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Category: Bonds

The Last Word on Bonds…For Now

The Last Word on Bonds…For Now

In Howard Marks latest memo, Time for Thinking, he makes the following observation: Lower interest rates increase the discounted present value of future cash flows and reduce the a priori return demanded from every investment. In layman’s terms, when the fed funds rate is zero, 6% bonds look like a giveaway, so buyers bid them up until they yield less (thus I believe 97% of outstanding bonds yield less than 5% today, and 80% yield less than 1%). (emphasis mine)…

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Is this the last hurrah for bonds?

Is this the last hurrah for bonds?

Recently, I have written quite a bit about the long-term return expectations for investing in bonds. See here, here, here and here. Spoiler alert: I don’t think it’s good. But long-term bonds this year have been quite an amazing story as the COVID pandemic has caused the Fed to take historically monumental actions. As a result, we’ve watched long-term Treasuries tear the roof off the market. For instance, a 20+ Year Treasury Bond ETF (name withheld for compliance purposes) is…

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Why Study Market History?

Why Study Market History?

While I am personally not an advocate of active investing, I follow the writing of many active managers. There are a few who have both a wonderful way with the written word and a track record to boot. Bill Miller of Miller Value Partners is one of them. I wanted to both make you aware of his work and point out a few insightful excerpts from his most recent 2Q 2020 Market Letter. Here are a few pieces of his…

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Where do we go from here?

Where do we go from here?

I have said before that the primary goal of successful retirement income investing isn’t growth OR income, but growth OF income. For people who are nearing retirement today, as we look over the horizon toward the thirty years that lie ahead, we must ask the question: Is it time to rethink the conventional wisdom of decades past? Historically, the popular answer for providing retirement income (though not necessarily the correct answer) has been bonds. During the past 30 years, this…

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Perceived Safety of Bonds

Perceived Safety of Bonds

Imagine standing in the middle of a field as a thunderstorm starts to roll through. About 50 yards away is a tall solitary tree. As someone who grew up in farming country, we grew up knowing that standing underneath the tree is the absolute worst thing we could do, even if it feels safer. The smart thing to do is to make yourself as small as possible by laying down on the ground, preferably farther away from the tree. At…

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The Fixed Income Conundrum

The Fixed Income Conundrum

Here’s where we are today: As I write this, the 10-year Treasury yield stands at about 0.94% and the 30-year Treasury stands at 1.65%. This creates a bit of a conundrum for fixed income investors. Let me explain. The Federal Reserve Board has a long-standing policy they have stated through the years of a target inflation rate of 2%. Whether or not they accomplish this goal, here is what they reaffirmed in 2016: The inflation rate over the longer run…

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