Do you think this article about bond funds has validity? (cash, Fidelity)

[Maryjane55us]

Here's the link from CNBC (not that I always agree with them):

Bye-Bye Bonds? What Fund Flows Say About 2013

[mathjak107]

i think like all predictions ,no one knows.

bill gross thought treasury bonds were headed for the crapper in 2010 and dumped them . it was his biggest mistake , they were the best performing asset class.

bill gross predicted for 2012 equities were going to do low single digits at best. they did double digits.

i am not one who believes in predictions. like steering a big ship i believe in nudging my portfolio to fit the bigger picture in real time as it unfolds.

[Willy702]

At some point the flow out of bond funds and bonds in general will be breathtaking. But you could go broke predicting it happens until it actually does happen. I'd just avoid predicting it, but be ready for it when you get some confirmation it is indeed happening.

What will be more interesting is how politicians and talking heads read into bond rates going up. There will be all kinds of talk about hyperinflation coming, that the US is toast, that the Fed is going to be insolvent and on and on. It will be a bunch of bunk though, fact of the matter is what goes up must come down at some point. It will be a long overdue correction and a necessary step to get the country and the world back on the path to normalcy and sustainability. However in today's sound bite and instant overreaction timing some will try to convince you a lot more is going on. After all 30 year bonds would be pretty much in a state of normalcy at 5-6%, basically implying in normal times about 3% inflation and 2-3% risk premium. But if the bond market goes there in 6 months time it will cause some chaos and significant losses making the move from the current 2.9%.

[TuborgP]

Originally Posted by Maryjane55us

Here's the link from CNBC (not that I always agree with them):

Bye-Bye Bonds? What Fund Flows Say About 2013

A lot of fund managers have been coming on CNBC and Bloomberg saying the same thing. The big thing is that they are most often talking about treasuries and high yield. And a number have begun to tell their clients to bail out of domestic high yield funds. On the other hand they are encouragin non domestic bond funds especially high yield emerging market and yes even Europe for some. Just as derivatives became a dirty word associated with the housing crash PIK bonds are becoming a dirty word for the high yield bubble. The big boys are dealing with other folks money and making their own in the process.

[mathjak107]

to ofton the media concentrates on a point and it really is much ado about nothing. ill bet pik (pay in kind) is not and will not be a problem with most well run bond funds at the major families..

[TuborgP]

Originally Posted by mathjak107

to ofton the media concentrates on a point and it really is much ado about nothing. ill bet pik (pay in kind) is not and will not be a problem with most well run bond funds at the major families..

That is there exact point. The Fidelities and TRowe Prices are one thing. TRowe Price High Yield is closed and I am grandfathered in. However many other high yield bond funds are getting money and need to do something with it so the risk they are taking is to often exeeding the rewards with yields being as low as they are. There was more money pouring into high yield funds and the threshold companies were using as a ratings floor to buy from was/is being lowered. I find it interesting that the newsletter sold all of the Fidelity High Yield to buy New Markets which so many on CNBC and Bloomberg are advising. I saw the OP article when it was first published and it corresponded with discussion on the air that day.

[mathjak107]

in my opinion the move to international was more a move of opportunity then of risk . they still have the highest buy rating on it . if there was a risk it would have been downgraded.

i believe there is still plenty of cushion in high yield to warrent the risk. fidelity high yield is at over 6% today. thats almost 5x the intermediate treasury rate or 500x or so the return on a money market..

if you don't like the moves it makes you can always bail and still rack up more then cash or treasuries in the period of time before there is any real deterioration.

the real issue is international balance sheets have been improving and there is more opportunity elsewhere.

[mathjak107]

Originally Posted by TuborgP

A lot of fund managers have been coming on CNBC and Bloomberg saying the same thing. The big thing is that they are most often talking about treasuries and high yield. And a number have begun to tell their clients to bail out of domestic high yield funds. On the other hand they are encouragin non domestic bond funds especially high yield emerging market and yes even Europe for some. Just as derivatives became a dirty word associated with the housing crash PIK bonds are becoming a dirty word for the high yield bubble. The big boys are dealing with other folks money and making their own in the process.

how many fund managers and predictors got on cnbc and said buy treasury bonds the last decade. not many i know of. so why should they be any more correct now ?

most have been calling for the demise of the bond market the last decade and have been wrong over and over.

but you know what is interesting is since bonds and short term rates march to different drummers only once since 1973 did time short term rates move up by 1% or more and the bond markets turned in a negative return that year. it was 1994 when that happened.

the fed raising short term rates eventually may have little effect on the longer end just as it has acted for more then 30 years now.

the longer end will only react and drop when investors say it is time, not the fed increasing the fed funds rate.

Only in 1994 did the federal funds rate rise by more than 1 percent and intermediate bonds lose money.

now you can say over the last 40 years interest rates have fallen and that is true . but what is surprising is there were almost as many years when the fed funds rate was increased by 1% or more trying to raise rates as when the fed decreased the fed funds rate trying to lower rates .

yep the fed raised rates for 17 of those years yet we only had one year from 1973 to now where the intermediate bond index had negative returns.

that is the amazing part. the fed raised rates over that time frame on the short end yet the longer end just did its own thing .


the point is all these predictors are very bad at predicting and the less someone pays attention to these talking heads on cnbc the better.

monitoring things as they unfold in real time can be hard enough without trying to call things before they are on the radar.

the point is we keep hearing about what will happen when the fed raises rates but the last 40 years had the fed raising rates 17 times more then 1% and the bond market still had only one loosing year.

that little tid bit was realized by larry swedroe.

[TuborgP]

Originally Posted by mathjak107

how many fund managers and predictors got on cnbc and said buy treasury bonds the last decade. not many i know of. so why should they be any more correct now ?

most have been calling for the demise of the bond market the last decade and have been wrong over and over.

but you know what is interesting is since bonds and short term rates march to different drummers only once since 1973 did time short term rates move up by 1% or more and the bond markets turned in a negative return that year. it was 1994 when that happened.

the fed raising short term rates eventually may have little effect on the longer end just as it has acted for more then 30 years now.

the longer end will only react and drop when investors say it is time, not the fed increasing the fed funds rate.

Only in 1994 did the federal funds rate rise by more than 1 percent and intermediate bonds lose money.

now you can say over the last 40 years interest rates have fallen and that is true . but what is surprising is there were almost as many years when the fed funds rate was increased by 1% or more trying to raise rates as when the fed decreased the fed funds rate trying to lower rates .

yep the fed raised rates for 17 of those years yet we only had one year from 1973 to now where the intermediate bond index had negative returns.

that is the amazing part. the fed raised rates over that time frame on the short end yet the longer end just did its own thing .


the point is all these predictors are very bad at predicting and the less someone pays attention to these talking heads on cnbc the better.

monitoring things as they unfold in real time can be hard enough without trying to call things before they are on the radar.

the point is we keep hearing about what will happen when the fed raises rates but the last 40 years had the fed raising rates 17 times more then 1% and the bond market still had only one loosing year.

that little tid bit was realized by larry swedroe.

That point has been made but as they also say will this be the year and does Joe and Mary Normal want to get caught on the wrong side of it. Most bubbles pop long after their predicted date and many have gotten out but there are those left behind. Most at risk are Joe and Mary normal who rarely check their statements and just assume all is ok. It is not active investors most at risk but passive investors who just heard bonds assumed full safety and don't understand how the value of works.