Bonds - 2000 posts +

Top 899. Jan 24, 2006 5:36 AM

» Kirk - Re: December 30, 2005

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In response to December 30, 2005 posted by mdorsey:

BONDS:

As of 12/31/05

  
Vanguard 500 Index (VFINX) 
2005 total return =   +4.8% .
Since 12/31/02 total return =   +48.2%
Since 12/31/99 total return = . (-7.5%)
Since 12/31/98 total return =  . +12.0%

Vanguard GNMA Fund (VFIIX) 
2005 total return =   +3.3% .
Since 12/31/02 total return = . +10.9%
Since 12/31/99 total return = .  +44.9%
Since 12/31/98 total return = . +47.7%

Kirk’s Newsletter Portfolio 
2005 total return =   +13.2%
Since 12/31/02 total return =.  +91.6%
Since 12/31/99 total return =.  +35.4%
Since 12/31/98 total return =  +193.9%

10 Year Fidelity Charts
<img width=275 height=150 src=http://invest.fidelity.com/ChartWrapperS...> <img width=275 height=150 src=http://invest.fidelity.com/ChartWrapperS...>

I own FLPSX and FCNTX in my IRA-401K Rollover. I bought FLPSX when I left HP in 1998 and have had FCNTX even longer. They show how top tier mutual funds that pay attention to value rather than momentum can beat the markets over the long term when that includes a bear market such as 2000-2002.

-- posted by Kirk

Top 900. Jan 24, 2006 5:49 AM

» allancoleman - Re: December 30, 2005

In response to Re: December 30, 2005 posted by Kirk:

like it Kirk . especially the little charts for each mutual fund . i happen to hold the Magellan fund that i'm looking forward to selling when i ' break even ' on it . it was the only stock position i kept when i sold out of the market in mid 99 and didn't sell when bob brinker issued his sell signal in 2000 . so i rode it down in the first leg down in this secular bear market . managed to convert it to a Roth in mid 98 during one of Bob Brinker's ' gift horse ' buy signals so did manage to make some lemonade out of a lemon . and , of course , your Magellan chart above in your post shows that move nicely .

that was the very first Roth conversion i did in the year you were allowed to apread the tax owed over the next few tax years .

-- posted by allancoleman

Top 901. Jan 24, 2006 6:57 AM

» Kirk - Re: Re: December 30, 2005

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In response to Re: December 30, 2005 posted by allancoleman:

Good for you Allan. I switched out of FMAGX in the early to mid 1990's and put the money into the Contra Fund because I like contrarian investing as a style. I think the fund was much smaller than FMAGX too so it had better odds of out performing.

The point I want to make here when I post equity returns in a bond forum is it is data mining to only show bonds since the bull market in the S&P500 index peaked. Well balanced portfolios, such as the 7 index fund Vanguard portfolios I recommend in my newsletter, are making new highs these days, have less volatility than the S&P500 and they are beating the S&P500 by over 20% for the past 5 and 7 years. I'll try and put the performance into a format easy to read in a post here.

A request: I sure wish you would stop trying to turn my site into a walking advertisement for Bob Brinker by giving him a plug in every forum you post in with nearly every post you make.

Please confine your Bob Brinker advertisements for the Bob Brinker forum where people care. We have many more readers here who are well beyond Brinker’s nonsense who don’t’ appreciate reading plugs for his good calls without mention of his disasters in every forum you post.

I find it especially annoying because I then have to post the following disclaimer that shows his record is not what it is advertised to be.

For people new to this forum, see:

for the full story.

Thanks for your attention to my request.

-- posted by Kirk

Top 902. Jan 24, 2006 9:56 AM

» Kirk - Re: Low risk premium.

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In response to Low risk premium. posted by mdorsey:

Stocks paid a low 1.77% more than money market (a nearly risk free asset) in 2005. As one those who stayed the course in MM I am very pleased. Yields for MM are at 4.00% and rising. I wouldn't be surprised to see MM perform this well vs stocks again in 2006.

That is for 2005, but look below to see how money funds did compared to equities for the past three years.

How long have you been in money funds? A more diversified portfolio, even my conservative core portfolio with 50% in bonds, significantly out performed money funds last year. If you consider the tax hit from rebalancing probably dwarfs the tax hits you took market timing out of equities in 2000, it looks even better.

BTW, the risk for money funds is your after tax return is less than inflation. In most states with any decent income you give a third away in taxes as normal income while equities are taxed at a lower rate when you need the money so you get deferred compounding.

When I say "stocks" I mean the S&P 500, a broad measure of the US stock market, generally used to compare most stock mutual funds.

You might consider “getting with the times” and use a more modern definition of a well-diversified investment portfolio. The S&P500 is but a fraction of the investment universe.

History tells us that few stock funds outperform the S&P 500 consistently and fewer still stock mutual fund investors.

Tons of academic research shows that a well diversified basket of index funds with regular rebalancing usually beats the S&P500.

GNMAs have clearly been a better investment when compared to the S&P500 for a period plus or minus one year around when the S&P500 peaked, but longer or shorter term, equities shine. GNMAs have interest rate risk where they could lose money if we have high inflation. Equities sure beat money funds over most periods of interest.

Also, picking the right asset class is tough to do correctly over and over. You could have bought energy stocks in 2000 and doubled your money or put it all into Federal Express and made 150%! Unless you are prescient, having a diverse basket of securities is usually the best way to go for the majority of your portfolio.

BONDS:
As of 12/31/05

           
Vanguard 500 Index (VFINX)            
2005 Total Return =   4.77%        
Since 12/31/02 total return =    49.09%        
Since 12/31/99 total return =    (7.14%)        
Since 12/31/98 total return =    12.43%        
           
Vanguard GNMA Fund (VFIIX)            
2005 Total Return =   3.33%        
Since 12/31/02 total return =    10.28%        
Since 12/31/99 total return =    45.20%        
Since 12/31/98 total return =    46.34%        
           
Kirk’s Newsletter Conservative Core Portfolio            
2005 Total Return =   4.78%        
Since 12/31/02 total return =    31.41%        
Since 12/31/99 total return =    27.95%        
Since 12/31/98 total return =    40.91%        
           
Kirk’s Newsletter Aggressive Core Portfolio            
2005 Total Return =   6.21%        
Since 12/31/02 total return =    44.54%        
Since 12/31/99 total return =    16.13%        
Since 12/31/98 total return =    35.47%        
           
Kirk’s Newsletter Explore Portfolio            
2005 Total Return =   13.20%        
Since 12/31/02 total return =    91.63%        
Since 12/31/99 total return =    35.43%        
Since 12/31/98 total return =    193.82%     The Winner!!!
           
Vanguard Prime Money Fund    
2005 Total Return =   3.01% 
Since 12/31/02 total return =    5.09% 
Since 12/31/99 total return =    18.28% 
Since 12/31/98 total return =    24.20%

I recommend a “core and explore” approach to investing. This means put 80 to 95% of your assets into one of the two core Vanguard index fund portfolios I recommend in my newsletter then “explore” with the remainder using my “newsletter explore portfolio” or your own ideas. In "Kirk’s Online Newsletter" I offer two core portfolios composed of seven Vanguard index funds, including a REIT and international funds. My “Conservative Core Portfolio” is for those who want to maintain critical mass while my “Aggressive Core Portfolio” is for those who are working towards critical mass. My “conservative core portfolio” is 50% in fixed income and 50% in equities. My “Aggressive Core Portfolio” is 80% in equities and 20% in fixed income.

-- posted by Kirk

Top 903. Feb 7, 2006 5:13 PM

» Normxxx - Generational Bond Bull Requiem

Requiem For Generational Bond Bull: Long End Passing Inflection Point

By Paul Macrae Montgomery | 3 February 2006

The short term Treasury model gave a Sell last week, and the bonds lost two months of gains in two days. This action constitutes an object lesson in the value of trading with the models. The intermediate term T-Bond model has been Negative for months, which is why we characterized our long position as “for trade only.” Surprises always seem to come on the downside when the intermediate term models are bearish, and on the upside when they are bullish. If there is a negative surprise when the model is Positive such as Japan’s recent drop, it is retraced quickly. With the intermediate term indicators still Negative for Treasuries, they do not appear likely to quickly recover last week’s losses.

Shown below is our stochastic model based on the closing yield on the current long bond. It gave a Buy on November 11th and then gave a Sell last Wednesday. What is of more interest to us, however, is the fact that the long end of the world’s bond markets may have just passed a critical inflection point. More specifically: Back in October 1981, with the Dow Jones Bond Average at its all-time low, and with the U.S. long bond yielding 15¼%, these pages forecast that we were on the brink of a generational bull market in bonds, one that would last into the next century. That forecast was based on numerous factors, but the most important by far was our interpretation of the 54-year cycle.

Of secondary importance was our interpretation of the Elliott structure of interest rates. The problem with the 54-year cycle is that it is derived empirically, and thus bespeaks “the average” price cycle. Hence we cannot identify the precise time this cycle reverses directions, as we can with our “Cycle Dates.” Instead we have to use other non-cycle disciplines and a lot of judgment to try to identify a turn in the 54-year cycle. Theoretically it was scheduled to reverse direction in 2005, but historically actual turns have missed the theoretic turn date by a few years either way. But we are clearly in the window of time for a turn. Interestingly, all the world’s bond markets started up together in late 1981. Bonds in England and Japan appear to have topped in June 2003. Bonds in Spain, Italy, France, Canada, Germany and Switzerland slightly surpassed their 2003 highs last summer— exactly when the 54-year cycle theoretically tops (technically U.S. bonds made their bull market high in June 2003 with a closing yield of 4.17%. but at their 2005 price peak, the yield was only 2 basis points higher at 4.19%. Perhaps if we had had a “real” 30-year bond at that time, instead of the off-the-run 26-year that we did have, U.S. bonds would have eked out a new high along with most other countries in 2005. However, we could count nine clear waves down in U.S. long rates from October 1981 to June 2003. So whether the orthodox low was 4.17% in 2003 or 4.19% in 2005, long-term interest rates look set to rise for the next couple of decades. Because the world bond market are so close in time and price to their all-time highs— generally set in September— we need to watch them for clues either to confirm or to rebut this thesis.

Please note that this forecast applies only to long rates— we do not try to forecast short rates or the shape of the yield curve. Some have said that the fact that long rates recently were soft in the face of rising short rates constituted “a conundrum.” That may not be the most helpful way to view the situation. The fact is that the price structures of both short-term rates and long-term rates are exceedingly complex. Both markets have a large number of common components, which cause short and long rates to move together most of the time. However, each market also has a number of components unique unto itself— which causes long rates and short rates to go in different directions some of the time. On a year-over-year basis, the front end and the back end probably have diverged about 30% of the time. So while the recent divergence was not a high probability event, the odds of such an event occurring are about the same as the odds of a major league ball player getting a hit on any given trip to the plate. A hit is an underdog, but it is not really a “conundrum” if one occurs.

Several sub-models for Bonds remain very strong; e.g., Convertibles, Junk and Emerging Market Bonds. Convertibles, of course, are tied to the equity market more than the Bond market. Also they are more responsive to Small and Mid Cap equities than to the Large and Mega Cap equities. The same is true of Junk, but to a lesser degree. And Emerging Market Bonds are somewhere in between Junk and Convertibles. These bonds are overpriced as best we can tell, but we are long because we trade this cohort on direction only— never on “value.”

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 904. Feb 9, 2006 11:10 AM

» Kirk - 30 Year TBill Done! $14B @ 4.53%

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Investors paid a premium to get the amount offered.

$14B @ 4.53% for a 30 year US Treasury Bill.

A bit of an inversion as this is lower then the 10 year now at 4.54%!

65% of bidding was "indirect"

"A demographic issue" where pension funds are matching liabilities with assets.

The average yield of the 30 year while the government was out of the market was 4.95% so they did good to take them off the market.

-- posted by Kirk

Top 905. Feb 10, 2006 6:51 AM

» Jas_Jain - FWC: Real Men Trade the Long Bond

When it comes to the US Treasury Bonds, my philosophy, as well as practice, has been: Go Long and go LONG. Even better and simpler formula is to own the highest yielding USTs and STRIPS, which currently are in 20-25 year maturity range.

An easy forecast for 2006H2: All UST yields from 6-month to 30-year will be below 4% and the Fed will start to lower rates as the economy heads into a housing-induced recession.

Gentlemen prefer bonds!

Hucksters prefer Scams!!

And American govt. bonds have lot more class than American blondes!!!

A mensch,

Jas

PS: In September, we will have the 25th anniversary of the bull market in the long-term USTs and Scam Lovers could only weep if they knew how well they would have done had they done nothing other than buying the highest yielding USTs whenever they were tempted to put money into Scams.

PPS: Most Americans are born-and-bred hucksters.

-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

February 09, 2006

Real Men Trade the Long Bond
by Bob Hoye

Thursday's auction will mark the resumption of issuance of longer-dated treasuries.

It is worth a general comment, particularly as the coupon is expected to be around 4 ½%. Low coupon bonds with long maturities are volatile, which some traders find daunting.

In 1779, Samuel Johnson observed: "Claret is the liquor for boys; port is for men; but he who aspires to be a hero must drink brandy."

These days, heroism is found in martinis and the long bond. Some twenty years ago, there was an article along the lines of "Real Men Trade Long Bonds". We would still go along with this and observe that the ten-year note, like Chardonnay, is for boys.

Most of the fashion in the shorter maturities has been due to Europe, which merits some review. Over the past 100 years, Europe's political and consequent financial instability made it a rare accomplishment to have a liquid money market, let alone a liquid market for long-dated issues. Perhaps when Europe abandons its dreadful and endless experiment in socialism (Moscow on the Maastrich), a big liquid market for long maturities will develop.

This could take a decade or so when eventually trading the shorter maturities will be relegated to those who have just reached the drinking age.

Of course, we all know that the bigger bang from the trading dollar is obtained from the lowest coupon with the longest maturity. In this regard, British Consols with a 3% coupon and perpetual term are ideal. We'll have to do some thinking about a perpetual "zero".

Canada used to have a 3% "Perp", but the "Federales" repudiated their obligations by forced redemption. With a bureaucracy dedicated to lowering interest rates, having a 3% issue outstanding when the long yield was at 19% (1981) was just too embarrassing.

Financial turmoil could soon increase corporate long rates, but after that the next bull market for long governments in the senior currency could take the yield down to 3%. In which case, the Consols or a 4 ½% long treasury would be a macho performer.

-- posted by Jas_Jain

Top 906. Feb 11, 2006 8:55 AM

» SteveT - The Bond World Turned Upside Down

By JENNIFER ABLAN

AHEAD OF BEN BERNANKE'S FIRST congressional testimony this week as Federal Reserve chairman, last week the Treasury yield curve, a historically reliable forecaster of the economy, turned upside down.

"The curve is truly inverted," a condition in which short-term rates rise above longer yields, says Jeffrey Gundlach, chief investment officer of the TCW Group.

The yield on the two-year Treasury note, the maturity most sensitive to moves by the Fed, rose to 4.64% early Friday -- a rise of 11 basis points (hundredths of a percentage point) above the yield on the benchmark 10-year note at 4.53% and 16 basis points higher than the new 30-year Treasury bond, which saw strong demand in its first sale since August 2001. The new long long bond, auctioned Thursday at 4.53%, saw its yield dip to 4.48% in early trading Friday -- below the Fed's key federal-funds target rate of 4½% and the 10-year note yield.

David Goldman, global head of fixed-income research at Cantor Fitzgerald, cautions, "The yield curve inversion portends scarce leverage in a credit market overwhelmingly dependent on leverage." Indeed, having short-term rates above longer ones inhibits lending throughout the banking system.

Historically, such an inversion almost invariably precedes a recession, as investors temporarily accept lower long rates in anticipation of the decline in yields that typically accompanies an economic downturn.

Demand for the new 30-year Treasury bond from pension funds and insurance companies further deepened the curve's inversion.

But Goldman contends that "the market is also fearing that the Fed may overreact to front-end inflation." He notes that falling oil prices -- a barrel of petroleum was fetching $62.55 at midweek, down from $65.37 going into the week -- "took the bid out of the back end of the curve," instead of boosting the market, as might be expected. That phenomenon has persisted since mid-December.

Goldman says there is no doubt that the drop in oil prices took inflation expectations down a notch, as the gold price tracked the oil price "tickwise." But he concludes: "The bond markets are saying that the Fed will chase inflation and oversteer. We are at a crossroad of maximum uncertainty with regard to monetary policy."

With an inverted curve and the Fed continuing to raise interest rates, "there's definitely a possibility of a financial accident," adds Gundlach.

Signs of an economic slowdown are emerging, notably in the consumer and housing sector, which have been the pillars of the economic recovery. Last week, the nation's largest luxury-home builder Toll Brothers (ticker: TOL) reported a 29% decline in new orders in its fiscal first quarter, which ended Jan. 31. And the Bloomberg mortgage REIT index, which has dropped more than 20% since last February, is down 1.5% this year.

Even so, many investors and traders believe Bernanke probably will be upbeat about economic growth, given the improvement in the labor market.

Friday, fed-funds futures placed a 95% probability that Bernanke will hike rates 25 basis points -- a quarter of a percentage point -- on March 28, his first policy-setting Open Market Committee meeting as Fed chairman, and indicated a 55% chance of a same-size hike by May.

Treasuries sold off later in the day Friday, as financial markets speculated that China might revalue its currency in the coming weeks. But the yield curve was still inverted, albeit less so, with the two-year yield at 4.68% and the 10-year at 4.59%. The new long bond closed its first week at a yield of 4.55%

RICK WAGONER, CEO of General Motors (GM), unleashed a barrage of drastic measures last week that sought to bring the auto giant back to profitability. But what got the most attention from bond managers was what he didn't say.

GM debt securities were roiled Tuesday when Wagoner gave no real update on the progress of the sale of General Motors Acceptance Corp. In October, GM announced its intentions to put a majority stake of its finance unit on the block. Investors believe that GMAC would be more creditworthy if its parent relinquished control, and that a sale could net $10 billion to $12 billion for GM. But bondholders were rattled when Wagoner said zilch about the deal.

"Did anyone really expect Wagoner to announce the completion of a GMAC sale, today?" wrote a peeved Thomas Ferguson, an analyst at KDP Investment Advisors, a high-yield research firm in Montpelier, Vt., in a research note to clients.

Apparently, yes. GMAC's 7.75% senior notes due 2010 settled at 96.5 (or $965 per $1,000 bond) at Tuesday's close, down from 98, while GM's 7.125% senior notes due 2013 stood at 76.5 Tuesday, down from 78 the previous day.

Even more telling of the mounting concern were the movements in GMAC's credit-default swaps, insurance-like contracts that offer protection against a debt default or restructuring. The cost of GMAC's five-year CDS jumped to 435 basis points by week's end from 360-370 basis points at Tuesday's open.

Because GM and GMAC securities are in the hands of so many investment-grade managers and hedge funds, "it's no surprise that you get swings in an already volatile credit like this," says Darin Feldman, a fixed-income portfolio manager at Aladdin Capital.

Feldman continues to believe that GMAC debt offers compelling value at these levels -- if you're convinced that a sale will occur. More skeptical was Moody's Investors Service's comment that the lack of a sale "suggests [the] difficulty of successfully completing the transaction."

Will GM sell control of its crown jewel? Mark Girolamo, a bank and finance analyst in credit research at Barclays Capital, says it all comes down to whether the auto maker is willing to let GMAC go for the price banks are willing to pay. He notes that banks have been "pretty aggressive going after 'yieldier' assets over the past year." He points out that Bank of America (BAC) bought MBNA, Washington Mutual (WM) purchased Providian and HSBC (through its finance subsidiary, the former Household International) bought Metris. In addition, Wachovia (WB) is closing on WFS, a California-based auto lender. "These businesses help relieve some of the margin pressure on more traditional bank loans, especially commercial loans," Girolamo adds.

According to market chatter, the most likely buyers of GMAC are Wachovia, Citigroup (C) and J.P. Morgan Chase (JPM), but other banks and finance companies are likely to be interested as well.

Girolamo says chances of a GMAC sale still look promising. No doubt many investors are banking on it.

E-mail: jennifer.ablan@barrons.com

URL for this article:
http://online.barrons.com/article/SB1139...

-- posted by SteveT

Top 907. Jul 7, 2006 9:03 AM

» jnosm - VFIIX below $10.00

While I haven't checked until today, I see Vanguard GNMA below the $10.00 mark. Is the "conventional" wisdom still operative that this is a time to buy?

-- posted by jnosm