Sunday, July 14, 2013

Linear Trend Failure of the Day

Click to enlarge.

Since I am a long-term believer in the long-term death of real yields theory, I am therefore willing to offer the following prediction.

Stick a fork in the chart's red trend line. It's over.

In my opinion, the peak was probably set on June 21, 2013 (the peak seen in the chart). That was one day after I made a purchase of a 19-year TIPS (with intent to hold to maturity). Thanks bond market! My patience has rarely been so rewarded. To think that I could have been stuck with 0.0% just 2 months earlier.

Those arguing that my linear trend failure prediction is wrong can mark October 16, 2013 on their calendars. That's the day Jeremy Siegel's mythical 3.5% real yields will arrive should the trend in red continue. I would not hold my breath for such an outcome though. At the very least, inhale extremely deeply before doing so, lol. Sigh.

Just opinions! This is definitely not investment advice.

Source Data:
St. Louis Fed: 20-Year Treasury Inflation-Indexed Security


Stagflationary Mark said...

Precious metals bugs should be encouraged by my prediction. Falling/stabilizing real yields over the long-term could provide some support to a relatively beaten up sector.

That said, I have no desire to own precious metals again as I believe they are still extremely expensive relative to things I can personally use (for example, toilet paper and canned goods).

Once again, just more opinions.

Stagflationary Mark said...

As a side note, I only got about 1.06% on the 19-year TIPS I purchased through my broker.

I think most of that can be attributed to the opaque pricing model of my broker when it comes to bonds. Fees are never mentioned. I am simply offered a rate that factors them in. In this case, I'd guess 0.1% to 0.2% lower (which adds up to a hefty sum over 19 years).

This is one reason I generally buy TIPS directly from the government. I'm not able to do that in my individual retirement account though.

Must keep Wall Street's wheels greasy lest the entire system fall apart! *heavy sarcasm*

In all seriousness, I make every effort to cut the middlemen out of my retirement planning. Heaven help those who trade in and out of bonds constantly. The opaque fees that generates are no doubt quite excessive.

dd said...

Reminds me of the generous of "one time only" offer received in this week's mail. Fidelity will render expert retirement advice for the for a mere 1.00% of the 401k balance (less if more suckers enroll) in addition to the outrageous sums paid for their absolutely abysmal fund "management" fees and 401k "management." Fees upon fees for supra-experts managing the mere experts. What could go wrong?

Stagflationary Mark said...


Wow! Let's let capitalism work. I'd be willing to undercut the 1% fee and offer some advice for free. You know, just to gain market share and what not.

Don't pay more than you can safely earn in 2 years for "one time only" "expert" financial advice!

Fees upon fees for supra-experts managing the mere experts.

That's an awesomely sarcastic quote, and sadly quite true in my opinion.

What could go wrong?

That's a great question and one that deserves an answer.

Other than being bled dry each and every year by excessive fees, I suppose we could also add in a nontrivial risk that the supra-experts and/or experts are no better than a pair of dice at predicting the future? Or worse, have a vested interest in taking excessive risk with other people's money?