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« The Quest for Yield (Part 7): What about Bonds? | Main | A Closer Look at Current Survey Results »

June 23, 2012

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oldprof

Aristotle - There are certainly more foreclosures to come. The articles on new home sales suggest that the foreclosed properties are not always in the needed locations/markets. Today's Case-Shiller report, including the commentary from David Blitzer, was pretty encouraging. There are a lot of factors in play in this market.

And thanks for elaborating. As you note, it is something to watch.

Jeff

Aristotle

The banks have held off on foreclosures over the past year due to all of the robo-signing, etc controversy.
I think you are going to see an increase in foreclosures over the next 6 months which will dampen
house prices.

57andrew

Jeff, many thanks. I'll take some time to see what sort of a bond ladder I could construct.

Andrew

oldprof

Aristotle -- I have certainly not been bullish on housing. I am watching Bill McBride's analysis.

He seems to see some real buying interest. I agree that foreclosures have dampened prices.

What makes you think this will get worse.

Thanks,

Jeff

oldprof

Thanks, Jeff.

oldprof

Andrew H -- This is a complex topic and it will take many articles to sort through. I want to avoid recommending particular funds or ETFs at this point. I have a general concern about what might happen, and I think that most investors could successfully buy their own bonds. Few think about this.

Bill Gross may find a way to make money out of a bear market for bonds, but it seems like you can do better. Despite his long term success, he has made some amazing mistakes. Look back at his question about who would buy US bonds after the Fed stopped QE II.

Every investor is different, but having your own bond portfolio is a good move for many wealthy investors.

Jeff

Aristotle

Jeff M,

I think there is still risk in housing. The foreclosure machine has been on hold for the last, say year. When the foreclosures gear back up it will likely have some negative effect on prices again.

57andrew

Thanks, Jeff P.

jeff partlow

Jeff,

Your 4 sources for positive surprises are on target. Another is the Election. The stock market almost always increases during the 6 months prior to Elections. This is not really a surprise. The surprise comes because there is not currently a perception that a sweep by the Republicans (in both Houses of Congress and the Presidency) will occur.
As the likelihood of this result becomes increasingly apparent, the stock market rallies strongly.

Jeff P.

jeff partlow

Andrew,

Jeff M's and your own bond fears are warranted. Consider switching your 30% bond allocation to Jeff M's bond substitute (covered calls using dividend paying stocks).

Jeff P

Andrew H

Jeff, I read your articles as early as I can after they are published and I learn a lot from them. I suspect my portfolio is about 20% cash, 50% equities and about 30% bonds / notes. Your alarm bell about bonds rings loud and clear. Are you flagging "long only" bond funds. If I look at something like the PIMCO total return fund I think it states it normally has about 60% exposure to Fixed Income instruments but funds like this can also short the bond market as I understand it. The recommendation to construct your own bond ladder is very sensible but for those of us who are willing to take a little (?) more risk does a hybrid fund / ETF like this make sense or do you see the same dangers lurking here. I think the TRF fell about 6% in a day last year so I know it is not low risk but I suspect Gross & co can be a lot nimbler in the market than I can and the ETF seems to be outperforming the fund exactly on that aspect. Would you still favour great dividend stocks over such a fund or is there room in a portfolio for them?

Disclosure - I am long BND at present but less than 10% of my portfolio.

BTW, one thing that may interest international readers is a view on the US$ as we have FX exposure when we invest in great US stocks or bonds.

Thanks very much.

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