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Bond Market Entering Shift Not Seen Since 1946

edited January 2013 in Fund Discussions
FYI: Louise Yamada is the 'Queen' of TA. I have followed her for over 25 years when she was the chief TA at Smith Barney

About Louise:


  • I saw this interview on tv. She's a smart cookie. I knew of her reputation.
  • edited January 2013
    Hi Max- No argument with respect to her track record, but contrast her opinion with that of Rob Arnott: "we are still squarely in the sweet spot for bonds, at least demographically for much of the developed world." See:

    • Clamui's link to Rob Arnott commentary.... (A downloadable pdf file)

    From MFO Discussion:
    • Current PAUDX Holdings- betting on bonds?

    Two respected gurus... who is actually right? She's looking for a repeat of history, he's looking at an entirely different picture: massive difference in age of cohorts then and now.
  • Hmmm.....What I can say is: both my PREMX and DLFNX have been faltering recently, though not exactly PLUNGING of late....PREMX = 40.83% of holdings, and DLFNX = 2.61% of holdings.
  • edited January 2013
    I like Yamada also. Some of us were around in 1946. Here's a list of consumer prices from than: ... And, that 55-cent theater ticket would have gotten you a seat at "It's a Wonderful Life" with James Stewart, which debuted in 1946:'s_a_Wonderful_Life
  • Reply to @hank:
    It sure is a good thing that personal income has risen so much faster than prices over these decades! How very fortunate we are to have such a higher standard of living than past generations.
  • Reply to @Ginko:
    Some prices (such as that movie ticket that went up 11x, or a dozen eggs that merely doubled) have gone up much less quickly than average income (15x).

    But many big ticket items went up much faster - including housing/rent (52x/27x), higher ed (72x). And then there are medical expenses (haven't dug up 1946-2006 figures, but here's a graph on Freakonomics showing inflation, higher ed, and medical from 1978 to 2008). Same idea (though medical not rising as fast as college).

    So it is true that average annual income went up faster (15x) than costs in general (10x, using CPI-U December 1946 and 2006 figures). But standard of living? Have you compared the quality of those eggs in 2006 with the ones you got delivered to your stoop along with your fresh milk in 1946? Many of the things that got cheaper over time got, well, cheaper as well. (The opposite is true also - cars went up faster in price, but added all sorts of safety features, comfort improvements, etc. that make modern cars more valuable.)

    It's notable that people at the bottom of the income scale (min wage) are beating inflation by less than average (min wage up 13x vs. 15x for average income).

    Finally, with respect to the original point of the thread, that bonds go through multi-decade cycles, and that we're at a turning point: well, duh. Here's a graph (and associated column) of treasury rates since 1900.

  • Reply to @msf:


    I know that you're making reasoned arguments, but as a whole they just don't hold any water with me. Ever since I was a child, people argued that they had better off when they were kids because prices were lower. Somehow, we just find it hard to accept that incomes have risen faster than costs.

    Even if you don't believe the statistical evidence that the CPI (or the thousand prices project, etc.) already takes qualitative changes into account, and that our incomes are hugely higher in real terms, I'll just do my personal, informal eyeball check:
    --People are paying much more for medical care, but they have their teeth and are living ten years longer. Is that worth the extra cost?
    --The norm today is that kids will go on to higher education rather than quit school at age 18 or even 16. Is it surprising that education spending has risen?
    --Do we see kids in America today living in shanties and with serious malnutrition the way we did in the 1940's? Even if the poor have had lower incomes after inflation (in the past two decades, by the way, but not from the post-war period), there at least is a basic social safety net that doesn't show up in income/COL data.
    --Sure people spend lots more on housing today, but isn't that by choice? Hardly any family today, even of modest means, would even consider moving into the one-bathroom dream house of the late 1940's. People are choosing to use their excess wealth to live at a much higher standard.

    I agree with you though that it's much harder to find a really good, fresh egg.

    (No need for your "duh" comment, by the way. My post wasn't questioning the obvious: that interest rates will revert to the mean, at least, in the next couple of years.)
  • I don't see the discussion needing winners and losers. There has certainly been a concentration of wealth toward the top going back a couple of decades, at least. General experience means more than statistics. After all, the government simply re-defines how a statistic is arrived at when the number begins to look too unsatisfactory. Unemployed for longer than 6 months? You simply drop out of the statistic. Arbitrary. No logic behind it, unless the "logic" rests on the assumption that you SHOULD have already found a job within 6 months. (Good thing the old family home is still here for me, and that my wife is still employable. Otherwise I'd be screwed.) Are we better off than decades ago?

    Wrong question. The so-called "emerging world" is passing us by, now. Even South Africa (!!!!!) has universal health care. Ya can't tell me that Obamacare is "universal." We are all a nation--- starting in 2014--- which is captive to the insurance industry. Here in Massachusetts, the individual mandate is already in force. ...With regard to the other stuff the Middle Class takes for granted: car, tv, education: it's all being priced out of reach, with every breath we take. Cars are advertised with the LEASE price, now, front-and-center. The Middle Class is being hollowed-out. Government ought to be helping, but...

    .....We registered our two cars after moving back here. Then wifey got a job about an hour away. Spends more days there than here, now. Insurance requires we designate where the car is "principally garaged." So we went back to the DMV to tell them. What did they do? They treated the change as if we'd LOST the registration and so they just charged us for a NEW one, as if we were negligent. And looking at the updated registration, there is no indication whatsoever that anything was different from the original. Not very likely I'll be running back over to the DMV to update again, now that wifey works in town again, now. Government can't serve people because it's hostage to the Almighty Dollar. Government's been strangled. (Though I will grant that SOME regulations are stupid and fecal.)
  • Reply to @MaxBialystock: LOL - All good stuff Max. My fault! Changed the topic somewhat - as I've sworn to no longer comment on bonds. (I was causing too much trouble:-) So, tossed out the look at 1946 prices. Contrary to Grinko, I didn't take msf's "duh" as directed at him or anyone else. I think he was just pointing out the inevitability of the downward trend in rates reversing in the not too distant future (As Yamada predicts). Now, just as science says every action has an equal and opposite reaction, you can't separate interest rates trends from consumer prices over longer periods. They're intrinsically linked - but in complex ways perhaps only an Einstein would be able to fully understand. (No "duh" there:-) Inasmuch as a primary goal of investors is to protect their future purchasing power (ie: investments) against the ravages of inflation, than there is some purpose in how the discussion has evolved.
  • " as I've sworn to no longer comment on bonds. (I was causing too much trouble:-) "

    Same here.
  • Reply to @scott: (-: (-; But Scott. Do keep posting. You have much to say on many other matters!
  • edited January 2013
    I'll only comment about bonds to the extent of whether "they" are kicking our houses portfolio arse in a too negative manner. Past this, we would prefer a bit more equity exposure and watching as to how high the equity sectors travel until the temptation of profit taking is beyond the control of the big houses and/or the algo machines.
  • edited January 2013
    Reply to @hank: Oh, I'll certainly keep posting. I think I've just said what I've had to say regarding bonds and I guess the other thing is that fixed income is just not of that much interest to me (not saying anything against it, I just don't have enough interest in it even to really argue any further about which direction it may head, or which sub-section of it may outperform, etc.)
  • TA is probably good for individual stock but not great for index.
    Yamada basically called for sell signal at mar 2009 bottom
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