. Why don’t you put everything you’ve got in TMV, the triple inverse bond fund. Be sure to come back in 3 or 4 months and tell us how you did.
You mean to say that some US bond managers think treasury yields are too low and interest rates will have to rise soon? In other news, water is wet and grass is green. You can find half a dozen articles every single day that quote US bond managers to that effect (and they were saying the same thing earlier in the year and they all have egg on their faces now). What was newsworthy in the article (and the main point) is the fact that Japanese investors, who have over two decades of experience investing in a market characterized by deflation, slow growth and low interest rates, think they are seeing the same thing happen in the US and are investing accordingly. It’s the “Japanization” of the US bond market…