What are you buying today?

[LearningMachine]

I stand by my characterization of your macro view.

 

Borrowing words from 3rd Circuit Judge Stephanos Bibas, saying it so "does not make it so" :-).

 

I am just a stickler for accuracy in my point of view because I truly don't make investments based on figuring out how I can pay a higher coupon.

 

I feel it is very important to be accurate in our statements especially if we are putting words in other people's mouths. 

[Every Banana Counts]

MKL. Any take on company culture as many of the Markel’s sell out of their holdings? Lots of selling going on. Looks like a good deal at these prices. Thanks.

[thepupil]

I'm just pulling it off bloomberg.

 

I think we can both agree that rising rates/inflation is not good for owning utility equity which is a low growth long duration asset.

 

But I reiterate that if you see the rate rollover risk with this company as being a dealbreaker, you will see this risk with almost any company. that's your preferred way to invest and I that's perfectly fine, but I'll feel a need to contradict it when you cite it as a reason for not looking at something, particularly when it looks like the exact opposite (ie the company has an opportunity to decrease its cost of debt as high coupons mature, ie the 9% of 2021 issued in 1991 are refi'd and become 3.25%'s of 2050).

 

If the curve shifts 300 bps up, they'll probably still decrease their WA coupon over the next 5 years. If you think the curve shifts more, that's a macro tail scenario. all portfolios of risk assets and bonds would likely suffer from that. I'm not saying that won't happen, but it'd hurt the vast majortiy of risk assets in a big way.

 

 

[Cigarbutt]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

[SafetyinNumbers]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

 

Do you mind explaining, Cigarbutt?

 

I'm more of a macrotourist than anything else.

 

Thanks!

[spartansaver]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

 

Do you mind explaining, Cigarbutt?

 

I'm more of a macrotourist than anything else.

 

Thanks!

 

I’m curious as well. I took the other side of this and bought very far out of the money puts.

[Cigarbutt]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

Do you mind explaining...

I'm more of a macrotourist than anything else.

I’m curious as well. I took the other side of this and bought very far out of the money puts.

When starting to internally manage excess savings 20 years ago, in order to assess publicly traded options, the goal was to assemble a portfolio of about 10 holdings (with most funds in the top three). That’s still the ultimate goal. Apologies for this macro part that contaminates and perhaps corrupts this board but will try to answer the question. 20 years ago, if somebody would have mentioned the possibility to go long on the 30-yr Treasuries with yields at 1.90-1.95%, i would have ignored immediately, something that the reader may do as well now, as the long term fundamental reasoning is irrational and the position is based on how surreal the situation can go.

 

Since the GFC, this has been a recurrent and profitable opportunistic venture (on margin for the first few years) and, during the last phase (2019 to end of February 2020) which i thought was the last puff, i mentioned here: “i hope to never meet again circumstances indicating that investing in long term risk-free bonds would make sense.” There you go.

 

The consensus view now is that the economic recovery is underway with 'reflation' helping. It seems though that there is wide underappreciation (opinion) about how VERY unusual the present monetary and fiscal pictures are (example: the deficit THIS year in the US will be (what is expected now) at least 20 to 25% of GDP). We are going through (at least from a certain perspective) one of the greatest centrally-planned experiments.

 

 

To make a long story short, think of MV=PY. It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom), no matter how high M is propped up.

 

During the last profit puff, muscleman asked a similar question and i used a rocket science analogy and he likely thought i was stupid and irrelevant (he was probably right) but now the rocket trademark belongs to a different crowd (see above) who are the embodiment of primitive animal spirits and who have figured out what really counts.

 

So now, I need to use something else. What comes to mind is the Frank-Starling law. It’s well explained by Wikipedia but don’t waste time on this. It’s a theoretical concept that, somehow, can be useful when split-second decisions are necessary to keep someone alive. The idea is that, to increase cardiac (economic) output, one can increase the amount of fluid (money) in the circulation and/or can increase the amount of fluid pumped by the heart per beat (it’s called inotropy and is equivalent to lower interest rates for the economy). However, the law implicitly implies that the longer-term underlying outcome is strongly correlated to the fundamentals. Increasing liquidity and contractions, at some point and non-linearly, results in acute failure. Flat lines don’t point to inflation.

 

 

The basic question: Is the greatest bull market in ‘risk-free’ bonds over? i bet not quite, especially in this non-linear territory. Today, I’m spending some time, for fun, on an idea recently mentioned on this board; it’s basically a company involved in shredding documents and it’s so much more interesting than the macro stuff..

https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

i became aware of the potential opportunity in long term US government bonds when i indirectly benefited with Fairfax who, during the GFC, sold their long term Treasury bonds at a time when credit spreads exploded in other fixed income areas and the evolution of long term risk-free yields has been fascinating since then.

 

BTW spartansaver (in the unlikely event that you made it this far in this post), i strongly disagree that we’re on the opposite side of the ‘trade’. So, we’ll have to disagree to agree and all roads (may) lead to Rome.

 

Warning: this thesis is extremely contrarian. Moody’s released yesterday: “Prices Rise Here, There and Everywhere”. These guys are extremely bright although they were somewhat behind the ball before the housing b****e.

[thepupil]

yea, I'm adding to duration, bought a 2050 zero @ $55 / 2% just now for a very small portion of my parents portfolio. I try to replicate the duration of a decent bond allocation w/ less than 10% of the portfolio in order to maximize convexity and keep a big slug of cash around, so this means zero's and quasi perpetuals. Right now have about 6% in century bonds of universities (MIT Caltech Bowdoin) and some shorter Harvards/Princetons and am going to average into duration as it sells off w/ 30 year zero's. that 6% probably roughly has duration of 30 ish so 2 pts of duration on the whole portfolio. Total bond index has duration of about 7 so that my portfolio of zero's and centuries should have the duraiton of about a 28% bond allocation that's diversified across the curve. there's a curve bet in there of course, but I'm okay with that. I want the most convexity, least re-investment risk and most deflationary punch possible. combine this with a prepayable 30 yr fixed mortgage and your left long rate vol and convexity (which they just took out at 2 7/8%)

[compoundinglife]

TLT, ETF long term Treasury Bond

Seems like an asymmetric situation at this point; with a mental stop-loss if..

Do you mind explaining...

I'm more of a macrotourist than anything else.

I’m curious as well. I took the other side of this and bought very far out of the money puts.

When starting to internally manage excess savings 20 years ago, in order to assess publicly traded options, the goal was to assemble a portfolio of about 10 holdings (with most funds in the top three). That’s still the ultimate goal. Apologies for this macro part that contaminates and perhaps corrupts this board but will try to answer the question. 20 years ago, if somebody would have mentioned the possibility to go long on the 30-yr Treasuries with yields at 1.90-1.95%, i would have ignored immediately, something that the reader may do as well now, as the long term fundamental reasoning is irrational and the position is based on how surreal the situation can go.

 

Since the GFC, this has been a recurrent and profitable opportunistic venture (on margin for the first few years) and, during the last phase (2019 to end of February 2020) which i thought was the last puff, i mentioned here: “i hope to never meet again circumstances indicating that investing in long term risk-free bonds would make sense.” There you go.

 

The consensus view now is that the economic recovery is underway with 'reflation' helping. It seems though that there is wide underappreciation (opinion) about how VERY unusual the present monetary and fiscal pictures are (example: the deficit THIS year in the US will be (what is expected now) at least 20 to 25% of GDP). We are going through (at least from a certain perspective) one of the greatest centrally-planned experiments.

 

 

To make a long story short, think of MV=PY. It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom), no matter how high M is propped up.

 

During the last profit puff, muscleman asked a similar question and i used a rocket science analogy and he likely thought i was stupid and irrelevant (he was probably right) but now the rocket trademark belongs to a different crowd (see above) who are the embodiment of primitive animal spirits and who have figured out what really counts.

 

So now, I need to use something else. What comes to mind is the Frank-Starling law. It’s well explained by Wikipedia but don’t waste time on this. It’s a theoretical concept that, somehow, can be useful when split-second decisions are necessary to keep someone alive. The idea is that, to increase cardiac (economic) output, one can increase the amount of fluid (money) in the circulation and/or can increase the amount of fluid pumped by the heart per beat (it’s called inotropy and is equivalent to lower interest rates for the economy). However, the law implicitly implies that the longer-term underlying outcome is strongly correlated to the fundamentals. Increasing liquidity and contractions, at some point and non-linearly, results in acute failure. Flat lines don’t point to inflation.

 

 

The basic question: Is the greatest bull market in ‘risk-free’ bonds over? i bet not quite, especially in this non-linear territory. Today, I’m spending some time, for fun, on an idea recently mentioned on this board; it’s basically a company involved in shredding documents and it’s so much more interesting than the macro stuff..

https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart

i became aware of the potential opportunity in long term US government bonds when i indirectly benefited with Fairfax who, during the GFC, sold their long term Treasury bonds at a time when credit spreads exploded in other fixed income areas and the evolution of long term risk-free yields has been fascinating since then.

 

BTW spartansaver (in the unlikely event that you made it this far in this post), i strongly disagree that we’re on the opposite side of the ‘trade’. So, we’ll have to disagree to agree and all roads (may) lead to Rome.

 

Warning: this thesis is extremely contrarian. Moody’s released yesterday: “Prices Rise Here, There and Everywhere”. These guys are extremely bright although they were somewhat behind the ball before the housing b****e.

 

Thanks for sharing. I agree that you and spartansaver are closer to being on the same side of the trade. I occasionally look at buying OTM calls or doing call spreads on TLT as hedge. Seems like a potentially interesting alternative to puts on something like SPY. Because there are potentially situations where both equities and Ts do well. But in the event of big moves down on equities you should make money. Anecdotally TLT options seemed to often be cheaper but more imperfect hedge. But I definitely get outside of my circle on this topic so I haven’t pulled the trigger in any meaningful way.

[LC]

Why TLT and not traditional protection such as GLD?

[wabuffo]

I believe that one has to think in terms of the consolidated US Federal government debt mix as the sum of:

(1) currency in circulation + (2) bank reserves + (3) US Treasury bonds owned by the public - (4) US Treasury bonds owned by the Fed. 

 

Some things that are going to happen this year:

1) US Treasury spending will subside as we get stimulus behind us. 

2) In addition, US Treasury debt issuance over and above that spending level will decline even more than that as the US Treasury runs down its TGA account at the Fed in time from the current $1.6t down to $800b or below as per the plan released by Yellen's Treasury dept.  So spending will exceed borrowing by $800b.

3) the Fed's continued QE is therefore a Federal govt debt management policy that will continue to push the US Federal consolidated govt debt mix more towards the short end, in interest bearing reserves that can't escape the banking system.

 

I don't see how that allows the long end of the Treasury yield curve to continue to rise over the coming year and beyond.  In fact, I think we may see zero long-term yields before we see 3-4%.

 

wabuffo

[nwoodman]

Added more FFH,

[Spekulatius]

Why TLT and not traditional protection such as GLD?

 

Yeah, that’s my question too. For me gold looks like a better bet, especially in a scenario where interest rates are artificially held back and inflation runs hot, like some have alluded to may happen. So, I keep buying small chunks of IAU in one account where I have the most cash (and IRA account). I sort of regard it as a cash alternative knowing too well that it can develop downside volatility in a choppy market.

[Jurgis]

Why TLT and not traditional protection such as GLD?

 

Yeah, that’s my question too. For me gold looks like a better bet, especially in a scenario where interest rates are artificially held back and inflation runs hot, like some have alluded to may happen. So, I keep buying small chunks of IAU in one account where I have the most cash (and IRA account). I sort of regard it as a cash alternative knowing too well that it can develop downside volatility in a choppy market.

 

Guys, he's buying TLT for deflation/falling rates scenario, not for inflation/rising rates...  ::)

He actually explicitly said:

 

It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom)

[Spekulatius]

Why TLT and not traditional protection such as GLD?

 

Yeah, that’s my question too. For me gold looks like a better bet, especially in a scenario where interest rates are artificially held back and inflation runs hot, like some have alluded to may happen. So, I keep buying small chunks of IAU in one account where I have the most cash (and IRA account). I sort of regard it as a cash alternative knowing too well that it can develop downside volatility in a choppy market.

 

Guys, he's buying TLT for deflation/falling rates scenario, not for inflation/rising rates...  ::)

He actually explicitly said:

 

It appears that the massive debt overhang (absent MMT) will cause interest rates to fall (contrary to popular wisdom)

 

I am aware of this, but gold could do well in a deflation as well, if there is concern about the financial system. It will however certainly do well better in a situation that I alluded to, where we have inflation and artificially suppressed interest rates.

[Cigarbutt]

I believe...

I don't see how that allows the long end of the Treasury yield curve to continue to rise over the coming year and beyond.  In fact, I think we may see zero long-term yields before we see 3-4%.

wabuffo

Yes, there's the financial repression risk linked to YCC, especially given the USD exposure for a stranger, so gold may make sense in that scenario.

After WW2, when there was yield curve control, financial repression and when Treasury/Fed was one, real rates were negative. However real rates were falsely negative then as the seeds of real progress on productivity, real growth and fiscal discipline had been planted.

Now negative real rates are for real.

There was confusion above about the goal of a long position in long term US risk-free bonds (TLT). Duration exposure is not the whole story. In summary, gold looks great if the Hulk Hogan picture applies (photo taken after a period of quarantine). Long exposure to TLT may end up a better option if the recovery takes longer. (disclosure: i think the second picture will revert back to the first one, eventually)

Pictures taken from a dated academic macroeconomics textbook.

Of course, i may be wrong and we may just muddle through, somehow.

[havingheart]

If the inflation/reflation story is to be believed, my elementary understanding is that the short end of the yield curve needs to be moving up in tandem with the long end, but as it is right now the short end is heading lower while long end is heading higher. TLT is not a bad idea at all.

 

FWIW - I'm a tourist so I have no idea what I'm talking about.

[LC]

Purchased some Berkshire.

[sarganaga]

Altria (MO)

 

CK Hutchinson (CKHUY)

[CorpRaider]

BK, I really like that new impossible whopper.  ;D

[shamelesscloner]

LAC - Lithium Americas Corp

[ValueArb]

Here's my latest. If you agree with them, thats fine, but please dont' tell me as I don't want positive reinforcement. If you disagree with any, I'd greatly appreciate your comments and thoughts. I plan to cap all my puts at more more than 10% of my portfolio.

 

SPCE: Virgin Galactic 2022 7.50 Puts

 

My Thesis: I believe it's space plane is a toy only capable of high altitude flights, at 1/10th the velocity necessary to make orbit. Hybrid engines are simplistic and extremely limited in capabilities and only suited for this kind of rocket plane tourism.  Space tourism at quarter million a pop won't support a $9B market cap. Expanding into hypersonic travel via rocket planes would require far more complex liquid fueled engines which historically have taken years of development to be usable, and which they haven't demonstrated any technology for. And even if they were to procure the worlds most advanced and safest liquid rocket engines in the appropriate size for a commercial hypersonic rocket liner, they still have to solve a huge range of design and safety issues and it would extremely unlikely it would be commercially viable.

 

Trading at $53, they have no revenues, a little over $3 in equity that is mostly cash, and should burn that almost in half by my expiration date. Also looking at 2023 puts but haven't pull trigger.

 

NKLA: Nikola 2022 $7.50 Puts

Besides the strong whiff of fraud, the lack of revenues, current equity of $2.78 in a $23 stock, I don't believe Hydrogen will ever be a useful "fuel". It's really a store of energy like a battery, and very hard to compress and fit a high power potential in a small space. It will lose to batteries.

[spartansaver]

Here's my latest. If you agree with them, thats fine, but please dont' tell me as I don't want positive reinforcement. If you disagree with any, I'd greatly appreciate your comments and thoughts. I plan to cap all my puts at more more than 10% of my portfolio.

 

SPCE: Virgin Galactic 2022 7.50 Puts

 

My Thesis: I believe it's space plane is a toy only capable of high altitude flights, at 1/10th the velocity necessary to make orbit. Hybrid engines are simplistic and extremely limited in capabilities and only suited for this kind of rocket plane tourism.  Space tourism at quarter million a pop won't support a $9B market cap. Expanding into hypersonic travel via rocket planes would require far more complex liquid fueled engines which historically have taken years of development to be usable, and which they haven't demonstrated any technology for. And even if they were to procure the worlds most advanced and safest liquid rocket engines in the appropriate size for a commercial hypersonic rocket liner, they still have to solve a huge range of design and safety issues and it would extremely unlikely it would be commercially viable.

 

Trading at $53, they have no revenues, a little over $3 in equity that is mostly cash, and should burn that almost in half by my expiration date. Also looking at 2023 puts but haven't pull trigger.

 

NKLA: Nikola 2022 $7.50 Puts

Besides the strong whiff of fraud, the lack of revenues, current equity of $2.78 in a $23 stock, I don't believe Hydrogen will ever be a useful "fuel". It's really a store of energy like a battery, and very hard to compress and fit a high power potential in a small space. It will lose to batteries.

 

What did you pay for each?

[valueinvestor]

Here's my latest. If you agree with them, thats fine, but please dont' tell me as I don't want positive reinforcement. If you disagree with any, I'd greatly appreciate your comments and thoughts. I plan to cap all my puts at more more than 10% of my portfolio.

 

SPCE: Virgin Galactic 2022 7.50 Puts

 

My Thesis: I believe it's space plane is a toy only capable of high altitude flights, at 1/10th the velocity necessary to make orbit. Hybrid engines are simplistic and extremely limited in capabilities and only suited for this kind of rocket plane tourism.  Space tourism at quarter million a pop won't support a $9B market cap. Expanding into hypersonic travel via rocket planes would require far more complex liquid fueled engines which historically have taken years of development to be usable, and which they haven't demonstrated any technology for. And even if they were to procure the worlds most advanced and safest liquid rocket engines in the appropriate size for a commercial hypersonic rocket liner, they still have to solve a huge range of design and safety issues and it would extremely unlikely it would be commercially viable.

 

Trading at $53, they have no revenues, a little over $3 in equity that is mostly cash, and should burn that almost in half by my expiration date. Also looking at 2023 puts but haven't pull trigger.

 

NKLA: Nikola 2022 $7.50 Puts

Besides the strong whiff of fraud, the lack of revenues, current equity of $2.78 in a $23 stock, I don't believe Hydrogen will ever be a useful "fuel". It's really a store of energy like a battery, and very hard to compress and fit a high power potential in a small space. It will lose to batteries.

 

I have no reason to disagree with you on the business, or not believe that completely right but it can turn out that even though you're right, your returns will still be subpar.

 

Just because it's not a real business, does not mean it can't be a real investment. There's plenty of businesses that were not real (e.g. selling vaporware), but managed to turn it into a great business/return because they had a vision that was counter to the world's belief such as Apple's acquisition of NeXT computers in a certain extent.

 

Nikola I'm not too worried about, but Virgin has Chamath and Richard Branson, both who are great marketers and if we can learn from Tesla, where I really do not think it's a real business in a sense that it does not generate sustainable profit, it may be best to find other shorts. As they may stumble upon gold because they have been heavily investing, hiring the best of the best, and constantly innovating, and some are investing not for profit but to push ESG forward and voting with their dollar.

 

The stock market is not a reflection of the economy and specifically businesses in some cases, and one should operate as such.

 

If you're looking for shorts, I would look for something in currency or any business/industry that's outdated but have no way of turning it around. Additionally, to spartansaver point - how much did you pay is a factor for these puts.

[Broeb22]

LOTZ. I kind of threw up before buying a post-SPAC company but I do like their business model and think it can generate real cash within the next couple years.