As stock indexes make new all time highs, it's still a 7% world, not a 16% world

The current $SPX world, from Aug 2000 (market peak) to Dec 2023, dividends reinvested, average per annum return: 7.019% nominal.

The previous world of similar length, Apr 1977 to Aug 2000: 16.246% nominal.

Remember that no one even dates the bull market conditions of the past starting from 1977. The Reagan bull began in the summer of 1982. But even from 1977, it was a completely different, better world for investors.

The rate of nominal return per annum was 2.31 times better in that world.

Investing $100 per month in the previous world produced over $258k. Investing $100 per month in the current world has produced only $103k.

The following Vanguard mutual funds have inception dates in the year 2000. They reflect the same reality.

I show nominal average annual return since inception for each fund in 2000 through 12/31/23, per Vanguard.

Performance in red beats average SPX nominal 7.019% since 2000, but none by much. Remember that through 12/31/23 stocks generally were only recently buoyed by exceptional returns, after a down year last year. $VTSAX, the total stock market index, was up a whopping 26.01% in 2023.

VIGAX 8.21 Growth Index

VFIAX 7.62  500 Index

VTSAX 7.90  Total Stock Market Index

VEXAX 8.22  Extended Market Index

VSGIX 8.93  Small Cap Growth Index Inst.

VESIX 4.47  European Stock Index Inst.

VSMAX 9.01 Small Cap Index

VBAIX 6.70  Balanced Index Inst.

VBIAX 6.57 Balanced Index

VPKIX 3.40  Pacific Stock Index Inst.

VVIAX 7.18 Value Index

VEMIX 6.37 Emerging Markets Stock Index Inst.

VIPSX 4.49  Inflation Protected Securities

 

These are but a shadow of the former things which obtained in the previous world.

Vanguard's long term Treasury fund, started in 1986, set a new all time low price record yesterday: What a coincidence

 VUSTX fell to $7.37 yesterday, October 19, 2023.

Until the bond debacle of 2022, the lowest price ever was set way back in 1987, also on October 19, aka Black Monday, when the S&P 500 crashed 20.47% in its worst single day ever.

2022's new all time low for VUSTX at 8.16 had occurred on October 24, missing the anniversary of the old all time low by just three days. Also a very odd coincidence.

The debacle has only continued in 2023, and VUSTX prices haven't seen $8 since September 22nd.

ZIRP since the Great Recession is ultimately to blame for the current mess in long term Treasury securities. The clamor it created for yield drove bond investors long, culminating in the highest nominal prices ever paid for long term UST in March 2020, and the lowest yields. 30Y UST yield crashed to 0.99% on March 9, 2020, 20Y to 0.87%. Yields across the board in 2023 for 2Y to 30Y have set records for this cycle in October. Yesterday 20Y demanded 5.30%, 30Y 5.11%.

No one wants that 2020 and prior junk now, so wherever it sits it's causing collateral problems, at banks, insurance companies, pension funds, et cetera. And on the Fed's balance sheet: As of October 18th the Fed has $1.503922 trillion of UST maturing in more than 10 years on its balance sheet. It basically has to keep it until it matures, and it pays it very little to return to the Treasury as it does.

Are prices done falling?

Confident pretenders said so a year ago this month, and now here we are with $TLT investors down another 12.22% since then.

Given the obscene overvaluation of stocks, and the demand for higher yields by bond investors, cash still seems the safest place to be. VMRXX, Vanguard Cash Reserves Federal Money Market Fund Admiral Shares, has returned 4.00% ytd. You continue to lose to inflation, however.

Nothing is ever perfect.

 

1987 high and low

2022 high and low to the left, all time high and low to the right

Dramatic price action today for 30+ years old Vanguard Treasury funds

VFISX inception date 10/28/1991 New all time low price set today 09/26/2023 close : $9.71

VFITX inception date 10/28/1991 All time low price: $9.57 on 11/21/1994 Price 9/26/2023 close: $9.59

VUSTX inception date 5/19/1986 New all time low price set today 9/26/2023 close: $7.88 

  

 

US Treasury yields pushed to new cycle highs last week despite another Fed interest rate pause

 Cash was about the only thing which did better week over week on Friday. Treasuries and bonds generally took a beating, as did stocks.

The UST yield curve aggregate closed up a net 1.27% week over week on 9/22, to an average of 5.0707692, the highest Friday close yet for this cycle.

Yields in the aggregate made a new high for this cycle on Thursday, for an average of 5.0915384. 

Here's the year-to-date performance for key categories using some commonly used Vanguard funds:

Treasury Market VFISX 0.66% VFITX -0.70% VUSTX -5.57%;

Investment Grade Market VFSTX 2.08% VFICX 1.32% VWESX -0.83%; 

Total Bond Market VBTLX -0.03% (+0.44% previous week);

Cash VMFXX 3.58% (3.48% previous week);

Total Stock Market VTSAX 12.95% (16.45% previous week).

 

 

Let's check in on the US Treasury yield curve and year to date performance of selected Vanguard funds

The UST yield curve aggregate closed up a net 0.68% week over week on 9/15, to an average of 5.006923, the first Friday close this cycle in the 5s.

 

As expected, fixed income isn't doing well in this rising-rate environment. Stocks have done surprisingly well this year, and even cash has beaten bonds.

 

YTD performance:

 

Treasury VFISX 0.68% VFITX -0.26% VUSTX -4.12%;

Investment Grade VFSTX 2.21% VFICX 1.73% VWESX 0.00%; 

Total Bond VBTLX 0.44%; Cash VMFXX 3.48%; Total Stock VTSAX 16.45%.

 

Other popular vehicles: 

 

$SPX 16.37%

$AGG -2.12%

$TLT -8.38%. 

 

If you haven't saved enough for an emergency, it's on you, and borrowing money for an emergency when you have it is another stupid thing which is on you

Two stupids don't make a smart.

 

“It’s a terrible idea to take money out of your 401(k),” said Ted Jenkin, a certified financial planner and co-founder of oXYGen Financial, based in Atlanta. ...

Households should weigh all their options for cash before resorting to tapping a 401(k) plan, said Jenkin, a member of CNBC’s Advisor Council.

For example, households without an emergency fund might be able to free up money for a relatively small short-term cash need by canceling or reducing membership plans, or by selling little-used or unneeded items on Facebook Marketplace or a garage sale, he said. A short-term loan or home equity line of credit would generally also be better than tapping a 401(k).

More.

There's nothing like paying a steep price for a mistake to keep you from making it again. Only morons pay twice.

 

What else would you expect someone to say who makes his living selling retirement products?

 

The traditional 60/40 portfolio is now down only 13.76% in 2022 through November, not adjusted for inflation north of 6%

Total stock market index, VTSAX:  -14.51% through November

Total bond market index, VBTLX:  -12.64% through November

The US Treasury crash is epitomized by what's happened to Vanguard's long term Treasury mutual fund VUSTX

 

 

 

 

 

 

 

 

 

 

 

 

The fund is down to $8.36 tonight, 2 cents away from its all time low set on October 19, 1987 at $8.34. That was 35 years ago last night, when the stock market fell 20% in one day.

The 30-year US Treasury back then paid 10.25% on that date. Tonight it pays just 4.24%.

This Vanguard fund, which invests in such securities, year to date has returned -33%. Given the yield discrepancy, it would seem foolhardy to believe that the bottom is in. I wouldn't be surprised if the fund makes dramatic new lows, never before seen.

Meanwhile imagine losing money like that on America's safest of investments.

It's truly appalling and ranks right up there with America losing its AAA status under Barack Obama. I guess it's fitting that it's happening under his former Vice President.

This is a bitter anniversary of fear, and a day of loathing

Exactly 35 years ago tonight this fund marked its all time low at $8.34 when stocks crashed 20% in one day, October 19, 1987.

It happened because it was a flight to safety, the US long bond being the safest haven in the world. Prices move inverse to yields. The price crashed because everyone plowed into it, and the yield soared to 10.25% as a result. As such, the all time price low is meaningless for bonds, but full of meaning for stocks.

At $8.49 tonight, however, the price is just $.15 higher than it was 35 years ago, but for an entirely different reason.

In 1987 the price crashed due to stock market fear; in 2022 it's due to bond market loathing, in particular, loathing of existing US debt which pays too little for the risk being taken. At 4.15% tonight, yield on the long bond has a long way to go to credibility. More importantly, the market is SHOUTING that trillions of dollars of existing US debt pays its holders a reprehensible sum.

People should think hard about what that means.

Faith in America hangs in the balance and is found wanting.

 

 

The traditional 60/40 portfolio is down 20.77% ytd

 VTSAX is down 24.89% through 9/30.

VBTLX is down 14.59% through 9/30.

And don't forget to subtract all-items inflation of 6.14% from Nov 2021 through Aug 2022!

Headlines are popping up advocating safe havens in cash and short-duration US Treasury securities, but you'll still lose in those relative to inflation, just not as much.

What a great job the Democrats have done this year! Destroying the bond market wasn't on my bingo card for 2022, even though the high and rising prices for bonds has been a deal-breaker for me for a long time.

The Democrats' green war on energy has consequences.

Is real war next?

The Great Long Term Investment Grade Bond Debacle of 2022

Safe havens aren't supposed to do this.

Long term return for VWESX since inception in 1973 near the end of 2018 reached north of 8%.

In 2022 ytd return is -27.28%.

The whole spectrum of bonds as represented by VBTLX is down ytd 14.79%.

Traditional investors with a 60/40 portfolio are down over 20% through yesterday because stocks and bonds both are falling.

Cash is king again.

 

Two conditions need to develop before buying bonds

. . . the trend in the bond market . . . still looks bearish. ...

As yields rise and inflation eases, the relative allure of bond payouts becomes attractive, in absolute and relative terms vs. other assets.

James Picerno, here. 

Yields are indeed rising, but prices are still falling, so no, not quite yet. Bond prices ought to stabilize when inflation finally eases, and so far prices haven't stabilized.

VWESX is instructive.

There's just a handful of years back in the 1980s where the average price of this very long term investment grade bond fund had been below $8 like the current price is today.

That's one reason why Jeffrey Gundlach rightly says that bonds are "wickedly cheap".

But VWESX only just got there on September 20th, hitting $7.99. We're down to $7.88 this weekend.

Meanwhile yields across this investment grade spectrum are bunched up in the fours, with only about 55 basis points difference between the shorts and longs, and intermediates effectively paying the same as or more than longs.

Prices on the longs need to fall a lot more before making them more attractive than intermediates if you are going to settle for only similar yield.

After all, the long term average return of investment grade longs is north of 7.5%, not in the fours.

But what the hell do I know?

Invest, or don't, at your own risk.

Hogg jumps shark, now calls for boycott of Blackrock and Vanguard over guns

Story here (photo here).

Rotza ruck with that, kid.

Index fund flows in 2014 may indicate the top is in, or nearly in

Seen here:

The impact of index funds has been revolutionary. When John Bogle, the founder of Vanguard, introduced the first vehicle designed to passively track the performance of a stock index about 40 years ago, it was derided as “Bogle’s Folly.” Today the fund’s successors, at Vanguard and elsewhere, hold $2 trillion in assets. ...

Actively managed funds still hold a majority of total stock fund assets, 63% at the end of September. But in the first nine months of 2014, actively managed stock funds attracted $2.5 billion, while $173 billion found its way into index funds, or 98.6% of the total.

This flood of money into index funds came after the market already had recorded substantial gains. [James] Stack contends that such lopsided affection for passive investing — and the lack of concern for risk that he infers from it — hints at an approaching top, as does the evidence of history.

“Generally, the times when index investing reaches the highest popularity are in aging bull markets or near market peaks,” he says.

15-year total return from popular Vanguard index funds through 12/31/14 shows bonds beating stocks since 1999 except on the short end

Per annum return per Morningstar tonight:

Total international stock index, VGTSX = 2.96%

Short term bond index, VBISX = 4.05%

S&P 500 stock index, VFINX = 4.13%

Total stock market index, VTSMX = 4.75%

Total bond market index, VBMFX = 5.45%

Intermediate term bond index, VBIIX = 6.52%

Long term bond index, VBLTX = 8.37%

Vanguard bond index funds, 15 year performance per annum vs. stocks

HMS Vanguard

Per morningstar.com, annual performance 15 years to date for all popular bond index funds beats stocks hands down, except for the short index:

VBISX: 4.05% (short)

VBMFX: 5.42% (total)

VBIIX: 6.48% (intermediate)

VBLTX: 8.30% (long).

Average annual total nominal return from the S&P500, dividends fully reinvested, has been only 4.52% per annum.

That's what happens when stocks are inflated in value over a long period of time, as they have been almost continuously since the late 1990s, except for about four years between 2008 and 2012. And remember, present gains off those lower valuations are already part of the relatively poorer performance of stocks over the last 15 years. It could be much worse.

Impact of a '94-style bond debacle on today's NAVs of popular Vanguard bond index funds

In November and December 1994, the NAVs of some popular Vanguard bond index funds hit their lowest levels in memory during that year's bond market meltdown. What if we revisited those lows today? How much could you lose, both in value and in time?

On the short end, VBISX at 10.53 to start the week would have to fall to 9.50 to match that debacle low from December 1994, wiping out 9.78% of value. With a duration of 2.7 years, presumably you'd have to sit tight almost three years from such a low to recoup your losses as the fund replaced its maturing issues with higher yielding short-term instruments in the new landscape. 

In the intermediate space, VBIIX at 11.46 now would have to fall to 9.16, the November 1994 low, wiping out 20.07% of value. Your duration-implied wait to recoup your losses there is 6.5 years.

VBLTX in the long term space at 13.59 today would have to fall to the November 1994 level of 8.87 to match the November 1994 low, wiping out 34.73% of value. Could you wait 14.5 years to recover from that?

Consider also VBMFX, the total bond index. At 10.82 this week it would have to fall to 9.15 to match the November 1994 meltdown low. That would wipe out 15.43% of value from here. Time to recovery based on duration of the fund? 5.6 years.

Or VFIIX, the Ginnie Mae fund. Current net asset value started the week at 10.73. That would have to fall to 9.54 to match the November 1994 meltdown low, wiping out 11.09% of value. Duration for that fund is 5.5 years.

Many Americans have fled to bond funds for safety in the wake of the financial panic 6 years ago. By doing so, they have driven NAVs to levels in such funds never before seen in their histories, helping to create a bubble. Exiting from such bubbles is not easy when everyone suddenly wants to do so at the same time.

No wonder market timer Bob Brinker of Money Talk Radio Program fame has recently gone ultra short duration for his fixed income investing. He has picked funds which have durations of about one year. That's it.

The wisdom of the move is not yet well appreciated because of what it is not telling you: that a stock market crash is coming, right after the bond market nose dives. He doesn't want to be caught booking huge bond losses in his portfolios when the opportunity to invest new cash will present itself not long after. In other words, I think this is Brinker's way of raising cash now without saying so.

Not advice. Just my humble opinion.  

Current premiums you will have to pay to own popular Vanguard bond funds

Trading above the 10.40 level since August 2009, almost 5 years, Vanguard's short term bond index fund VBISX is currently priced at 10.55, a premium of 1.44%. The average annual return for the last three years through April has been 1.53% according to Vanguard. Current assets total $35.7 billion.

Trading above the 11.00 level since May 2010, 4 years, Vanguard's intermediate term bond index fund VBIIX is currently priced at 11.48, a premium of 4.36%. The average annual return for the last three years through April has been 4.92% according to Vanguard. Current assets total $14.7 billion.

Trading above the 12.00 level since April 2011, 3 years, Vanguard's long term bond index fund VBLTX is currently priced at 13.55, a premium of 12.92%. The average annual return for the last five years through April has been 9.73% according to Vanguard. Current assets total just $6.5 billion.

Trading above 10.50 since April 2010, 4 years, Vanguard's total bond market index fund VBMFX is currently priced at 10.83, a premium of 3.14%. The average annual return for the last three years through April has been 3.41% according to Vanguard. Current assets total a whopping $113.6 billion. 

Vanguard's Worst Performing Bond Funds In 2013

Long Term Treasury Fund, VUSTX:                          -13.03%

Long Term Government Index Fund, VLGSX:     -12.74%

Long Term Bond Index Fund, VBLTX:                       -  9.13%

Inflation Protected Securities Fund, VIPSX:          -  8.92%

Long Term Corporate Bond Index Fund, VLTCX: -  6.86%

Long Term Investment Grade Fund, VWESX:       -  5.87%

And as badly as they have performed, I don't see a net asset value for any fund which represents a bargain: they all still look too expensive to me. 

Vanguard's VTSMX Makes New All Time High At 46.67 Today, 53rd And Final New High Of 2013

What a year for this fund: an average of one new high a week, plus one.