When it rains it pours ... Reading MFO and following Bloomberg ... it now appears that we are in the midst of an inflated dollar ... inflated bond market ... and inflated equity market.
Where to hide?
- It’s hard to call cash “inflated” at today’s rates.
- Oil was twice as expensive 10 years ago as today.
- Japan’s Nikki 225 stock index isn’t yet back to 1980s levels.
- Silver was more expensive in 1980 than now.
- Many Latin American countries are mired in debt, unstable governance, corruption and rampant Covid 19. These are scary scenarios. On the other hand these are the kinds of conditions that can prick bubbles and reward long term patient investors.
Longer term: U.S. equities may well have attained “bubble” status. But those who’ve invested in them over the past 30 years (and longer) have been laughing all the way to the bank.
Perspective: I graduated from HS in ‘65 with little knowledge of investing (aside from saving cash acquired caddying). A friend in college (around ‘67-‘68) introduced me to her dad who was selling mutual funds as a second job. That was the first I ever heard of them. He talked them up optimistically. We’d just been through a serious market correction and most average people feared stock investing. Since that time, markets have experienced multiple bull and bear markets. The term “bubble” gets tossed around loosely. If there were bubbles along the way, after they burst the U.S. market went on to even higher levels.
Link: Linked article discusses the highs and lows in the U.S. market since my own initial 1967-68 reference period. https://www.fool.com/investing/general/2013/02/25/bear-markets-in-modern-times.aspx Others here who date back to the ‘30s, ‘40s and ‘50s may want to share their even earlier recollections.

Fidelity data shows nearly one-third of their investors 65 and older sold all of their stock holdings at some point between February and May while just 18% of all investors across their platform sold out of stocks.
I had a number of discussions with investors who were contemplating selling out of stocks in March. Many we retirees who worried about how an extended downturn could impact their retirement plans.
I understand why this group is more trigger happy with their portfolio. The U.S. stock market was up 10 out of 11 years heading into 2020. This crisis was looking like it could turn into Great Depression 2.0.
We’re living in scary times.
But scary times and panic are never good reasons for selling out of your stocks.

https://awealthofcommonsense.com/2020/06/when-should-you-sell-your-stocks/

Every time I read about Grantham I try to remember what "Adam Smith" wrote about him years ago, when Grantham was a young man.
So, I went looking. While I have concluded I'm just going to have to re-read "Adam Smith," I did find a wealth of quotes that might come in handy for investors of a certain frame of mind:
Here.
Here.
And here.
Besides re-reading "Adam Smith," I think I need to pick up a copy of Where are the Customer's Yachts?, by Fred Schwed Jr. "Smith" was certainly all about preserving principal.

Sorry, Jeremy Grantham was wrong so many times since 2010 that it's not even funny but sad.
He predicted at the end of 2010 that US stocks will lag EM but he also was way, way off about several categories performance.

Example: he said that US will make 2.5% inflation + 0.4% = 2.9% yearly average in the next 7 years. The SP500 made 14.45% in the next 7 years (link)
All these "experts" are wrong because of Fed intervention.
Bottom line: add another false prediction.

"When Russian table tennis or Korean baseball won’t scratch the itch, some are trying their hand at trading equities. It’s enough to move the market, analysts say."
"Millions of small-time investors have opened trading accounts in recent months, a flood of new buyers unlike anything the market had seen in years, just as lockdown orders halted entire sectors of the economy and sent unemployment soaring. It’s not clear how many of the new arrivals are sports bettors, but some are behaving like aggressive gamblers. There has been a jump in small bets in the stock options market, where wagers on the direction of share prices can produce thrilling scores and gut-wrenching losses. And transactions that make little economic sense, like buying up the nearly valueless shares of bankrupt companies, are off the charts."
https://www.nytimes.com/2020/06/14/business/sports-gamblers-stocks-virus.html
Zany action in recent days has me convinced. Apparently these guys (and gals) are watching every short term development or coment by an official and placing wagers on which way the indexes will move.
- Week ago - Payroll numbers better than expected - Powerful up day
- Thursday - Covid 19 redeveloping in China - Powerful down day
- Monday - Friday's steep dive continues until Fed Chair Powell reveals Fed is buying Corporate bonds - Market reverses, makes up 700 point drop (Dow) and ends day higher
- Tuesday - Monday's rally continues after strong overnight futures - some based on reports of a trillion dollar infrastructure plan in the works. Morning's hotter than expected retail sales numbers add fuel to the fire.
- Later Tuesday - Dow falls about 500 points from day's high, apparently on comments Fed Chair Powell makes to Congress that deficit spending will hurt us longer term. But later recovers (based on whatever else he said)
Just watching. You'd need to be insane to try to time or outsmart this market. A lot of short term dumb money sloshing around.

sorry, thought it would open per the bing sequence above
https://www.ft.com/content/2a6ec6aa-492e-4e7d-85f8-83789a2bc481

Top US pension fund aims to juice returns via $80bn leverage plan
Calpers hopes bold move will boost efforts to achieve its 7% return target
John Plender in London and Peter Smith in Wagga Wagga JUNE 14 2020

Calpers is to move deeper into private equity and private debt by adopting a bold leverage strategy that the $395bn Californian public sector pension fund believes will help it achieve its ambitious 7 per cent rate of return.
In a presentation to the Calpers board, Ben Meng, chief investment officer, said the giant fund would take on additional leverage via borrowings and financial instruments such as equity futures. Leverage could be as high as 20 per cent of the value of the fund, or nearly $80bn based on current assets. The aim is to juice up returns to help the scheme, the largest public pension in the US, achieve its growth target.
The move comes after a 2019 investment strategy review that found Calpers needed greater focus on the excess returns potentially available from illiquid assets compared with public equity and debt. Under Calpers’ previous asset allocation strategy it was estimated to have a less than 40 per cent probability of achieving its 7 per cent return target over the next decade.
Calpers’ assets represent just 71 per cent of what it needs to pay future benefits to the 1.9m police officers, firefighters and other public workers who are members of the scheme.
The US stock market slide this year has increased the long-term structural problems across the entire US public pension system, particularly for the weakest plans that have ballooning unfunded liabilities. The weak funded position of these funds poses a huge long-term risk for millions of US employees and retired workers.
Mr Meng hopes Calpers’ deeper push into illiquid assets over the next three years will help it exploit its structural strengths. Its perpetual nature allows it to make longer-term investments, while its size gives it access to top managers in private equity markets where performance is widely dispersed.
“Given the current low-yield and low-growth environment, there are only a few asset classes with a long-term expected return clearing the 7 per cent hurdle. Private assets clearly stand out,” Mr Meng said. “Leverage will increase the volatility of returns but Calpers’ long-term horizon should enable us to tolerate this.”
He added that leverage would not “be tied to any specific strategy, asset, fund or deal”.
Mr Meng has terminated relationships with more than 30 external fund managers since 2019, redeploying $64bn of capital with savings of more than $115m in annual fees. Holdings of global equities are now 95 per cent internally managed, while 80 per cent of the total fund is managed in-house. It invests in more than 10,000 public companies.
Mr Meng has faced criticism this year for abandoning a hedging strategy for tail risk, the risk of low probability but highly costly events, before the market crash in March.
He countered that Calpers had developed ways of raising cash at short notice to meet unexpected demands on the fund, an approach that was less expensive than high-cost hedging strategies.
Calpers’ portfolio has also been de-risked by increasing its holdings in longer-dated US Treasuries and switching more assets from capitalisation-related equity indices to factor-weighted equities. These use indices that focus on investment styles such as price momentum or volatility.
According to Mr Meng this strategy protected the fund from losses of $11bn in the pandemic-induced market slide, which far outweighed the $1bn profit forgone on tail risk hedging. He said that unlike in the financial crisis of 2008 Calpers was not forced to sell assets into a depressed market in March. “Too little liquidity can be deadly but too much is costly,” he said.

I am looking to build a municipal bond ladder with target date ETFs. I am wondering if there is any opinion on BulletShares versus Ibonds. The differences I notice are BulletShares has lower volume, lower assets, higher yields, higher durations, and higher expenses.
BulletShares: average volume about 1K-10K, expense ratio 0.18%
Ibonds: average volume 10K-60K, expense ratio 0.10%
For both, the longer maturity target dates tend to have lower volumes
I am not sure why, but the yields are consistently higher for BulletShares despite the same average credit quality. BulletShares s tends to have longer effective duration for the same target year. I think BulletShares might have more callable bonds (but their yield to worse still is higher than Ibonds yield to maturity)
BulletShares 2023: Effective duration 3.3 years. Yield to maturity 1.87%, yield to worst 0.84%
Ibonds 2023: effective duration 2.8 years, Yield to maturity 0.52%
BulletShares 2026: Effective duration 7.2 years, Yield to maturity 2.79%, yield to worst 1.79%
Ibonds 2026 effective duration 5.4 years Yield to maturity 0.9%
Part of me says take the better yield and since I plan to hold until the last year don’t worry about liquidity, but part of me says this is too good to be true and maybe Guggenheim’s bond pricing methodology is artificially boosting their yields, or they are taking excessive duration or call risks on callable bonds. Any input would be appreciated.

@FD100
you may have told us before but how do you avoid redemption fees on some of these funds?
Congratulations on establishing your system that seems to work almost all the time. How much work does it take to evaluate incoming data daily or hourly and trade so frequently? Sounds close to a real job to me

I do pay commissions sometimes but I try to buy Instit shares because I have an agreement to buy them at Schwab with fees waived. Selling is always free because Instit shares don't have short term fees. Several funds have their own short term fees and why I don't buy them. Even if I pay fees they are negligible when I make thousands.
It takes me just minutes every week for my portfolio because I have all the lists I need to see momentum and looking at my preferred pre-selected funds.
Example: if I want to buy HY Munis the 4 funds (NHMAX,ORNAX,OPTAX,GWMEX) are my top choices and what I have been using but I always take another look at other funds.
Investing has been my passion for years.
I do spend more if I post something that needs research, analysis and more.
===========
(link) "Stocks erased earlier losses and rose Monday, after the Federal Reserve said it would begin purchasing individual corporate bonds as part of its emerging lending program to inject liquidity into the virus-stricken economy.
Earlier in the session, the Dow was off as many as 762 points, or 3%, as investor jitters over rising coronavirus cases in key parts of the country stirred up an extension of last week’s pullback in equities."
============
My main investments are bond OEFs, will see in the next several days where markets are going

As I said several times before I don't follow any of these but my own rules which I started years ago preparing for retirement. Since 2018 I practiced stricter rules 1) 6+% average annually 2) SD under 3 3) never lose 3% from any last top 4) complete flexibility to do whatever I want/need. I exceeded these rules by a lot.
===============
Anyway, the thread is about bond funds so let's get back to it.
Last Thursday was another pivotal day for me. VIX jumped to almost 41, stocks crashed, the risk is elevated, rated are down sharply but BND wasn't up which is what you expect from a high rated bond index. VBTLX which is equal to BND but doesn't trade was up 0.08%. When rates decrease so much I expect bond fund like VBTLX to make more than 0.08%
All the above didn't make sense to me. Maybe it is just short term. I do the usual when the markets don't make sense to me I sell. It is unusual because in most cases I'm invested at 99+%. In the last 10 years, I was out of the market just 12 weeks (only in 5 weeks I was at 95+% in cash)
Last Thursday I was at about 50% cash and Friday at 95+% in cash. HY Munis which I had close to 60% of my portfolio were on a tear in the last month and even last week. It was time for me to sell.
YTD I'm way over my goals of 6%. I can take time out and can "miss" some performance.

+1. And I understand there are zero-coupon bonds, and bonds which pay monthly or quarterly. The div has to come from somewhere. I once owned a foreign "zero," denominated in USD, and when it paid, after 10 years, my money was nearly doubled. I recall the rate on it was about 5.68%.

Those interest payments are being spun at a cost.
Cash is cash. Principal and dividends are fungible. If I buy a bond at $103 and it pays $2 in interest (coupon) for three years until maturity, what have I really gotten? $6 in interest and a $3 loss of principal. It is any different from buying a bond at $100 that pays $1 in interest (coupon) for three years until maturity?
IMHO it's all the same, even if one feels "richer" with the $6 in interest.
Same idea with these funds. PTIAX cost $22.81 per share on Jan 2, and was worth $22.59 as of last close. It paid 32.5¢ in divs over that period of time. But like the bond, it declined in value. The net (total) return was less than one could have gotten in a bank. (But bank accounts have no upside potential.)
BTW, I love premium bonds.

Some people like posting narratives. I prefer hard numbers.
Start with $1,000, withdraw $40 (4% real, i.e. inflation adjusted) annually over 30 years. Do this with declining equity portfolios (e.g. 100% down to 0%) and with rising equity portfolios (e.g. 0% to 100%). Backtest against historical data, using rolling 30 year periods starting with 1900-1929, ending with 1980-2009.
Then look at the failure rates (portfolios that didn't last 30 years), and how much you'd wind up with at the end of the 30 year period.

Equity %	
(Start->End)	100->0	0->100	90->10	10->90	80->20	20->80	70->30	30->70
---------------------------------------------------------------------------
Failure Rate	 8.6%   21.0%    6.2%  	17.3% 	 4.9%    11.1%   4.9%	 8.6% 
Mean 		$1,388 	$851  	$1,336	$901   	$1,283	 $954	$1,230	$1,009 
Median		  $947	$171	  $873 	$293 	  $908 	 $424 	  $951    $527

Data from Exhibit 1 in Estrada,The Retirement Glidepath: An International Perspective, The Journal of Investing (Summer 2016).

Pfau and Kitces (2014) find support for RE strategies during retirement and justify their findings with the notion of sequence of returns risk. ... [I]f large negative returns occur at the beginning of the retirement period, the portfolio is far more likely to be depleted than if the same returns occurred by the end of such period...This is a plausible argument and perhaps applies to the simulations discussed in Pfau and Kitces (2014). ... However, the support for DE [declining equity] strategies found here (at least when compared to RE [rising equity] strategies) calls into question how relevant sequence of returns risk has been empirically... In other words, however plausible in theory, sequence of returns risk does not seem to have been a key determinant of portfolio failure in this broad sample.

Big advantage for rising equity? Plausible but not borne out. Nor as noted previously do Pfau's simulations bear this out under market conditions like today's.
Way too often people go with their gut, or their fears, rather than rational analysis and cold hard numbers. That's why only about 5% of people wait until age 70 to take SS, it's part of why there's an annuity puzzle.
For those who don't want to read Estrada's complete paper, there's Larry Swedroe's page about it. He concludes:

To summarize, while Estrada presents evidence favoring the use of a DE [declining equity] glide path over a rising one, and also shows that a static 60/40 allocation is preferable to an RE [rising equity] portfolio, the most prudent strategy of all is not to “set it and forget it” with any of these options.
The most prudent approach is to adapt a strategy to actual market returns and valuations.

Rising glidepath has a big advantage of not losing as much in the first critical years. So, even if all 3 (rising, declining, stagnant) glidepaths are similar I still prefer to start with a lower % in stocks.

Call it confirmation bias, but I generally agree with Clements. At least a couple of years ago I wondered (and posted) whether low rates coupled with interest rate risk rendered the value of bonds over cash dubious. I've written favorably about Buffett's propsed allocation, 10% short term (effectively cash), 90% equities. Though I disagreed with his singleminded focus on the S&P 500. This cash/equity approach is also essentially Evensky's 1985 two bucket strategy.
Figuring on a 4% withdrawal rate, the 10% cash could buffer a bear market taking 2.5 years to recover. Clements suggests 25% cash, or around a 6 year buffer. I might split the difference and put half of that 25% in cash, half in vanilla bonds, figuring that the bonds will do better even with modestly rising interest rates, if one waits 3 years or more.
As Clements noted, the expectation value of SS is greater if one delays taking benefits. This is especially true if one is focused on one's own lifetime and not on legacies. If one has a financial need for monthly checks before age 70, one can fill the gap with a temporary life annuity.
Which brings us to annuities. Dr. Wade Pfau says much the same thing as Clements - that the lower the current interest rates, the bigger the bargain annuities are, thanks to mortality credits. "Essentially, while the cost of funding retirement with an annuity increases as interest rates decline, the cost of funding retirement in other ways increases even faster than for the annuity. Therefore, the annuity becomes a better relative deal."
Speaking of Dr. Pfau, while he and Michael Kitces suggested seven years ago that a rising glidepath might provide a slightly higher probability of success (not running out of money over 30 years), subsequent research by Dr. David M. Blanchett showed that a traditional declining glidepath would work better in an environment with low interest rates and highly valued stocks. As it was in 2015 when he wrote his paper, and as it is now.
They had an ongoing exchange about this. Here's one part:

I re-ran the analysis that Michael and I did in our initial article, but I switched to the new capital market assumptions I use which allow for increasing bond yields over time while keeping a fixed average equity premium over bonds. ... It does indeed seem that retiring at times with particularly low bond yields, which can be expected to increase over time, may not favor rising equity glidepaths during retirement. It essentially causes the retiree to lock in low bond returns and even capital losses on a bond fund as bond yields gradually increase (on average) over time.
This is not to say that rising equity glidepaths are never a good idea. ... If interest rates were at a higher initial starting point, I’m guessing that rising glidepaths would look much better in his analysis.

@Catch22 and others have been mentioning this very thing, I recall. Makes sense. I had been operating on an "old school" basis. 36% stocks now, 58% bonds. Goal: up to 65% bonds. But I won't be putting in much effort to get there. Looking 5 years out and trying to estimate profit, particularly now, would be a wild guess. Nevertheless, my "go-to" page is still Morningstar. They're telling me via X-Ray that my particular mix of funds will get me a 5-year yield that's 44% better than the Index they're using. As for cap gains, measured by EPS growth over 5 years: 31% better than the S&P500. But maybe that's just wishful thinking, based on normal times, anyhow. Covid-19 changes everything. Anyhow, the dividends I get monthly are not nothing. If I need to start collecting them--- after we move in the Spring to a bigger place, maybe--- they will be a big help with utilities, for example. Lots of solar here, though. If we're fortunate, we'll grab one of those.

Hope not too non-topical. Just based on relative performance of some funds I hold and following various print / non-print media:
(1) Following the March meltdown, value stocks began to outperform many other sectors. That was a surprise after their decades old underperformance. Doesn't make up for the bad years, but is a refreshing change for value investors.
(2) A second surprise was a brief powerful surge in energy and other cyclicals (including materials) which began shortly after oil briefly fell into negative territory. Oil is nowhere back to its all-time high over $100, but compared to April's (negative) - $37.63 handle, +$37-$38 today is pretty impressive. No idea how you would even compute a % gain like that.
(3) Not so much a surprise as "long overdue", the dollar weakened substantially over the past 2 weeks. That's supposed to be good for EM curriencies - probably is longer term. But downdrafts in equities like this week's can also serve to weaken those currencies.
If you are well diversified among various sectors and added a bit of risk to your plate during the March pummeling, chances are you're not down too far this year - and in some cases positive. Ted used to say, "Investing isn't a sprint, it's a marathon".
(4) @bee's topic is so stimulating ... here's one more surprise. Have followed real estate funds since dumping one a year ago. Than, sector was up something like 35% for 1 year. Generally afraid of heights - so bailed. What's surprising is both the depth to which they fell early this year as well as the sharp rebound since March / April. Considered opening a spec position in TRREX month or two ago when it was off near 30-35% YTD. Waited too long. Confucius say: He who hesitates is lost.. :)

I listed the funds because they meet the performance and risk parameters I was describing. Some I'm more familiar with than others. Generally I try not to say what I own because each person's needs are different, but I'll go so far as to say that I do own at least one fund on the list.
Beyond that, I'll just comment on a couple of the funds. I don't own BCOIX, but I've written about it a few times. I don't own it but I do own a similar fund with very close performance both short and long term. So I've never found a reason to change or to use it for management diversification.
Nor do I own TRBUX. I haven't written about this fund, but I have written positively about RPHYX and its use as a place for intermediate term (1-2 year) cash. For much of its life, TRBUX has returned significantly less than RPHYX (see chart here). Further, it fell a little harder than RPHYX in March.
But over the past three years, the two have tracked closely. And it bested RPHYX by nearly 3% since the end of March. While I still need to look at why each of these funds did the way they did, the past three years suggest that TRBUX could serve as a fine "near cash" fund.

In response to your question. I'm thinking that it does along with the high frequency crowd. Look how the machines played the market this past Thursday with the S&P 500 Index moving from a Wednesday close of 3190 to a Thursday close of 3002 for a 5.9% down move. It use to be years back that one percent moves were the big ones and now that the machines are playing the market the five percent moves are becoming quite common. I remember recently reading that some believe that better than fifty percent of the daily volume now comes by way of program trading.
Below is a link to a Seeking Alpha article that states 80% of the volume is believed to come from algo trading programs.
https://seekingalpha.com/article/4230982-algo-trading-dominates-80-of-stock-market

Ive had Prwcx for 20 years-Love it!! I wish other choices would do half as well

I have a fair amount of overlap with funds previously mentioned. Among those not mentioned . . .
YTD performance is per M* rather than any picture of my performance.
Neuberger Berman Genesis (NBGNX) has done just fine @ -5.44 YTD . I'm glad I held on when I was selling funds to simplify, and rebalance, back in December-January. Their thesis still made sense to me when push came to shove.
Value Line Mid-Cap (VLIFX) is -4.98. I bought some on march 18th. That has worked out pretty well.
Merk Hard Currency (MERKX) is at -2.7. I'm so far in the red on that one. I doubled down on that and USAGX (a gold fund) after Trump was elected. Maybe it would take off if we had Weimar-style inflation. I hope it never takes off. But I'll probably hold it until the end.
Fidelity Floating Rate (FFRHX) is holding up better than VWELX at only -4.71. I bought it as part of my inflation hedge. Compared to MERKX, I feel like the guy that stopped hitting himself in the head with a rock.
I'm not too happy with the DoubleLine bond funds I bought. Their infrastructure fund (BILDX) is only +.13. And their low duration is off -.86. I'll be looking for opportunities to get out ahead with both.
Fidelity Real Estate Income (FRIFX) has been a party-pooper. It's at -12.69 while TIAA Real Estate (TCREX) is only off -7.90. FRIFX was supposed to be the less volatile real estate option. Considering I bought them after selling Vanguard's realty index (VGSIX), I shouldn't kick too much. It's off 12.48.
Switching out of Vanguard's small cap index for Boston-Walden's small cap ESG (BOSOX) has not worked out yet. It's off -17.72 while the index is only off -13.51.
I still have high hopes for ESG moving forward. Not sure how long I'll have to wait. Parnassus, and Boston-Walden midcaps have been nothing to write home about compared to the mid-caps mentioned above.
TIAA-CREF's ESG bond fund TSBRX has worked out better so far at +3.59
Janus Henderson Small Cap Value has been a lamb led to slaughter. The less said of it, the better.
Speaking of the funds that got away during my rebalance. Nicholas (NICSX) is only off -4.15. But I was worried about the succession issues after going through tribulations with Homestead Small Cap (HSCSX). That started to wobble after Morris and Teach retired. And began to founder after Ashton retired. I got out some time ago.
I dumped Royce Special Equity (RYSEX). There are other funds that watch the balance sheets, and still manage to buy a winning stock every once in a while.
I dumped Mairs and Powers funds when I realized it was silly to own something because I went to college in St. Paul 45 years ago.