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I know it is only January but I want to get my vote in early!
January 23, 2015
Bond market madness: How to profit from it
Can't you just feel what's coming based on the headline? Strap in folks, this is going to be a rough ride!
“We know higher rates are coming and it will probably be this year,” but what the market can’t predict is when. “Are you going to be able to time the bottom exactly? Who knows?”
We most certainly don't know higher rates are coming. That's what makes it even harder to time. And when I say we I really mean him and me. We, as a group, seem very divided about the future of long-term interest rates over complete business cycles. Further, I would never claim to know the future. I can only strongly suspect. Perhaps it stops me from investing in sure things, you know, like when everyone just sort of agrees that the only direction possible is up.
If everyone truly knows that long-term interest rates can only go higher from here then interest rates would already be higher. I, for one, would have sold all my long-term TIPS. Of course, that would be a problem in a world where nobody was buying them and everyone was selling. Go figure.
Another option, suggests Lydon, can be applied through The Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) which shorts the treasury and is long high yield. “This actually has a short duration, very short, but a yield over 5%, kind of a neat scenario if your are looking at the treasury portfolio and saying I am not really that comfortable at this period in time because we know Yellen is going to be hiking rates.”
We do not know that Yellen is going to be hiking rates just because that's what she likes to talk about any more than we had proof that there was no housing bubble just because the lack of a housing bubble was all Bernanke wanted to talk about. Talk is cheap.
Further, I shall pass on profiting off the bond market madness if it involves shorting treasuries and loading up on high yield junk, no matter how "neat" and "comfortable" that sure thing advice seems to me.
This is not investment advice. We know this. And how do we know this? We don't. Yeah, I just told a lie. I know it isn't investment advice but how could I know that you know? I therefore cannot speak for you. Sorry about that. Perhaps his hubristic tone is infectious.
If there's one thing we do know, it's that this sarcastic post was a joy to write. Oops. I did it again. Now we're thinking about Britney Spears, aren't we? It's uncanny how we can get inside our heads like that. We learned from the hubris master! Go us! ;)
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
-
At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
17 hours ago
13 comments:
I actively detest the term 'business cycle', considering it an artifact of our pre-Information Age past.
The ball got rolling with telegraphs and telephones in the 19th century. Then data processing on mainframes and minicomputers in the postwar. Then PCs in the 70s, VisiCalc, Lotus 123, and Excel in the 80s, the internet in the 90s, and iPhones now (j/k).
The recessions in my lifetime weren't business cycles, they were credit cycles.
In the 70s the Fed was fighting a losing battle with debt-fueled inflation, beat it back with the Volcker Cure in the early 80s, then we leveraged up in the 80s with a brief breather 1990-92, closely integrated Mexico and China into our economy in the 1990s, took our second breather 2000-2002, then leveraged ourselves out of the continuing collapse of the middle class thanks to the housing boom/bubble of 2003-2007.
http://research.stlouisfed.org/fred2/graph/?g=Yic
per-capita consumer debt / average hourly wage
So where in the credit cycle are we? And the problem that changing 'business cycle' to 'credit cycle' is that it transforms the cure -- higher interest rates -- into something with vaguely almond-like odors.
Modified the above graph:
http://research.stlouisfed.org/fred2/graph/?g=Yiz
real per-capita consumer debt
I see 6 phases -- the Burgeoning Boomer Natural Uplift of the late 1970s, the Volcker Suppression of Same, the Reagan Rebound To Trend, The Late 1990s Clinton Pick-Up, The 2001-2007 Bush Rocket Into Orbit, The Obama Reentry.
So, after all that, we're basically sitting on the long-term trend from the Carter Era.
http://www.lyricsfreak.com/t/talking+heads/road+to+nowhere_20135072.html
Troy,
I agree that credit plays a huge role now but it isn't the only thing.
We pretend thst the growth from a continually fslling unemployment rate is sustainable and csn be extrspolated into the distant future. It csn't and won't.
At some point growth will slow based on the simplist math if nothing else, and when it does ee'll all be yold how unexpected it is and how nobody could have seen it coming, again.
I'll believe the "business cycle" is truly dead when the unemployment rate is flat and does not look like the chart of a beating heart. That's my opinion and I'm sticking with it. Sigh.
Ee'll all be yold is just my iPhone's way of ssying it cares, lol. :)
along with the heartbeat there was a garrote:
http://research.stlouisfed.org/fred2/graph/?g=YiM
(operative term being 'was')
I can only strongly suspect.
That's the best any of us can do. There are no absolutes or guarantees.
That said, it helps to understand how the system actually works. And it ain't no free market system.
We know that there has been an historic amount of rent extraction and financial fraud. And the same wealth extractors are still at the helm.
Higher rates? Not likely in my book. Lower rates seem way more likely to me. Weimar or Japan? Easy choice for me. In fact, it's been an odds makers dream!!!!! And the best is yet to come!!!! Crazy talk, I know. Or do I????
Troy,
Garrotes? Heads on pikes? Homeownership (under)waterboarding? It's all good, lol. Sigh.
mab,
Higher rates of heckling pillars of retail strength I could believe but... not my style!
It might be our style though! What do we lnow?
Some (inside) jokes never get old to me. I'll probably be mumbling "not my style" on my deathbed someday. I hope that's the case anyway. Will mean I'll exit the world with a smile, lol.
I'll probably be mumbling "not my style" on my deathbed someday. I hope that's the case anyway. Will mean I'll exit the world with a smile, lol.
Yes, it'll be like grave-dancing on your own grave!
mab,
I'm in grave danger of embarrassing myself anytime I dance so that would definitely be the way to go! Hahaha! :)
I'm in grave danger of embarrassing myself anytime I dance
I hear you.
I can't sing or dance. There's like four or five states where I'm legally barred from singing happy birthday. It's for good reason too. No joke.
mab,
Perhsps we should form a duet singing team for money. You know, for malls that need all the customers to leave st closing lime, lol.
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