Where are you parking your cash?

Value Collector · 9 October 2022

Value Collector said:
I am not sure if we are being “lured”, But I think the world is awash with “safe capital”, mainly from central banks and pension funds, and that has squashed returns, so much so that the only way to actually make some money is to move up The capital structure in securities that have some risk.

However, I do think this has a massive benefit in that those of us who take the marginally higher risk are being compensated very well for it, so I don’t think a crash is imminent.

A crash will happen when the opposite situation occurs, eg risk assets are over priced compared to safe ones.

At the moment this isn’t true, risk assets are cheap and safe assets are expensive.

@wayneL

The quote above is what I wrote 2.5 years ago. I think if you read it you will understand what I was trying to say in context.

If you look at the last paragraph, you will see that I was saying safe assets are expensive, this is what has lead to the bond price crash, because they we over priced before, and rising interest has been the trigger to caused their market price to fall.

—————
Off course a benefit with US government bonds is that even if the market price suffers a huge drop below its face value, the holder is pretty much guaranteed of making this loss back and receiving there full capital and income that they signed up for at the start.

As the bond ages and gets closer to the maturity date, any difference between the market price and the face value will close, and of course the income would have been paid.

Value Collector · 9 October 2022

JohnDe said:
Property.

I’ve been pruning my share portfolio, looking at a property purchase in popular beach location s for quite a while, and took a bite not long ago. So far it’s been good. Still pruning my share portfolio, but also looking at opportunities and made a buy last week.

Looking at another property.

There is some very cheap property on the share market at the moment.

CLW for example has about $6 in real estate per share and is selling for about $4.10 paying a 7.3% dividend, not many properties out there are earning a net return after all outgoings of 7.3%.

eskys · 9 October 2022

New Freehold KFC in Booming Growth Corridor, 20 Ashburn Road, Ipswich....Investment Portfolio Auction by Burgess Rawson, Hilton, Brisbane 27th October 2020....in reply to John De if interested. I'm not associated with Burgess Rawson. This information landed in my inbox.......please do your own DD

divs4ever · 9 October 2022

Value Collector said:
Can I just point out how right Buffett was in his comments in that video, this is just another example of why he is an investment master, such clear rational thinking.

I think this video in mandatory considering what is happening with interest rate right now.

in January 2020 i was carefully ( and selectively ) reducing it was March 2020 and later i was carefully buying ( having already stock-piled a handy amount of cash , and off loaded some BEAR, BBUS and BBOZ in the down-trend to add a bit more to the cash reserves )

divs4ever · 9 October 2022

wayneL said:
Worst year in history to be a bond investor:

the truth has BROKEN , that is what it is broken , when trust goes ( kaput )

watch out

a lot of data is just manufactured

wayneL · 9 October 2022

Value Collector said:
@wayneL

The quote above is what I wrote 2.5 years ago. I think if you read it you will understand what I was trying to say in context.

If you look at the last paragraph, you will see that I was saying safe assets are expensive, this is what has lead to the bond price crash, because they we over priced before, and rising interest has been the trigger to caused their market price to fall.

—————
Off course a benefit with US government bonds is that even if the market price suffers a huge drop below its face value, the holder is pretty much guaranteed of making this loss back and receiving there full capital and income that they signed up for at the start.

As the bond ages and gets closer to the maturity date, any difference between the market price and the face value will close, and of course the income would have been paid.

The bond market, in toto, is far more complex than you represent, especially with regards to near expiry govt bonds.

While I in no way purport to be an expert, I do keenly following what experts such as Bianco shown above have to say.

With regards to those near expiry govt bonds, yes you will receive the face value and the cumulative coupon, but you also have to contend with that face value having been debased throughout the term, which is greater than the coupon in most instances.

Not the best way to play that market.

We've previously discussed the possibility of the debt market blowing up... Well it certainly got smoked this year and there is still the possibility of much worse.

divs4ever · 9 October 2022

wayneL said:
The bond market, in toto, is far more complex than you represent, especially with regards to near expiry govt bonds.

While I in no way purport to be an expert, I do keenly following what experts such as Bianco shown above have to say.

With regards to those near expiry govt bonds, yes you will receive the face value and the cumulative coupon, but you also have to contend with that face value having been debased throughout the term, which is greater than the coupon in most instances.

Not the best way to play that market.

We've previously discussed the possibility of the debt market blowing up... Well it certainly got smoked this year and there is still the possibility of much worse.

i am expecting various sovereign bond to have their maturity date extended ( to maybe even perpetual , but probably 50 and 100 years )

maybe not everyone but some nations are looking a real mess , and it isn't even Christmas

Value Collector · 9 October 2022

wayneL said:
The bond market, in toto, is far more complex than you represent, especially with regards to near expiry govt bonds.

While I in no way purport to be an expert, I do keenly following what experts such as Bianco shown above have to say.

With regards to those near expiry govt bonds, yes you will receive the face value and the cumulative coupon, but you also have to contend with that face value having been debased throughout the term, which is greater than the coupon in most instances.

Not the best way to play that market.

We've previously discussed the possibility of the debt market blowing up... Well it certainly got smoked this year and there is still the possibility of much worse.

Things are always going to be more complex than can be explained a forum post.

However, I think it’s pretty clear that as interest rates rise, down ward pressure of equites is applied.

As Buffett says, interest rates are like gravity for stocks, if you dial up the interest rate (or the markets interest rate expectations) stock prices come down.

———————

Your comments on the debasement of the currency off setting the interest rate coupon are kind of irrelevant to my point. (All though of course most investors tdo think about inflation, for some institutions it’s not top priority)

———————

Speculators attempting to trade bonds might suffer capital losses, but those who hold them until maturity will not suffer a capital loss.

(If you want to discuss inflation that’s a different thing to a capital loss, because obviously that affects you whether you buy the bond or not, eg if you just hold the $100 note you will still suffer the same inflation affect as holding the $100 bond, as you would holding a $100 share that doesn’t rise in value)

Value Collector · 9 October 2022

divs4ever said:
i am expecting various sovereign bond to have their maturity date extended ( to maybe even perpetual , but probably 50 and 100 years )

maybe not everyone but some nations are looking a real mess , and it isn't even Christmas

I wouldn’t be worried about any nation that controls their own printing presses and tax rates.

wayneL · 9 October 2022

@Value Collector

Re institutions not worried?

You are ignoring the implications of massive leverage...which is also mentioned in the vid I posted above.

This hasn't been a problem for decades, in the interest rate downtrend. But now with the biggest blow up of interest rates in history (in relative terms), it's a problem.

Or did we all just imagine it when BoE bailed out the pension industry?

Bank confirms pension funds almost collapsed amid market meltdown

Official explains how promise to buy up to £65bn of government debt staved off destructive UK financial spiral

www.theguardian.com

Value Collector · 9 October 2022

wayneL said:
@Value Collector

Re institutions not worried?

You are ignoring the implications of massive leverage...which is also mentioned in the vid I posted above.

This hasn't been a problem for decades, in the interest rate downtrend. But now with the biggest blow up of interest rates in history (in relative terms), it's a problem.

Or did we all just imagine it when BoE bailed out the pension industry?

Bank confirms pension funds almost collapsed amid market meltdown

Official explains how promise to buy up to £65bn of government debt staved off destructive UK financial spiral

www.theguardian.com

Long term bonds are a sensible investment for some institutions or even personal investors where they are holding capital in reserve for costs that are some what fixed.

For example if you are an insurance company that has to set aside capital to pay out a fixed amount to a car accident victim over the next 50 years, and a 3% 30 year bond will cover the payments, it doesn’t bother you if the market price of that bond fluctuates.

Same goes for a pension or annuity fund making fixed payments, or payments with a fixed annual increase of say 3%, you can take the capital set aside for that customer split it between bonds with various maturities say 5, 10, 15, 20, 25, 30 year etc. and the interest and maturity payments will cover your payments you promised plus your profit margin.

There are many other examples of institutions that will accept inflation risk for the capital security, some are even mandated by law to hold bonds long term.

—————
If by implications of leverage you are talking about companies and people that have become over leveraged at lower interest rates and will blow themselves up as rates rise, again that’s another completely different topic to what I was discussing.

—————
If a pension fund got into trouble because it over allocated into bonds with longer maturities than their weighted average upcoming payments allowed for, well that’s just them making bad investment decisions.

No doubt they did that to try and earn a higher interest rate, and their plan was to sell the bond to finance their pension payments at a later date, of course this can lead to trouble, and puts them into the category of a bond trader rather than bond holder imo

wayneL · 10 October 2022

Value Collector said:
Long term bonds are a sensible investment for some institutions or even personal investors where they are holding capital in reserve for costs that are some what fixed.

For example if you are an insurance company that has to set aside capital to pay out a fixed amount to a car accident victim over the next 50 years, and a 3% 30 year bond will cover the payments, it doesn’t bother you if the market price of that bond fluctuates.

Same goes for a pension or annuity fund making fixed payments, or payments with a fixed annual increase of say 3%, you can take the capital set aside for that customer split it between bonds with various maturities say 5, 10, 15, 20, 25, 30 year etc. and the interest and maturity payments will cover your payments you promised plus your profit margin.

There are many other examples of institutions that will accept inflation risk for the capital security, some are even mandated by law to hold bonds long term.

—————
If by implications of leverage you are talking about companies and people that have become over leveraged at lower interest rates and will blow themselves up as rates rise, again that’s another completely different topic to what I was discussing.

—————
If a pension fund got into trouble because it over allocated into bonds with longer maturities than their weighted average upcoming payments allowed for, well that’s just them making bad investment decisions.

No doubt they did that to try and earn a higher interest rate, and their plan was to sell the bond to finance their pension payments at a later date, of course this can lead to trouble, and puts them into the category of a bond trader rather than bond holder imo

None of that will stop what I'm talking about.

Value Collector · 10 October 2022

wayneL said:
None of that will stop what I'm talking about.

That’s cool, but none of what you are talking about is related to my original point.

gartley · 10 October 2022

Cash probably should have been parked 12 months ago.
Between now and end of of November my bets are on a capitulation move down to end this leg down that started last year and ASX may well test pandemic low.
So will that be the buying opportunity of a lifetime if it eventuates?
Probably not, although it will be a great buying opportunity nevertheless and resultant rally would be quite long in duratio but not see new highs.

divs4ever · 10 October 2022

gartley said:
Cash probably should have been parked 12 months ago.
Between now and end of of November my bets are on a capitulation move down to end this leg down that started last year and ASX may well test pandemic low.
So will that be the buying opportunity of a lifetime if it eventuates?
Probably not, although it will be a great buying opportunity nevertheless and resultant rally would be quite long in duratio but not see new highs.

i prefer to keep some liquid , parked two days away ( or a week away ) doesn't suit my plan to snatch small opportunities as they appear , and YES that means inflation is gnawing away at that cash ( but i am over 90% invested just not exclusively in the market )

conwy · 2 January 2023

Interesting discussion. Agree with the points made earlier about the inverse relationship between bond prices and yields.

My "fixed income" allocation:

25% - High interest savings account; ~4%
25% - Term deposit ladder; 5yr, 4yr, 3yr and 2yr; 4 - 4.8%
50% - Inflation-linked bond (eTIB); maturity 2027; 0.75%

The term deposits lock in higher-than-usual interest rates; the laddering diversifies across durations.

The high interest savings account serves a dual purpose of both taking advantage of rising rates and allowing total liquidity in case I need funds quickly (e.g. for an emergency).

The eTIB protects half my money from inflation (CPI). This effectively limits the impact of inflation on my money to the spread between CPI and my average interest rate, a little over 4%, divided by 2. So, e.g. if inflation is 8% per year, I'm only feeling 2% inflation (8% / 2 / 2).

I've tried to engineer the portfolio to give me a bit of everything: liquidity, inflation protection, high interest and practically zero downside risk to nominal principle.

For the reason of principle protection, I'm steering clear of bond funds. If I wanted to accept risk to principle, I'd invest in low-cost globally diversified stock index funds – which I already have most of my net worth invested in.

Value Collector · 2 January 2023

conwy said:
Interesting discussion. Agree with the points made earlier about the inverse relationship between bond prices and yields.

My "fixed income" allocation:

25% - High interest savings account; ~4%

25% - Term deposit ladder; 5yr, 4yr, 3yr and 2yr; 4 - 4.8%

50% - Inflation-linked bond (eTIB); maturity 2027; 0.75%

The term deposits lock in higher-than-usual interest rates; the laddering diversifies across durations.

The high interest savings account serves a dual purpose of both taking advantage of rising rates and allowing total liquidity in case I need funds quickly (e.g. for an emergency).

The eTIB protects half my money from inflation (CPI). This effectively limits the impact of inflation on my money to the spread between CPI and my average interest rate, a little over 4%, divided by 2. So, e.g. if inflation is 8% per year, I'm only feeling 2% inflation (8% / 2 / 2).

I've tried to engineer the portfolio to give me a bit of everything: liquidity, inflation protection, high interest and practically zero downside risk to nominal principle.

For the reason of principle protection, I'm steering clear of bond funds. If I wanted to accept risk to principle, I'd invest in low-cost globally diversified stock index funds – which I already have most of my net worth invested in.

Plenti is currently offering 9.2% on 3 year notes. It might be worth looking into that as an extension of your “all round” strategy.

conwy · 2 January 2023

Value Collector said:
Plenti is currently offering 9.2% on 3 year notes. It might be worth looking into that as an extension of your “all round” strategy.

Ok, I haven't looked into Plenti much, but from a quick search, it looks like peer-to-peer lending. I believe that would entail some risk of losing principle.

Don't get me wrong – I'd happily consider adding peer-to-peer lending to my risk asset allocation. But for the risk-free, stable part of my portfolio, I'm not sure that there is any debt security that could match a government bond in the home country.

What do you think?

divs4ever · 2 January 2023

conwy said:
I'm not sure that there is any debt security that could match a government bond in the home country.

i disagree , most nations can not maintain a balanced budget ( or a surplus ) , therefore i cannot feel secure owning debt of an entity that shows little fiscal responsibility ( if your quote was sarcasm , i guess i missed it completely )

currently split ( unevenly ) between a ( higher interest ) saver's account , and a holding account at one of my trading platforms , in theory , ready for quick deployment into the stock market

in 2019/early 2020 the bulk of my 'cash ' was in BEAR , BBOZ , BBUS ETFs ( which was mostly successful) and used to exploit opportunities in mid/late 2020 , i chose not to use that tactic in 2022

Dona Ferentes · 2 January 2023

Value Collector said:
Plenti is currently offering 9.2% on 3 year notes. It might be worth looking into that as an extension of your “all round” strategy.

And a similar rate from another player in the market, this one a floating rate note :

Pepper Money Limited is a non-bank financial institution in the Australian and New Zealand mortgage market. It was established in 2000 and is listed on the ASX (as PPM). It has a market capitalisation of ~AUD642m as at 14 December 2022.
Pepper provides a range of lending services across Australia and New Zealand, primarily mortgages (72% of assets) and asset finance (~22%).

The Note:
Subordinated , Unsecured
Coupon 3M BBSW + 6.00%
Coupon Paid Quarterly
First call 13 Oct 2023
Maturity 13 Oct 2025

Where are you parking your cash?

Value Collector

Have courage, and be kind.

Value Collector

Have courage, and be kind.

eskys

divs4ever

divs4ever

wayneL

VIVA LA LIBERTAD, CARAJO!

divs4ever

Value Collector

Have courage, and be kind.

Value Collector

Have courage, and be kind.

wayneL

VIVA LA LIBERTAD, CARAJO!

Bank confirms pension funds almost collapsed amid market meltdown

Value Collector

Have courage, and be kind.

Bank confirms pension funds almost collapsed amid market meltdown

wayneL

VIVA LA LIBERTAD, CARAJO!

Value Collector

Have courage, and be kind.

gartley

divs4ever

conwy

Value Collector

Have courage, and be kind.

conwy

divs4ever

Dona Ferentes

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