JoeLeesSocks - Junk Bonds?

[JungRebel]

What's your opinion? A safe bet for now with the Fed's blessing? I'm looking to move a small amount to bonds to have some 'cash' I can sell quickly in the event of a downturn after the election. Any reason not to? And which bonds would you recommend? Anyone feel free to weigh in but I assume JLS has an opinion.

 

[JenBielema]

I've moved all of my cash to Blockfi - USDC coin earning 8.6% APY. No lockup period......1 to 1 with USD....easy money.

 

[T-TownDawgg]

I've moved all of my cash to Blockfi - USDC coin earning 8.6% APY. No lockup period......1 to 1 with USD....easy money.

Sweetheart, if you want easy money enter hubby in a Vegas wing eating contest

 

[horshack.sixpack]

I PM'd you.

 

[Jeffreauxdawg]

I'm not a bond expert by any means, but I would not touch junk bonds in this economy. There are certain classes of investors (pension funds) that have to be invested x percentage in bonds and have to make significant returns to meet obligations.... (Pensions are a casualty of this low interest rate world we entered in the last 20 years.) They are the junk bond buyers that make sense... A guy your age? Nope.

The Fed put creates liquidity (a buyer of last resort) in the market. But the Fed cannot print top-line revenue for ****** companies. Junk bonds are like loaning money to your sister's boyfriend for his new Pho restaurant in Noxapater. They intend to pay it back, but nobody can make the Noxapateri eat that ****.

My best advice.... Don't worry about missing out on anything. Buy (or loan to.. aka bonds) quality companies (growth and value) at a decent valuation and it's hard to go wrong.

Everytime you get excited about something, listen to these guys and sleep on it for a few months. If it's still exciting, go for it.

View attachment 17366

View attachment 17367

View attachment 17368

View attachment 17369

And maybe the most important thing for us amateurs to know.

View attachment 17370

 

[CochiseCowbell]

You're asking the color blind guy?! He probably mistakes greenbacks for **** paper.**

 

[Grove Sh*tter]

How do you think they paid for the new Las Vegas casinos?

Go all in

 

[TheStateUofMS]

I prefer to call them High Yield, but yes they have a place in a portfolio. No more than 10% weighting though.

 

[philduckworth]

It seems the poster is saying he is fully invested in equities. He wants to take some profits in equities b/c he feels we may be due for a pullback. And he is looking for a place to park these profits until valuations seem more reasonable. Is this not a sound strategy? If so, where should one park there money-cash?

 

[Jeffreauxdawg]

I will try to better explain what I mean. There are 2 factors in the success of a bond, bond fund, or bond ETF... Just like a stock. Price and yield. In this environment, insolvency is already tracking to be as bad if not worse than in 2008. That will drive low grade bond prices downward.... I mean do you want to own American Airline or AMC Theater bonds? Would you loan them money in this environment?

At the same time, it will drive high grade bond prices up since we should all feel safe about loaning Apple and Amazon money these days.

Here's 2 monthly charts. That will show you what you are really getting with low grade (junk or high yield) vs high grade bonds.

The first is the SPDR high yield bond ETF... Ticker JNK... It's currently yielding 5.7%. These are junk bonds that Moody's estimates 12% will default on in the next year.

View attachment 17376

This one is the SPDR investment grade long term debt ETF ... Ticker SPLB. Currently yielding 3.7%. Less than 0.5% will default according to Moody's.

View attachment 17377

So looking at the trends, which one looks like the better investment? Remember, you are trying to take risk off the table. Jung is in his 30's I believe... He's not looking for immediate income I don't think, so the extra 2% yield is hardly worth the risk of losing value. If he were 75 and retired and needs to get the best yield possible, maybe a little makes sense... But I still think there are better yield plays out there.

View attachment 17378


ETA to Hoops Dawg's question. Whether it's stocks, bonds, houses, cars, guns, golf clubs, tools, or whatever... It always pays off in the long run to buy quality. It really pays to catch it on sale. Not much on sale these days in my opinion, other than some refurbished stuff.

All talking sideways aside. If you want to increase bond exposure, get the good stuff, but if you look at that chart above, the quality stuff is not on sale right now. In times like this, cash (and it's equivalents) is an asset in and of itself. Compared to junk bonds during a recession that is a long way from being put behind us.... Cash looks pretty, pretty, pretty, good.

 

[JungRebel]

I am with your analysis and I am 30 years old. I will probably go with intermediate as opposed to aggressive bonds. What I'm interested in and want your opinion on is the fact that the Fed is buying some (not much - yet) junk bonds. Is the risk really that high if the Fed has a stake in it? What's the point of letting something default when you can always loan them some more money? I eat a bowl of Pho on every road trip by the way, not sure if that is relevant, but to be fair I havent been to Noxapater in 10 years.

I assume volatility is almost certain at that time given the polling data but wouldn't do anything to compromise anywhere near the majority of my position on it. We are talking 10%, max. The rest is in a 2050 target retirement date fund.

Polls have been wrong but even the ones that predicted Trump or gave him a legit shot in 2016 are leaning 70-30 Biden at the moment.

 

[Jeffreauxdawg]

Here's the biggest thing I can show you. Cash is stable (at least until inflation comes around after the vaccine), bonds are not. If you want dry powder... That's cash. High yield bonds are very directly correlated to equities these days. If the equity market pulls back, so will the high yield bond market.

Check out this sp500 chart for the year with the JNK overlayed on top of it in blue.

View attachment 17381

Buffett is 40% cash right now. Doubt he has a nickel of junk bonds.

 

[JungRebel]

Great stuff, thank you. What do you think about inflation adjusted bonds? I know there is talk by some here about hedging against inflation with gold or crypto but I'd prefer to keep it simple and I dont see how we will escape inflation and a correction after this is over.

 

[Jeffreauxdawg]

I think inflation is definitely a risk, but I don't know if inflation linked bonds are the right answer. They are going to rely on government calculated inflation.. Which I believe is a complete lie. Since the 80's and 90's the government changed the way inflation is calculated. Why? Because government pensions and social security have automatic increases pegged to inflation. Imagine what would happen to our budget if you had to raise social security and Govt retirement 3-4% every year? Well let's just say R's could not cut taxes and D's could not increase spending anymore.

I started what I thought was going to be a series of posts on this a couple of weeks ago, because I think it is the biggest risk we have going forward. I got no responses, so I figured it was not interesting to others. I will try to bump it and do round 2 on Monday, because I I have already written a ton of notes about it... It's a fascinating discussion and I want feedback too, because I don't know all of the answers. Here's a little taste of what I mean.

US inflation has been calculated at 1.6% or so on average since 2009. That would be a cumulative cost living increase of about 17.5% since then. Which would mean if you made $50k in 2009, that would be equivalent to $58.7 k today to maintain the same quality of life.... It's a big fat lie. Housing, autos, healthcare, education, childcare, and food represent the vast majority of what we spend our money on... They all have increased 3-7% per year on average since 2009.

Just think about a house. If you own a home and the value goes up its all good, but what if you don't? It's a *****. Well they call the price increase above inflation in housing, appreciation... But let's open that can of worms. Why would a house increase in price? Supply and demand right? What would increase demand? How about a bunch of people moving to your city? That makes sense.

But what about a place where people are moving away in droves (it's happening in a lot of rural towns in Mississippi.) Wouldn't you expect housing in those areas to depreciate significantly? Well they are not.

Housing is not an appreciating asset. It's actually depreciating from the day it's built. It's falling apart from termites, moisture, wear & tear, storm damage, etc. It gets out of date and needs new floors, new fixtures, new cabinets etc. Systems like HVAC, water heaters, roofs, etc get old and need to be replaced every 10-15 years.

The reality is just to keep a home in comparable condition, you will spend as much in repairs in the first 25-35 years as it cost to build the house originally. Explained... A nice house built in 1987 cost $75k. It has had it's roof replaced in 1998 from hail and again in 2017 from old age. There's $14k alone. 2 new central AC and heat pumps. Another $9k. Re-did the floors. $7k. A couple of hot water heaters, a plumbing repair, and two sets of appliances... $15k more. Then you know that the Mrs's couldn't handle that kitchen with oak cabinets and laminate countertops she needed maple and granite back in 2006... $17k for a kitchen... Which is looking dated again by the way. Don't forget about the bathrooms either. And the front door... And all the brass fixtures in the house... Holy ****, it's time to replace the windows... You get the point.

So if homes don't appreciate.. not really anyway... Why would home prices go up? Land. Land is an appreciating asset. When a bunch of people move to an area, it's land that appreciates. Not lumber, concrete, plywood, it shingles. So the current price of a home should be looked at as the original price of the home, plus appreciation of land/lot value, and the rest is inflation.... Inflation from increased labor, material costs, and regulations.

So how does the Bureau of Labor Statistics account for all of this in inflation... The dumbest **** in the world.. It's some crazy calculation of not what a home costs, but what a home owner would charge himself for rent after buying the home... The net effect? Drive down the reported increase of inflation vs the actual increase. The correct solution? Track rent and new construction costs to build.

I could go through similar flaws in cars, food, and healthcare are calculated wrong. But that's what the weekly post is intended to get into.

The net net? If all of these things are going up so much, how is the economy doing so well? Low interest rates. I can finance a $40k Tacoma for 84 months at 2.7% today for the same payment I had on a $25k Tacoma at 5% and 60 months 10 years ago. Same with houses.... I have sister in law that is buying a $215k house with 20% down on $38k of income.... Because interest rates are at historic lows.

The problem going forward is rates have bottomed, the Fed and Congress are printing money and putting it in people's hands to spend... The gig is up. I don't know the correct answer on the best inflation hedge going forward, but I am hunting for possibilities.

Real estate is risky because how can people pay more for homes if interest rates increase (Which happens in inflation.) Gold/commodities are always volatile and you can't use them as a single position safehaven. Bonds are risky because as interest rates increase, bond values fall... Plus the idea of inflation linked bonds underperforming because real inflation is higher than the reported number. Crypto? Domestic equities? Emerging markets? I honestly don't know. I think the best idea is to diversify broadly and don't married to any one strategy if you get kicked in the nuts.

I will dig up the inflation thread and add to it again Monday to see if we can get that one going again.

As for your current situation Jung... I see myself in about 12 years ago (other than my superior education and bigger dong.) I was where you were in life during the 2008 crisis. 30 years old... ready to buy a house, but the housing market crashed.. scared of losing my job.. I didn't know what to do long term either, so I just put some money into my 401k into a target account and let it work.

The best long term move I made was being conservative and investing in my real life. I did it out of fear honestly. I paid off my student loans and car payment. I took that money and used it to pay for B-school. I got married to a girl I met while in B-school. All of our friends were buying houses, cars, etc in 2009-10. We didn't buy a house until January 2013. But we had zero debt and found a smoking deal by that point because it was 11 and 12 when the foreclosures from 08 finally hit the market.

Our careers were strong by that time and as the economy recovered in 13-14 we had the flexibility to take on risky career opportunities that others couldn't because they were month to month still. This really paid off in the long run. My wife and I leapfrogged each other in career changes over the last 10 years and our income skyrocketed. We are so much further ahead than I could have ever imagined we would be at this point. We were able to take risks with our careers because we had the financial flexibility to do so.

So my best advice in times of uncertainty in the market is to focus on your real life.... Create the financial flexibility to invest in that pho restaurant if you want. Or buy a rental property. Or stocks in a brokerage account. Or take that job at the new startup.. There will be plenty of opportunities to make sound investments, so long as you have the means and patience to take advantage. But keep socking that money away in the retirement account all the while. What's inside the account is secondary as long as you are heavy equities at this point. Because you are 40 years away from touching it.

 

[JungRebel]

Much appreciated, plenty I didn't know in there and would love to see further analysis of inflation. I'm probably just going to keep plugging away with target date funds. Might add a percentage or two more of the paycheck past the match once I feel like the correction has begun to happen but nothing else.

 

[UpTheMiddlex3Punt]

You can do what I've started doing with some of my money. I call it "Stocks and Bonds on Steroids" but some people would call it stupid and crazy.

Now normally if someone tells you to do a 60/40 stocks/bonds mix and to frequently rebalance, you would expect something like 7% annual returns and would give you enough to retire comfortably at 90. I'm going to say that I do exactly that mix and rebalance, but I don't use ordinary stocks and bonds.

I'll introduce you to the stars of the show, starting with the main performer. Her name is TQQQ, also known as the ProShares UltraPro QQQ. Each day it tracks the three times the daily gain of the NASDAQ 100, aka QQQ. If QQQ goes up 1%, then TQQQ goes up 3%, locks in that day's gains, and gets ready to track tomorrow's movement. Same thing if QQQ goes down 1% on a day then TQQQ goes down 3%.

Now some people say these things, leveraged ETFs that is, are designed to only be held for short time periods, but if you had bought $10k of this in January of 2015 you'd have $73k today. I'd say it's not designed for people who hate making lots of money. Your investment advisor would tell you to never touch the thing and instead buy some mutual fund with the year you want to retire in its name and get a huge boner the years it gains over 9% returns.

Now in some ways the naysayers are right. If QQQ drops 33.3...% in one day then your TQQQ investment is hosed. There are some other unlikely other circumstances that could cause TQQQ to become uncoupled from its 3x expectations, but to date none of those have happened even though there were several people expecting its demise this previous March. But to date the largest single day drop for QQQ was 12.13%, just this past March. In fact, within a week we had drops of 12.13%, 9.43%, and 7.29%, yet TQQQ is up 53% YTD.

But enough about TQQQ. You would be stupid to go 100% in it and you can introduce a lot of safety and only reduce your CAGR by 3% (that's a lot of our gains were 12%, but we're well above that). And we do that with the help of our second performer. You have probably rightly guessed that this will be where bonds come into the picture. I hope you've also guessed that I'm going to recommend a leveraged bond fund. That fund has the ticket symbol TMF and is more formally known as the Direxion Daily 20+ Year Treasury Bull 3x fund. It tracks the daily gains of a basket of long term high rated bonds. On its own it's not all that great of an investment, but in the long term still does better than most bond funds. You'll also have people tell you to avoid it because it's leveraged and it's "not designed to be" held for more than a day. But I want to make money and it's really unlikely that these bonds drop by more than a third in a day. Your entire investment portfolio would be 17ed even if all you had was a bunch of CDs at your local back.

Now, these two performers on their own won't do much for you. You can't just toss 60% into TQQQ and 40% into TMF and just leave them alone for a couple years. You'll end up with suboptimal returns and notice you didn't really reduce your risk much. Instead, we have to rebalance frequently. You could do this quarterly or monthly. There purpose of the rebalance is to capture some of the big TQQQ gains into your TMF bucket. You might wonder why you do this, especially when you look at months where TQQQ had 20% gains and TMF lost 5%. Well, the two funds have a negative low correlation, so they are likely to move in opposite directions but to differing degrees.

The real power of the rebalance is that it works both ways. When the NASDAQ tanks and TQQQ tanks with it, you'll be pumping money back into TQQQ to take advantage of the rebound. Not only that, but TMF gets a lot of its gains during these periods of market decline. You'll get the money out of TMF before the bond market settles back down completely. The rebalance is crucial to this working.

Now, I'm not a financial advisor and I'm not going to tell you to do this. Plus the market could totally wreck this, or any other investing strategy, next week or anytime. But you can look at this backtest of it here (https://www.portfoliovisualizer.com...llocation2_1=40&symbol3=SPY&allocation3_3=100) and see that it has returns almost as good as TQQQ alone but has a maximum drawdown of 30%, much closer to the SPY drawdown of 19% than TQQQ's gut wrenching 49%.

Also, I only committed to doing this recently and only on a portion of my investments. I'll see how it goes over the long term. So far so good.

 

[TheStateUofMS]

You should probably have 80% or more exposure to stocks at 30years old unless you're incredibly conservative. I'm 31. I'm 100% stocks.

 

[Nicephorus]

Sweetheart, if you want easy money enter hubby in a Vegas wing eating contest

Few understand....

================== yCRV ==================
1 yCRV = $1.0497736449126611

There are total : 92908057.82239234 yCRV staked in yCRV vault
= $97,532,430.50

Hist. Daily ROI : 0.2089%
Hist. Weekly ROI : 2.0581%

APY (daily) : 114.1897%
APY (weekly) : 188.4589%



The answers are at
Curve.fi
https://guides.curve.fi/
Yearn.finance
https://www.youtube.com/watch?v=Kuz7Tg57XbE

 

[Mobile Bay]

Getting that risky I am surprised you didn't finish it off with short term Tesla OTM Tesla calls. Or the purple crap game at the Silver Star.

 

[Jeffreauxdawg]

The biggest question I have is what happens when interest rates rise? Bonds (TMF) and Stocks have a negative correlation to rising interest rates. If we are at zero now... What is the upside potential of TMF from here? Isn't it all downside risk? Or does the daily shuffling inside the funf offset that risk?