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Reply to @Charles: Thanks for the heads-up Charles. ... What I'm trying to get a handle on is how gold might react during and after an unravelling of various bond markets - from junk to higher grade. The article - disjointed as it is - has a bias in favor of gold, but allows that its gains would amount to only an expansion of what they view as an existing gold bubble. I found scanning the text helpful in understanding the dynamics of what we call "bubbles." Of the multitude of video clips, have sampled just two and found both dry and uninspiring. Suggest ignoring them.
Yes - the analysis is from "Gold Silver World" - a precious metals Investing site. At your behest I've now noted that next to the link. However, is that any more "advertising" than newsletters & analysis from Pimco, Oakmark & Price (not to mention Hussman's weekly rants:-)?
Reply to @hank: " Is that any more "advertising" than newsletters & analysis from Pimco, Oakmark, or Price? (not to mention Hussman's weekly rants:-)"
Everyone is talking their book to some degree, exactly.
Soros called gold "the ultimate bubble", and I think he's right, but maybe not exactly in the way that maybe everyone took that statement (although that's admittedly me trying to ponder what Soros may be thinking.)
Personally, agriculture is - I think - something that attention should be devoted to. Population continues to increase, emerging market citizens want to eat more/better/etc, and there's x amount of ag land. It's not that there isn't going to be food for people, but I think what's concerning is that I think the question in the next 5-10 years may start to become more and more: "....at what price?"
The unwind of the bond "bubble" will be interesting times, but I'm guessing bonds have a while to go and that things get to the point of maximum ridiculousness, wherever that is.
Reply to @scott: Morning Scott. Spent hours last night trying to work through the growing bond bubble and much reading - resulting in the links I put up. My conclusion: There's not alot you can do. Being widely diversified among sectors is the only answer that came up with. Several issues led to the conclusion. First - Cash is the normal refuge from bubbles, but pays so little now that the medicine is worse than the cure. This fact may also perpetuate bubbles longer than normal. Second - The problems of not only identifying bubbles, but figuring out when they will break. Fact that "bond bubble" has been in vogue couple years now tells you something. And, a third - the issue of simultaneous bubbles (as the gold link portrays). Simply moving from junk bonds to gold might be like curing the hangover with another drink. Will appear to work at first, but in reality, you're buying into a potentially more dangerous bubble. I do think this is why so many "risk managed" funds fail. They can't see thus stuff coming any better than we can. (Damn - Things were so simple back when houses only went up in value:-)
PS - Am intrigued by floating rate funds. Everything I saw indicates they'll do well in rising rate environment compared to most bond funds. Problem is they're yielding little more than half of what a typical HY bond fund is. So sitting in one for long periods is gonna really "ding" returns until the actual rate reversal arrives.
Reply to @hank: I think there's a lot that's unsustainable in this country - from rising healthcare costs to rising tuition costs to a society that's based upon spending to the way that many eat and more. In terms of bonds, like many other things, the trend is sustainable until it isn't. As for bonds, I could see where governments could continue to intervene and change the score if they don't like how the bond game starts to go.
I do think stocks do reasonably well over the next 5-10 years, but with considerably more volatility at times than has been seen the last few years and diversification will be a considerable positive in a multi-speed world. I do think a fair amount (depending on one's tolerance, age, etc) should be devoted to things high up the "need chain" and that provide value.
I think the unfortunate thing is in this country, a lot of the negatives are taken right to the point where they're no longer sustainable rather than having any attempts to correct them before they get to a bubble or "bubble-like" point.
This decade will be a period of great change in the world. Take the "ultimate bubble" statement from Soros and apply it to the collective excess (financially and otherwise) of a lot of what is occurring in this world. It's going to be a decade that will require introspection, leadership (oops, not much of that available) difficult choices and may (hopefully) lead to some positive changes. If not, well....
As for cash, I've called currencies a "futile game of musical chairs" and I think that continues - it's best to be diversified rather than attempting to pick what may be a better currency this week or the next. Few - such as Hasenstab of Templeton - can work the currency markets well rather consistently over time.
Be diversified (asset classes and globally in general), but I think people have to have some longer-term themes, and that's going to be different for everyone.
Reply to @hank: Got it. Good points. I guess if you are in this business, it's all advertising to a degree. For me, if the solution space is constrained to what the author is selling, then a red flag goes up. Too much potential for conflict of interest. If the Bond King is pitching bonds, I'm more skeptical. Ditto if Gold Silver World is pitching gold. I liked the discussion on dynamics of "bubbles" until I realized it was the hook in the sales pitch.
Related excerpts from Mr. Redleaf's most recent quarterly, which I think you will both appreciate:
"We regard the equity capital structure/blue chip trade as a mid-to-long-term investment likely to run for several years. In the event of an extraordinary run up in prices we would likely trade out of some of these positions opportunistically. In general, though, this trade reflects our deep conviction that the right strategic direction for the next several years and perhaps the decade is to buy equities and sell bonds; just the opposite of our view in the 2000s.
"What’s on the horizon? A cynic might sum up current government policy as a battle between debasing the currency and derailing the economy. Our bet is that the currency will eventually be debased but the economy will not be derailed or at least not quickly."
Today, lots of people worry that stock prices are being artificially boosted by the excess liquidity created by the Fed. We don’t think that is true. The vectors of capital flows don’t support the idea that excess Fed dollars are going into stocks. So we don’t see stocks collapsing when the Fed takes away the money.
Rather we see stocks eventually benefiting from a coming realignment of supply and demand. We think that will happen in two ways. First at some point there will be a meaningful uptick in corporate capital spending with a meaningful positive impact on the economy. But the rise in capital spending will have nothing to do with Fed stimulus. It will be driven by an imbalance in supply and demand in the real world. This surge in corporate investment is likely to occur just about the time that the under-investment we’ve seen in the last few years has wiped out the overcapacity that appeared when the economy collapsed in 2009.
The second source of demand will be a result of what the Fed stimulus actually did accomplish. Flooding the economy with dollars did not raise asset prices generally. But prices of the stuff the Fed has actually been buying—treasuries and other credits—have risen dramatically. Similarly during the housing bubble, ample liquidity did not produce general asset inflation. Housing prices rose because the government, via Fannie and Freddie, was buying houses. For the past couple years, bond prices have been rising because the government has been buying bonds. We believe the government has created a bubble in treasuries, which has spread into credit markets generally, sweeping naive retail investors along as well.
At some point we think the treasury bubble will pop, either because there is no QE4, or because eventually the debasement of the currency, currently masked by the troubles of Europe and the Fed’s support of treasuries, will become too obvious to deny. The most likely result at that point would be for capital flows to reverse back out of the bond market and into equities.
We don’t have a timetable for when the bond bubble might begin to burst. But we think we are getting close to the point where we will want to be short credit. So in the mid to long term we continue to be enthusiastic about selected equities and generally skeptical about credit markets."
Interesting Bud. I believe these are 30 year rates, but hard to tell exactly. Here's a similar chart:
While I only have data back to early '60s, the difference between current and average for the shorter-term rate seems more substantial, as indicated below. Just not sure how much this near-term rate factors into the inflated bond rates folks are concerned about.
Comments
Yes - the analysis is from "Gold Silver World" - a precious metals Investing site. At your behest I've now noted that next to the link. However, is that any more "advertising" than newsletters & analysis from Pimco, Oakmark & Price (not to mention Hussman's weekly rants:-)?
Everyone is talking their book to some degree, exactly.
Soros called gold "the ultimate bubble", and I think he's right, but maybe not exactly in the way that maybe everyone took that statement (although that's admittedly me trying to ponder what Soros may be thinking.)
Personally, agriculture is - I think - something that attention should be devoted to. Population continues to increase, emerging market citizens want to eat more/better/etc, and there's x amount of ag land. It's not that there isn't going to be food for people, but I think what's concerning is that I think the question in the next 5-10 years may start to become more and more: "....at what price?"
The unwind of the bond "bubble" will be interesting times, but I'm guessing bonds have a while to go and that things get to the point of maximum ridiculousness, wherever that is.
PS - Am intrigued by floating rate funds. Everything I saw indicates they'll do well in rising rate environment compared to most bond funds. Problem is they're yielding little more than half of what a typical HY bond fund is. So sitting in one for long periods is gonna really "ding" returns until the actual rate reversal arrives.
I do think stocks do reasonably well over the next 5-10 years, but with considerably more volatility at times than has been seen the last few years and diversification will be a considerable positive in a multi-speed world. I do think a fair amount (depending on one's tolerance, age, etc) should be devoted to things high up the "need chain" and that provide value.
I think the unfortunate thing is in this country, a lot of the negatives are taken right to the point where they're no longer sustainable rather than having any attempts to correct them before they get to a bubble or "bubble-like" point.
This decade will be a period of great change in the world. Take the "ultimate bubble" statement from Soros and apply it to the collective excess (financially and otherwise) of a lot of what is occurring in this world. It's going to be a decade that will require introspection, leadership (oops, not much of that available) difficult choices and may (hopefully) lead to some positive changes. If not, well....
As for cash, I've called currencies a "futile game of musical chairs" and I think that continues - it's best to be diversified rather than attempting to pick what may be a better currency this week or the next. Few - such as Hasenstab of Templeton - can work the currency markets well rather consistently over time.
Be diversified (asset classes and globally in general), but I think people have to have some longer-term themes, and that's going to be different for everyone.
Related excerpts from Mr. Redleaf's most recent quarterly, which I think you will both appreciate:
"We regard the equity capital structure/blue chip trade as a mid-to-long-term investment likely to run for several years. In the event of an extraordinary run up in prices we would likely trade out of some of these positions opportunistically. In general, though, this trade reflects our deep conviction that the right strategic direction for the next several years and perhaps the decade is to buy equities and sell bonds; just the opposite of our view in the 2000s.
"What’s on the horizon? A cynic might sum up current government policy as a battle between debasing the currency and derailing the economy. Our bet is that the currency will eventually be debased but the economy will not be derailed or at least not quickly."
Today, lots of people worry that stock prices are being artificially boosted by the excess liquidity created by the Fed. We don’t think that is true. The vectors of capital flows don’t support the idea that excess Fed dollars are going into stocks. So we don’t see stocks collapsing when the Fed takes away the money.
Rather we see stocks eventually benefiting from a coming realignment of supply and demand. We think that will happen in two ways. First at some point there will be a meaningful uptick in corporate capital spending with a meaningful positive impact on the economy. But the rise in capital spending will have nothing to do with Fed stimulus. It will be driven by an imbalance in supply and demand in the real world. This surge in corporate investment is likely to occur just about the time that the under-investment we’ve seen in the last few years has wiped out the overcapacity that appeared when the economy collapsed in 2009.
The second source of demand will be a result of what the Fed stimulus actually did accomplish. Flooding the economy with dollars did not raise asset prices generally. But prices of the stuff the Fed has actually been buying—treasuries and other credits—have risen dramatically. Similarly during the housing bubble, ample liquidity did not produce general asset inflation. Housing prices rose because the government, via Fannie and Freddie, was buying houses. For the past couple years, bond prices have been rising because the government has been buying bonds. We believe the government has created a bubble in treasuries, which has spread into credit markets generally, sweeping naive retail investors along as well.
At some point we think the treasury bubble will pop, either because there is no QE4, or because eventually the debasement of the currency, currently masked by the troubles of Europe and the Fed’s support of treasuries, will become too obvious to deny. The most likely result at that point would be for capital flows to reverse back out of the bond market and into equities.
We don’t have a timetable for when the bond bubble might begin to burst. But we think we are getting close to the point where we will want to be short credit. So in the mid to long term we continue to be enthusiastic about selected equities and generally skeptical about credit markets."
Complete commentary is here:
http://www.whiteboxmutualfunds.com/content/assets/docs/lit/tactical/newsletters/Whitebox-Tactical-Op-Newsletter_Q3_2012.pdf
http://pragcap.com/the-long-view-on-us-government-bonds
While I only have data back to early '60s, the difference between current and average for the shorter-term rate seems more substantial, as indicated below. Just not sure how much this near-term rate factors into the inflated bond rates folks are concerned about.