Who is mess'in with your bond funds and why?

catch22

A follow-up to the August 13 Funds Boat and bond yields. The below is for the first 2 days of this week and some bond funds/eft's/indexes are working hard to shave 1% away this week.

If you all have any magical ideas or inside clues as to why and who is moving around great sums of monies to cause this affect, please let us know. And we are talking about massive money shifts in this area.....

'Course, the side thought is where is money moving to these days? I still do not find much supporting data for a grand awakening of global economies. Some large organizations either know something special, or a big setup is in the offering.

Well, anyway; keep an eye on your bond fund(s) movements.

And that VIX thingy.....low, low, low

--- AGG - .23 %
--- BND - .20 %
--- LQD - .70 %
--- SHY - .08 %
--- IEF - .50 %
--- TLT - 1.6 %
--- EDV - 2.6 %
--- TIP - 1 %
--- STPZ - .28 %
--- LTPZ - .90 %
--- FINPX - 1 %
--- ACITX - 1 %
--- BOND + .15 %
--- FBNDX -.46 %
--- PTTRX - .26%
--- PONDX + .19 %
--- PLDDX - .06
--- FTBFX - .40 %
--- DGCIX - .25 %
--- DPFFX - .26 %
--- FSICX - .20 %

Time for this fella to sleep on this data..........
Regards,
Catch

scott

I think money has been moving into equities at a moderate pace (if it's money moving out of fixed income and into equities, something of a contrarian indicator), although quite honestly, I've been looking around a lot and am not finding what I would call "values" and many things I looked at seemed richly valued. Some European and Asian equities seem better/much better values, but eh... I feel like there will be a better entry point. There are a couple of things I own I'd consider adding to, but again, I just feel like there will be a better entry point.

However, fixed income has done very well over the short-term and long-term, and I think there's going to be periods of underperformance (and possibly long periods) down the road. I think one has to have some exposure to equities with a view towards having some sort of inflation protection.

The other issue that I have with fixed income is when e-v-ery-one needs something (yield), I tend to think that that ends not well. However, that can take way longer than anyone could think.

Do I think things are great? No. I think you're also seeing a number of momentum stocks that have done terribly (Starbucks, Chipotle, Coach, etc) recently, as well. A lot of earnings reports haven't seemed that great. The VIX is quite low.

Still, I remain largely long individual equities and a set of funds (commodities, alternative funds such as AQR Risk Parity and Marketfield, etc). I am lightly hedged with index ultrashorts. I continue to like the globally diversified/multi-asset AQR Risk Parity (AQRNX) quite a bit.

BobC

It is interesting that TBT (ProShares UltraShort 20+ Year Treasury is up 2.6% in the last week, and up almost 4% for the month. A sign of things to come? I would not bet the house on it. At the first sign of trouble from the eurozone again, there will be a run to long-term Treasuries. It's occurred in every instance the last couple of years. Over the long haul, however, I do believe long-term Treasuries are a problem for those who have bought them recently. The prices will fall.

hank

Over the very long-term, financial markets tend to reflect reality. In rate sensitive bonds, the most important being inflationary expectations for future years and, to a lesser extent, political & economic stability here and abroad as BobC references. (For lower tier bonds, ability of issuer to repay is crucial - but sounds like discussion's more about higher tier). We came close to a deflationary collapse in '08 - and still may get there - no predictions from this corner. If you think that's where we're headed, buy bonds. You'll be able to purchase food, shelter, cars etc. for less 10 years down the road while growing your nest-egg at a compounded 1.73% as of this morning. But, if you think inflation will run significantly more than 1.73% (compounded annually), than bonds today do not reflect reality very well. Catch has made much of the "capital appreciation" potential of rate sensitive bonds. That's true as long as investors continue to buy - eerily similar to the speculation that drove NASDAQ to 5000 a decade ago or real estate through the roof more recently. Now, much $$ was made from the "capital appreciation" in these sectors even after prices soared into the stratosphere. Nothing wrong with that as long as you're not the last one standing when the music stops.

Don't much follow bonds ... but there have been some "wiffs" of inflation recently which probably spooked some of the bigger players. Housing prices in some U.S. markets have started to rise. Food prices look to be on the rise due to drought conditions across much of the country. Gas is back over $4.00 in many places. Getting back to "reality", if you think 1.73% compounded over 10 years represents a reasonable return of your investment after taking into consideration your inflationary expectations, than snatch up some treasuries this morning. If you believe that's not realistic, than they represent a poor long term investment. As BobC noted, things don't move in a straight line. Treasuries will rally at some point and may do very well again if deflationary signals return or if the speculative fervor resumes. In thinking how financial markets move, Abby Joseph Cohen used to use the supertanker analogy. I like the words of T.S. Eliot who when discussing how the world will end says: "Not with bang, but a whimper." A good analogy I think for how painfully long it might take for bond markets to change direction.

catch22

Morn'in hank,

You noted: " But, if you think inflation will run significantly more than 1.73% (compounded annually) than bonds today do not reflect reality very well. Catch has made much of the "capital appreciation" potential of rate sensitive bonds. That's true as long as investors continue to buy - eerily similar to the speculation that drove NASDAQ to 5000 a decade ago or real estate through the roof more recently. Now, much $$ was made from the "capital appreciation" in these sectors even after prices soared into the stratosphere. Nothing wrong with that as long as you're not the last one standing when the music stops."

>>>>> I agree. Don't be the last one standing when the music stops; regardless of the investment type.

Regards,
Catch

Old_Joe

Straws in the wind?

• Housing seems to have pretty much bottomed.
• "Retail sales gain hints at stronger growth" (Reuters Headline this morning".
• Fed making loud "QE3" noises.
• Some primary food costs almost certain to rise sharply next year due to Midwest drought.
• Betting that Euro will survive, somehow?

Derf

reply Old_Joe:
Betting that Euro will survive, somehow?
Will you take some time & let us know which MFs you hold in this area & have you been adding to your holdings? At least that's what I'm reading from your above post.

Later, Derf

fundalarm

@Catch.... recent housing, employment and retail sales data was better than forecasted and pointing to muddling through rather than contraction in the US. As a result, the previous investor optimism over QE3 (communication on 8/31 in Jackson Hole followed by action in September) is dimming. The political barrier to QE3 is very high, so the Fed needs real proof of faultering economy to continue purchasing assets. The data doesn't support this. Hence, range-bound equities, dramatic increase in yields, and as dramatic fall in gold prices.

fundalarm

i want to add -- equities are all about Europe and China; treasuries are all about economy and the Fed. (at least for the time being)

Old_Joe

Reply to @Derf: Hi Derf- No, not at all... just trying to rationalize the bond moves, along with Catch. I do have a little international exposure, but most of our stuff is US. I think that fundalarm, below, really has it nailed.

scott

Reply to @hank: Well put. I think you're seeing institutional investors look for other sources of income beyond fixed income, as well - infrastructure continues to seem as if it's getting increasing interest, and at least that's a combination of cash flow and real assets. Take a look at Brookfield Infrastructure (BIP), which was discussed in a thread a couple of weeks ago.

Brookfield thread:
http://www.mutualfundobserver.com/discussions-3/#/discussion/comment/13384

Two year chart of BIP:
http://finance.yahoo.com/echarts?s=BIP+Interactive#symbol=BIP;range=2y

I do continue to think that there should be some attention paid to inflation protection, even for those who are more conservative and closer to retirement age. I do think money will continue chasing yield in fixed income for longer than anyone could expect, and that that will probably not end well.

scott

Reply to @scott: 3mo low in TLT on heavy volume - just discussed on CNBC.

BobC

Cohen's quote is a good one. I am also reminded of Louis Rukeyser's comment about predicting the markets. He said "the markets will fluc up and fluc down". I always thought that was a great commentary, and, ultimately, very true.

fundalarm

some color from the desk:
"Some of the most interesting activity these last few weeks has occurred in certain sovereign bond markets. In particular, the back-up in “core country” sovereign yields. 10yr TSY yields hit sub 1.4% back on 7/25 (the day before Draghi’s “bumblebee address”) but finished Wed up around 1.8%. German 10yr yields have risen from ~1.16% to 1.55% in the same period, JGBs from ~0.72% to 0.82%, and gilts from 1.43% to 1.68%. Right now, TSY yields are only back to early May levels, where they stood before the first Greek election raised the genuine prospect of that country withdrawing from the euro. The yield rally therefore doesn’t necessarily reflect surging risk appetites (and the money certainly isn’t rushing into equities) or even material changes in eco growth or central bank expectations (although this is playing a role) but instead an abatement of the “Armageddon” scenarios that were talked about just a few months back (<1.4% 10yrs was more a fear move than it was QE3 anticipation). From the perspective of stocks, the issue for now isn’t so much the absolute yield level but rather why bonds are doing what they are doing (no one was encouraged when 10yr yields crashed under 1.4% and they aren’t worried by the present 1.8% level either. So long as yields are rising b/c of reduced “tail risk” fears, stocks should tolerate the bond sell-off just fine)."

hank

Reply to @catch22: Please ring a bell for the others when the time arrives. (-:

catch22

Hi fundalarm,
Hoping you and yours are doing well.
As you noted: " The yield rally therefore doesn’t necessarily reflect surging risk appetites (and the money certainly isn’t rushing into equities) or even material changes in eco growth or central bank expectations (although this is playing a role) but instead an abatement of the “Armageddon” scenarios that were talked about just a few months back (<1.4% 10yrs was more a fear move than it was QE3 anticipation)."

>>>>All of this is the twist that I noted in a similar fashion. The most serious question for our house remains as to where are the monies really flowing? I have returned this evening after a long day at a county fair. Perhaps I am not in the best of condition (tired) to consider all of this tonight; but I will only presume at this hour that the money flows to whatever are some game playing by, with and for the big houses.
I am still not satisfied of any intact and whole economies today. U.S. export (ISM data) is still trending down.
Oh well, I best get a good nights sleep.
Thank you for passing along your note to us.
Take care of you and yours,
Catch

catch22

Evening hank,
I believe I did ring the first bell on August 13 noting the bond pricing shifts; but hopefully it is not the same type of bell that was rung, after the fact, for the sinking of the Edmund Fitzgerald; at the Mariner's Hall in Detroit.
Take care,
Catch

catch22

Hi fundalarm,
Yes. I won't disagree with all of this that is blowing in the wind, too.
Thank you.
Catch

Investor

Reply to @fundalarm: I agree, QE3 is not in sight. Fed will want confirmation of much severe detoriation and while there are some conflicting data over the summer the recent data is more encouraging.