Bonds!

[Gregmal]

Still waiting for all that inflation that was a certainty to show up….should I hold my breath? 

[Marco Van Basten]

1 hour ago, gfp said:

 

 

I know you guys like to make fun of me with my 5% treasury trade but I went looking for 5% government paper and the cupboards were bare!  They stopped offering it!

 

Meanwhile I have taken the same 5% out of ZROZ like half a dozen times by now.

 

 

Have you looked at long term munis?  They seem to be cheap relative to treasuries

[cubsfan]

4 hours ago, gfp said:

And these 27 year zero coupons are more volatile than the S&P many days!

 

That's a shocker. I thought bonds were for stability!

 

[gfp]

2 hours ago, cubsfan said:

 

That's a shocker. I thought bonds were for stability!

 

 

A long dated zero coupon strip is pretty volatile.  A 7 year coupon at par is pretty stable 

[Dalal.Holdings]

8 hours ago, thepupil said:

 

I don't really think the 30 yr = only 80 bps > t-bills is the right way to think about it. the 30 yr will have a VERY different return than t-bills on a 1,5,10 year time horizon and that approaches 4.8%/yr as you stretch the horizon to 30 yrs. 

 

at +-200 bps ending yield assuming reinvestment at 4.3%

 

30 yr will return b/w: 

-21% and 40%/yr on a 1 yr basis

0.7%/yr and 10%/yr on a 5 yr basis

3.3%/yr and 6.6%/yr on a 10 yr basis

 

I think it's helpful to think of long term fixed income on a total return basis at different horizons than the maturity. 

 

1 yr

 

 5 yr

 

10 yr

The problem is that +/- 200Bps is not symmetric in probability terms. Interest rates can only go down to zero (or slightly negative), so there is a hard lower limit. Meanwhile, there is no real upper limit (rates peaked around 18-20% in early 1980s, which is +1300 bp from now--meanwhile, interest rates will never go -1300 from where we are today to -9%, so there is a clear asymmetry).

 

Furthermore, if the currency you are earning interest in is devalued, you need to subtract that from your returns. If you hold equities or some other asset in that currency, at least it will appreciate in proportion to the currency devaluation, but the bonds will not (if you are a borrower via a mortgage though, the price of the house securing it appreciates with currency devaluation (and you get levered upside on your equity stake) while the mortgage remains fixed which is why a mortgage is a great instrument for the borrower in this scenario and terrible for the lender).

[Libs]

How come I hear so little about TIPS around here? No one fears inflation?

[Gregmal]

7 minutes ago, Libs said:

How come I hear so little about TIPS around here? No one fears inflation?

Nope. 

[thepupil]

27 minutes ago, Dalal.Holdings said:

 

The problem is that +/- 200Bps is not symmetric in probability terms. Interest rates can only go down to zero (or slightly negative), so there is a hard lower limit. Meanwhile, there is no real upper limit (rates peaked around 18-20% in early 1980s, which is +1300 bp from now--meanwhile, interest rates will never go -1300 from where we are today to -9%, so there is a clear asymmetry).

 

Furthermore, if the currency you are earning interest in is devalued, you need to subtract that from your returns. If you hold equities or some other asset in that currency, at least it will appreciate in proportion to the currency devaluation, but the bonds will not (if you are a borrower via a mortgage though, the price of the house securing it appreciates with currency devaluation (and you get levered upside on your equity stake) while the mortgage remains fixed which is why a mortgage is a great instrument for the borrower in this scenario and terrible for the lender).

I don’t disagree with anything you said, but I still like to own some LT bonds. If I own $100/$200/$300k of 30 years, I’m still net duration/ “bonds” via my mortgage (which off top of my head is $700k notional and like $500k PV).
 

You just want to be more net short than I  do.

 

i don’t really see the types of rates you’re talking as likely because we are far more indebted. When rates went to the teens we had like 30% debt to GDP. If we did that today at our debt load, it’s full on turkey/VZ time. Could happen but I’m more worried about civil unrest than my single digit bond allocation that will effectively be worthless.
 

I worry more about japanification/eventual deflation as that would hurt many of the assets I own (hence why I own some bonds…but not enough to really protect me)

[Marco Van Basten]

53 minutes ago, Libs said:

How come I hear so little about TIPS around here? No one fears inflation?

TIPS are great, provided that the government does not miscalculate inflation.   I have my doubts as to how accurate government inflation statistics are given what happened to housing prices, education costs, healthcare, et all, even refrigerators that used to last 70 years now last 10 because of electronics (how do you adjust for the fact that the useful life is down by 83%), yet somehow inflation is 2%...

[Gregmal]

8 minutes ago, Marco Van Basten said:

TIPS are great, provided that the government does not miscalculate inflation.   I have my doubts as to how accurate government inflation statistics are given what happened to housing prices, education costs, healthcare, et all, even refrigerators that used to last 70 years now last 10 because of electronics (how do you adjust for the fact that the useful life is down by 83%), yet somehow inflation is 2%...

Haha yea I just finally had to replace a 40 year old dryer at one of my rentals. So exciting knowing the new one will last 5 years!

[Spekulatius]

On 5/25/2025 at 3:06 PM, Gregmal said:

Look at it in an extreme. A dollar in the roaring 1920s bought you a few acres of land in South Florida. Today a dollar doesn’t even get you through a toll on the Florida Turnpike.
 

Short term, it just depends on your skills as a trader. The reason it’s a poor bet for macro folks looking to invest, is that much of the opportunities are rather fleeting. Look at GFC, Covid, rate hike hysteria, most of these things start resolving in the markets within what’s considered a short term(less than 12 month) timeline. Whereas when you’re evaluating macro, you’re generally thinking in terms of events that take much longer to play out. So I don’t know many, whom in March, April, May 2020 whom were bearish pre COVID, that were backing up the truck a few months later. Look at how bearish folks here were in late 2022, and absolutely in early 2023. 
 

Essentially the more variables you try to predict the harder it gets; or the more decisions your investing strategy requires you to make, the more chances you have to fuck up. If you just find something with a fundamental advantage and a moat, and manage the position, trading around the core I call it, it’s so much easier. Especially when longer term it comes to tax management. Most short term traders fail to mention how obscene the tax bill is. One of Berkshires greatest advantages has been the deferral of taxes on massive gains on many of their equity holdings. 

Well, the roaring twenties led to a boom in Florida real estate too and it crashed before 1929 in 1925:

https://www.thebubblebubble.com/florida-property-bubble/#:~:text=Property prices fell under their,holdings to avoid going bankrupt.

[Spekulatius]

34 minutes ago, Gregmal said:

Haha yea I just finally had to replace a 40 year old dryer at one of my rentals. So exciting knowing the new one will last 5 years!

If you are lucky,  my Whirlpool died in my new 2023 house 2 weeks after I moved in. I recommend LG, they actually produce many of them in Kentucky while Whirlpools low end stuff is made in Mexico. Don’t even bother with Samsung.

[Marco Van Basten]

15 minutes ago, Spekulatius said:

If you are lucky,  my Whirlpool died in my new 2023 house 2 weeks after I moved in. I recommend LG, they actually produce many of them in Kentucky while Whirlpools low end stuff is made in Mexico. Don’t even bother with Samsung.

You don't like Miele or Bosch?

[Blugolds]

24 minutes ago, Spekulatius said:

If you are lucky,  my Whirlpool died in my new 2023 house 2 weeks after I moved in. I recommend LG, they actually produce many of them in Kentucky while Whirlpools low end stuff is made in Mexico. Don’t even bother with Samsung.

 

Speed Queen for washer/dryer…Bosch makes the best dishwashers..

[Gregmal]

Yea WHR is garbage. I bought a dishwasher for my rental and it blew out after 51 weeks, thankfully still under warranty but you get what you pay for. They do have massive contracts with all the big builders through. Buy the extended warranties on those turds. For personal stuff I only buy Bosch. 

[73 Reds]

11 hours ago, Spekulatius said:

If you are lucky,  my Whirlpool died in my new 2023 house 2 weeks after I moved in. I recommend LG, they actually produce many of them in Kentucky while Whirlpools low end stuff is made in Mexico. Don’t even bother with Samsung.

Don't buy LG refrigerator/freezers - went through 2 in less than 3 years.  Never again.  

[73 Reds]

11 hours ago, Spekulatius said:

Well, the roaring twenties led to a boom in Florida real estate too and it crashed before 1929 in 1925:

https://www.thebubblebubble.com/florida-property-bubble/#:~:text=Property prices fell under their,holdings to avoid going bankrupt.

I think that was before something called "air conditioning".  

[Dalal.Holdings]

https://www.wsj.com/finance/jpmorgans-jamie-dimon-predicts-crack-in-the-bond-market-citing-u-s-fiscal-mess-9d90cb3f?mod=hp_lead_pos1

 

Quote

“You are going to see a crack in the bond market, OK?” Dimon said during an interview at the Reagan National Economic Forum in California. “It is going to happen.”

 

Quote

 

Without substantial changes, the U.S. is headed for a reckoning, Dimon said. “And I tell this to my regulators…it’s going to happen, and you’re going to panic,” he said. “I just don’t know if it’s going to be a crisis in six months or six years.”

Quote

 

“If we are not the pre-eminent military and the pre-eminent economy in 40 years, we will not be the reserve currency,” he said. “People tell me we are enormously resilient. I agree with that. I think this time is different. This time we have to get our act together and do it very quickly.”

 

[wabuffo]

I asked AI for an example of an evergreen bearish-sounding economic headline:

 

AI Response:

"Jamie Dimon issues economic warning!"

 

 

Bill
 

Edited May 31, 2025 by wabuffo

[Dalal.Holdings]

16 minutes ago, wabuffo said:

I asked AI for an example of an evergreen bearish-sounding economic headline:

 

AI Response:

"Jamie Dimon issues economic warning!"

 

 

Bill
 

 

Even if Jamie is being alarmist, it's probably a good thing because he knows exactly who is listening whenever he opens his mouth:

 

https://www.wsj.com/livecoverage/stock-market-trump-tariffs-trade-war-04-09-25/card/trump-watched-dimon-interview-on-fox-before-deciding-on-tariff-pause-3xJmTRvWCOLsnvsmAJwL?gaa_at=eafs&gaa_n=ASWzDAhVJQNmG54YIa9zQOc-yT-m9vTPJ9TPytI6wbZBxIb1tuLvmRzJDx17mNPsDes%3D&gaa_ts=683b42ea&gaa_sig=urualXYipkFj-5wJZfEqUgbhmlDpvbIWK8xluGSUcgtHZLwYf3PVi1vRtBc-67HPc5-x2N5IDtVPDlaD796C4g%3D%3D

 

https://www.independent.co.uk/news/world/americas/us-politics/chase-bank-ceo-recession-trump-interview-b2730383.html

[Dalal.Holdings]

I'm curious though--on one hand you have Warren Buffett and Jamie Dimon being "alarmist" about the unprecedented U.S. fiscal situation and on the other you have @wabuffo saying not to worry and it's the roaring 20's all over again. It seems the board has gone with the latter instead of the former two individuals...

 

We'll see who's right, I guess.

 

(Of course, I hope @Wabuffo is right and we prosper, but hope is not a viable strategy for me)

 

Edited May 31, 2025 by Dalal.Holdings

[Blake Hampton]

1 minute ago, Dalal.Holdings said:

I'm curious though--on one hand you have Warren Buffett and Jamie Dimon being "alarmist" about the unprecedented U.S. fiscal situation and on the other you have @wabuffo saying not to worry and it's the roaring 20's all over again. It seems the board has gone with the latter instead of the former two individuals...

 

We'll see who's right, I guess.

 

@wabuffo's argument was likely sound before this stupid trade policy took place; the thing about the 20s is that it still ended in a depression.

[Blake Hampton]

Quote of the decade:

"Thinking throughout the US is running at a special needs Kindergarten level."

[wabuffo]

the thing about the 20s is that it still ended in a depression.

 

Another thing about the (19)20s was that the US Treasury ran a multi-year surplus and "paid down" Federal debt.   Trying to reduce Treasury debt always leads to a depression, I say.

 

No one should listen to me about macro policy, but no one should listen to Buffett or Dimon either (who are no better than a coin flip on their economic predictions).  Both have a an exceptional circle of competence - Buffett on investing, Dimon on banking - but macro isn't in that circle of competence.

 

Bill

Edited May 31, 2025 by wabuffo

[Dalal.Holdings]

10 minutes ago, wabuffo said:

No one should listen to me about macro policy, but no one should listen to Buffett or Dimon either (who are no better than a coin flip on their economic predictions).  Both have a an exceptional circle of competence - Buffett on investing, Dimon on banking - but macro isn't in that circle of competence.

 

Bill

 

How about Stan Druckenmiller? Is macro not in his circle of competence either ?

 

https://www.cnbc.com/2023/11/01/stanley-druckenmiller-says-government-needs-to-stop-spending-like-drunken-sailors-cut-entitlements.html

 

https://www.bloomberg.com/news/articles/2023-05-02/druckenmiller-warns-us-debt-crisis-worse-than-he-imagined

 

https://grafa.com/news/cryptocurrencies-stanley-druckenmiller-warns-of-us-debt-crisis-308016

 

Quote

"To me, we have a reckoning, but I don't know the time when that's going to take place," emphasised Stanley Druckenmiller during a conversation with Nicolai Tangen, CEO of Norges Bank Investment Management.

 

Druckenmiller, known for his successful tenure at Duquesne Capital, highlighted that the U.S. dollar’s role as the world’s reserve currency has temporarily cushioned the nation’s debt burden by maintaining trust from global creditors.

 

However, he noted that this situation is unsustainable and could lead to a crisis in the near future, possibly between late 2025 and early 2026.

 

Quote

Stanley Druckenmiller: Why we're spending like we're still in the great depression is beyond me

 

Edited May 31, 2025 by Dalal.Holdings