Goodbye Mr Bond

[DRumsfeld2000]

Good article in the FT.

http://www.ft.com/cms/s/0/7e5d2330-4...tml?ftcamp=rss

[chedir007]

Re: Goodbye Mr Bond

Drumsfeld2000,


Any comments on this debate featuring Grant and David Rosenberg?

http://www.grantspub.com/about/jim.cfm


- Rosenberg is bullish regarding bond prices.

- As EJ noted recently, here at iTulip we are preparing to exit Treasuries (bond price bearish..)

[lsa420]

Re: Goodbye Mr Bond

Drumsfeld2000,


Any comments on this debate featuring Grant and David Rosenberg?

http://www.grantspub.com/about/jim.cfm


- Rosenberg is bullish regarding bond prices.

- As EJ noted recently, here at iTulip we are preparing to exit Treasuries (bond price bearish..)

Thanks for posting chedir - I look forward to watching this debate. Upon completion, I will offer my unsolicited opinion.

[chedir007]

Re: Goodbye Mr Bond

Isa420,

Any comments welcome and from other Itulipers as well- I was soliciting from DRumsfeld since I saw the link.

I am trying to understand this space (US bond yields go up or down) and its possible impact to gold.

I was very surprised to learn that there are some conflicting views - I thought it generally agreed shorting treasuries was the next sure thing.....

One of David Rosenbergs premise is that the US baby boomers will start shifting their wealth into fixed income (bonds) and this will drive yields down (next 3-10 years).

[lsa420]

Re: Goodbye Mr Bond

Isa420,

Any comments welcome and from other Itulipers as well- I was soliciting from DRumsfeld since I saw the link.

I am trying to understand this space (US bond yields go up or down) and its possible impact to gold.

I was very surprised to learn that there are some conflicting views - I thought it generally agreed shorting treasuries was the next sure thing.....

One of David Rosenbergs premise is that the US baby boomers will start shifting their wealth into fixed income (bonds) and this will drive yields down (next 3-10 years).

I don't know anything about Rosenberg, except that after watching this video, I do know that he's a Keynesian. Does anyone know what he said around January 2008? I wonder if he predicted things like EJ?

Since he's a Keynesian, I'm guessing he was an equity bull until about September 2008. Shortly thereafter (Jan 09, perhaps?), he turned mega deflationist, equity bearish and t bond bullish. He's been holding the line ever since, despite all evidence to the contrary. But since this is speculation on my part, I could be way off. And he could be right.

His examples of the US in the 1930s and Japan in the 1990s aren't good comparisons to today, as Grant points out. I will say that I don't buy into his premise that deficits have no impact on interest rates. He points out a couple of random examples but that doesn't prove much to me in terms of forecasting possible future rate increases. The problem is the US has $12T in debt, plus the bailout debt (GSEs, etc), plus unfunded liabilities. And we now run $1T+ deficits for the foreseeable future. And we have a fairly large trade deficit. How much government bond supply is coming on the market in the next 5 years? Considering these factors does not make me feel very bullish.

Maybe Rosenberg is spot on and there will be a massive shift of retirement income into bonds over the next decade and that will soak up all the issuance with no hiccup. I hope he's right....but I'm not going to bet my retirement on it!

[cjppjc]

Re: Goodbye Mr Bond

I was very surprised to learn that there are some conflicting views - I thought it generally agreed shorting treasuries was the next sure thing.....

It was the next sure thing several times.

[DRumsfeld2000]

Re: Goodbye Mr Bond

chedir007,

Thanks for the link.

I have to admit that I have not come to any clear decision regarding bonds. I probably err more on the side that higher interest/spreads may be demanded as government debt rises. Greece is an example of this. I think that this will also affect countries such as the UK, although much of the UK debt currently has a maturity of around 14 years.

The US is another matter with its world economic domination. However, debt levels in the US will I believe keep on rising. If you consider that Obama has projected US GDP growth until the end of his presidency at over 4%, whilst at the same time increasing US debt, I have concerns that the bond market will not support this as I cannot see GDP growth at this rate with unemployment and debt levels so high. I also have reservations as to whether or not the US can ever bring its debt mountain under control or will it have to monetise it.

Then there is the question of inflation or deflation. Again I am currently a deflationist with expectations of higher inflation in about two years. This is bond supportive short to medium term. It is interesting to note that US bonds are increasingly being sold for shorter duration times. Is this because the bond market is also nervous of US debt?

So in conclusion it all depends on whether the bond market believes in government policies. I think that this is inconclusive at the moment. Over to you.

[chedir007]

Re: Goodbye Mr Bond

Just an update I got today:

Like ISA420 mentioned, Richard Russell also thinks boomers retiring and shifting their wealth to bonds is a risky scenario. He points to the technical data and facts- Treasury Yield charts - which is showing high probability "head and shoulders pattern?" of rates going higher.

And this, he says, points to "deflation" which results in additional stimuli, spending etc by FED, admin.

[ASH]

Re: Goodbye Mr Bond

Just an update I got today:

Like ISA420 mentioned, Richard Russell also thinks boomers retiring and shifting their wealth to bonds is a risky scenario. He points to the technical data and facts- Treasury Yield charts - which is showing high probability "head and shoulders pattern?" of rates going higher.

And this, he says, points to "deflation" which results in additional stimuli, spending etc by FED, admin.

I haven't looked into this in detail, but my belief is that the Boomer argument may be over-stated, given the distribution of wealth. The Boomers as a generation may have a lot of money, but that money isn't uniformly distributed. Generally, you shift money out of stocks and into bonds upon retirement in order to reduce volatility of the assets you depend upon for your living income. But lets suppose you're very wealthy, and you live mainly by your investment income rather than any salary you may collect. Perhaps then the motivation to rebalance your portfolio at retirement is lower -- you already depend upon your portfolio for the majority of your income, so why rebalance? If the distribution of wealth in the Boomer generation approximates that of society as a whole, then most of that wealth is concentrated in the hands of a small number of individuals... and those individuals probably won't need to rebalance their portfolios upon retirement. So, there will be a lot of people with a little money shifting from stocks to bonds, and a few people with a lot of money not doing much different. That will likely mute any generational effect.

Now... does anyone have any actual data on the distribution of Boomer investment wealth (i.e. securities rather than house)? Because I'm talking out of my ass here.

[lsa420]

Re: Goodbye Mr Bond

Now... does anyone have any actual data on the distribution of Boomer investment wealth (i.e. securities rather than house)? Because I'm talking out of my ass here.

Haha. That's funny ASH, I was reading your post, I was in total agreement, and all the while was thinking - this portfolio rebalancing act by boomers seems to be mostly speculation by those who "claim it". Is there any data on this? As chedir and I talked about earlier, Rosenberg mentioned this during his speech, but the pp slides were not visible, so I couldn't see any of his backup data or charts.

In any case, I'm not even sure how a massive generation specific portfolio rebalancing would be measured, especially before the fact. Perhaps some Boomers on iTulip could chime in as to their thoughts and what they and their peers are up to.

And by the way, I don't have any exact numbers, but I know that PIMCO has significantly reduced their MBS and treasury holdings. Did anyone read Bill Gross's Ring of Fire article? I believe it was posted on iTulip and I think he addressed the issue somewhat. I don't have the link.

If an investor is looking for yield, earning less than 5% on a 30 year treasury is pretty weak by any standard. And let's be honest - how much further price appreciation can we really expect from US bonds?? Is the 30 year yield going to drop to 3% again? Maybe so, but the chances of a drop in price over 30 years seems an extremely likely event to me.

Considering you can buy, for example, some Canadian oil and gas trusts that have 6+ dividend yields, low debt and solid (real) assets, I don't see the point in holding, much less buying treasuries. Unless you think that paper $s are more valuable, especially going forward, than natural resources.

[charliebrown]

Re: Goodbye Mr Bond

I agree. Even if 10y rates fall to 3%, on a bond with 5 - 10 yr duration that is only going to give you a 5 - 10% increase in price, and that is only if you sell your bond before it matures. In which case you will be buying the 3% bond.

Most of my senior friends are living cofortable but low brow life styles.
The true core expenses of living, housing, trans, medicine, utilities
are rising in price much faster than prices as a whole.
Banana Ben by keeping interest rates low are squeezing these folks
who generally derive a good portion of their income from CDs.

How does all the bama care stuff effect senior's health care costs?
Will they have to keep more cash for medical bills? If the seniors are selling stocks, who is buying? The twenty somethings with 12% unemployment?
(I just pulled that out of my ass) I have seen the the high unemp rates in the 20yr demographic in the BIS data. Just can't remember. (senior moment)