Weekend March 21 2021
Interest rates rose from 1949 to 1981, and the fell for another 39 years to 2020.
the big money is made by getting in at the start of a huge market turn. Examples
buying an index fund in summer 1982 and holding for DJIA 33,000. Sure there was money to be made entering later by the leverage by entering at DJIA 800 would have been tremendous
buying long dated bonds when prices peaked in the early 1980, rates have fallen from 12-14 % to less than one percent a year ago. My market experience began then in the bond market buying
corporates, mortgage backed, zeros, and watching price soar as rate dropped to 7% by 1986.
Let's take a look Here are three graphs of the 39 years up and 39 years down in bond prices.
MY friends at EWI
have chart of just 1948-2020 but it is copyrighted, so here is the same if you closely examine that period.
Bloom berg announced the bull market in bond prices has now ended but that was over a year ago. February 2020 to be exact. On the thirty year bond prices have fallen from 185 to 155 in one short year. that is a drop of 116% Sure a 2.4% yield sounds low and it is. but in the context of having been less than one percent over a year ago, yields are soaring.
For example Fidelity lists a 30 year bond with a coupon of 1.25% issued 5/15/20, less than a year ago.
Already the price has dropped to $749.84. So in 10 months the bond has lost 25% of its original value! Ad it will only get worse as rates rise much higher.
And there are fundamental reasons for higher rates.
The $1.9 T Covid Bill was anything but it is a bill attempting to bail out Democrat manged cities and pension funds. But of course it will not be nearly enough to do that.
And the spending will only become greater as Biden fantasizes he is fixing climate change.
Stephen Moore estimated that if the $1.9 T passed, now work for welfare, and we see more $15 minimum wage, job losses will soar to 5-8 million. There will be little reason to return to low paying jobs. And many small employers will simply close shop unable to sustain the higher wage cost
In this case interest rates rise due to the fear of default.
Or if commodity prices rise, demand for money will cause rates to rise.
And as rates rise more of the Federal budget will go to debt service, recall the budget deficit is the highest since WW II,
A nearby shelf of support exists for the 30 year bond price at 152.8. It has fallen near every week since February 2020. so I am looking for a reversal andd a rally
in bond prices which will be counter trend. Whether we are at a 3rd wave low or 5th already I am not sure but either way probaly time to sell my TBF a bet on lower bond prices.
For some reason stockcharts is not storing charts so I can retrieve them. An advantage of trading bonds is that one does not have to make industry or company choices, there is only one bond market And from these low interest levels, there will be plenty of money to be made the next few years. Investors in highly leveraged REITS , muni bonds and such will be stunned at just how fast their capital an decrease.
Here are some of the vehicles we will be using
TBF ETF betting on falling bond prices
WHOSX Wasatch Hoisington Bond fund
Treasury Bonds themselves which can be highly leveraged.
So far junk bonds have only fallen from 109 to 1047.56 so we are still in the very early stages of bond price decline
I bought late in TBF at 16.31 but two months later it is 18.247, again of 12% in 60 days. That may not sound like Tesla or NFLX, but once the top is in on those high flyers this will be a conservative consistent way to make money
Ratio charts will be a big help in our success in the bond yield versus bond market. When yields are outpacing prices, bond prices are falling and we need to be long bonds
I have been but entered in January. Not bad but October would have been better. Now the MAs are spread and the ratio is way above the 200 bar MA.
Notcie the TBF chart is virtually the same. But a combination of ratio , distance above MAs, PMO, will help wtih the timing.