Investing

Market timing step 2: going back in

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  • Jan 14th, 2021 11:00 am
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breezy11 wrote: No Pun Intended with "green day"?
No didn’t even notice it lol Just “when September ends”.. :)
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now I'm listening to green day lol jesus of suburbia up next
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breezy11 wrote: now I'm listening to green day lol jesus of suburbia up next
Omg I didn’t even remember it - sounds very quarantine-ish lol:

“Get my television fixed
Sitting on my crucifix
The living room or my private womb
While the Moms and Brads are away
To fall in love and fall in debt
To alcohol and cigarettes and Mary Jane
To keep me insane,
Doing someone else's cocaine”
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freilona wrote: Half of my pension transfer from a former employer has finally arrived
Damn - “should’ve purchased (tm)” ZCM (BMO Mid Corporate Bond ETFj right away! Up 2.35% on this news I guess:

“In its regularly scheduled interest-rate announcement, the bank unveiled a Provincial Bond Purchase Program to buy up to $50-billion. It also announced a Corporate Bond Purchase Program, under which it will purchase up to $10-billion of investment-grade corporate bonds in the open market.”

Bank of Canada unveils new bond-buying programs in bid to support credit markets amid virus crisis

Although ZIC is up, too.. sigh
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freilona wrote: Damn - “should’ve purchased (tm)” ZCM (BMO Mid Corporate Bond ETFj right away! Up 2.35% on this news I guess:

“In its regularly scheduled interest-rate announcement, the bank unveiled a Provincial Bond Purchase Program to buy up to $50-billion. It also announced a Corporate Bond Purchase Program, under which it will purchase up to $10-billion of investment-grade corporate bonds in the open market.”
It's always suspicious when bond and stock prices move into the same direction for weeks. Chances are, somebody is paying too much for one or the other right now. I don't have reasons to sell stocks, so chose to sell some bond ETF into the close (XBB for about 2% of the portfolio). If it goes further up, I'll be happy to sell some more. A part of timing long-term rebalancing in a bear market (buy stocks, sell bonds) is to get an advantage of the bond appreciation. We have a proof the fear can drive the bond ETF prices down when you want to sell them. Lesson learned, better sit on an extra cash when everything is expensive-ish.

For ZCM, there are much more reasons to be careful. The default risk is still there: at least 2nd quarter will be terrible earning-wise, and nobody is rushing to finance corporations at the rates they used to. Whoever is betting on a speedy recovery should also think about the inflation pressure once things are "normalized". I believe Canada is at an ongoing higher risk of inflation than the US, as the States have the benefit of a safe-haven currency. The only case corporate bonds should do great long-term is if the economic growth never recovers, and we are stuck in the low interest rate environment (yet, without inflation or corporate defaults somehow). In that case, it is better to be a trader than an investor, so the extra cash still helps.

Edit: replaced "bond" with "bond ETF", as @MrMom post reminded me I'm too careless with the wording. The reason is I do use them in place of bonds for the long-term, yet cannot skip the chance to put the speculator's hat on when they seem to act unreasonable compared to underlying.
Last edited by yvrbanker on Apr 15th, 2020 8:49 pm, edited 1 time in total.
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@freilona ETF market getting ahead of the underlying. No details. Will it include Fins? Spread between Bid/Offers have not moved because this is all hypothetical. More thoughts here.

BTW, I'm in your camp now, had some posts removed. Probably for calling out the trolls.

I'll update this post with a chart of CDX spreads later.
A portfolio of select 5Y and 10Y NA (think US) credit. Lower spreads = bullish.
Images
  • CDX NA IG - Copy.JPG
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Here’s my predicament. I had to open yet another account, LRSP, to transfer DC and DB pensions from Scotiabank, 43K+ in total. From what I read, I’ll be able to unlock half of the money at 55 and move to regular RRSP. Hence my original plan to buy ZCM and XEF in this new account (in about 40/60 proportion) - first, to maintain the overall portfolio asset allocation, second, to transfer half of both “in kind” to my regular RRSP (where I also hold both) in 3 years.

Of course I can just buy a 3 year GIC, or some Canadian stocks, or XSP or better yet ZQQ (the latter was recommended today on the Market Call, but I was thinking earlier myself - that hedged Nasdaq ETF has the best growth potential at the moment)

I liked the planning and the discipline of passive indexing. I’m hesitant to change the strategy now based on the latest learnings. Yet I don’t want to look back a few years from now and wonder why I didn’t pause to rethink everything and just kept buying “losers” when it was obvious (is it?) that US stocks will keep outperforming..

Here’s the target asset allocation I planned earlier for 2021 (reallocating ~20% that were in GICs and bonds ETFs back into equities, while keeping a healthy non-investable “cash wedge” aside):

10% GICs
10% Global Bonds
5% Preferreds

15% Canadian

18% Developed
7% Emerging

35% US

So.. stick to the plan - or back to the drawing board? :)
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@yvrbanker FYI

What's their edge? (A) Everyone feeds them info to get their business and (B) 2 and 20? Not much else based on their positioning. FWIW, here's his opinion.

Dalio Says Investors ‘Crazy’ to Hold Government Bonds Now
April 15, 2020, 11:03 AM EDT Updated on April 15, 2020, 11:33 AM EDT
https://www.bloomberg.com/news/articles ... -bonds-now

Excerpts;
said investors would be “crazy” to hold government bonds now because of money printing by central banks to rescue the global economy.

Gold, along with some stocks and corporate bonds of companies with strong balance sheets are the assets that will rise in the current environment, he said.

Dalio’s flagship Pure Alpha II hedge fund ended the first quarter down about 20%, after getting caught on the wrong side of the market sell-off that began in late February as a result of the rapidly spreading coronavirus.

Dalio, who earlier this year urged investors not to miss out on an opportunity to benefit from strong markets, wrote in mid-March that the pandemic hit the firm at the “worst possible moment” because Bridgewater’s portfolios were tilted to benefit from a rise in the market. Bridgewater manages the world’s biggest hedge fund.
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Equal time is what they call it on TV.

I've spoken out more than once on Bond ETF's. Canada's biggest issuer of ETF's posted this, "Understanding the price movements of fixed income ETFs, funds and bonds" https://bmogamhub.com/system/files/fixe ... e&id=97973

References;
https://forums.redflagdeals.com/what-di ... #p31398734
https://forums.redflagdeals.com/market- ... #p32312726
https://forums.redflagdeals.com/market- ... #p32314167

* They infer there is a "price discovery" process. In a nutshell here it is if they wanted to sell a bond in times of heavy stress. Q - What's your bid for XVY something% maturing in the future? A - "None. Go away" at worst or at best "Let me phone around ... no on cares at any price." What did we learn about the spread?
* People who live in glass houses shouldn't cast stones, but what's the incentive for those who sell ETF's? Altruistic or AUM? There's more, but you'll have to make the leap.
yvrbanker wrote:
For ZCM, there are much more reasons to be careful. The default risk is still there: at least 2nd quarter will be terrible earning-wise, and nobody is rushing to finance corporations at the rates they used to. Whoever is betting on a speedy recovery should also think about the inflation pressure once things are "normalized". I believe Canada is at an ongoing higher risk of inflation than the US, as the States have the benefit of a safe-haven currency. The only case corporate bonds should do great long-term is if the economic growth never recovers, and we are stuck in the low interest rate environment (yet, without inflation or corporate defaults somehow). In that case, it is better to be a trader than an investor, so the extra cash still helps.
I had a quick look through the ZCM holdings out of curiosity. Maybe ok. Much better than ZLC though.

I had a look at the ZLC holdings. Even for the ones with a high credit rating 407, GTAA, they are going to have cash flow problems in the short term. Have not looked at the balance sheets, but the credit analysts are working 7 days a week at home. As for infrastructure projects, Crosslink, the greatest risk is during the construction phase. Case in point, Muskrat Falls.
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Banks are red for two straight days.
If it goes down little bit more in upcoming days, I will add some more.
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freilona wrote:
Damn - “should’ve purchased (tm)” ZCM (BMO Mid Corporate Bond ETFj right away! Up 2.35% on this news I guess:

“In its regularly scheduled interest-rate announcement, the bank unveiled a Provincial Bond Purchase Program to buy up to $50-billion. It also announced a Corporate Bond Purchase Program, under which it will purchase up to $10-billion of investment-grade corporate bonds in the open market.”

Bank of Canada unveils new bond-buying programs in bid to support credit markets amid virus crisis

Although ZIC is up, too.. sigh
MrMom wrote: @freilona ETF market getting ahead of the underlying. No details. Will it include Fins? Spread between Bid/Offers have not moved because this is all hypothetical. More thoughts here.

BTW, I'm in your camp now, had some posts removed. Probably for calling out the trolls.

I'll update this post with a chart of CDX spreads later.
A portfolio of select 5Y and 10Y NA (think US) credit. Lower spreads = bullish.
Poloz saying 1 to 5 year corporates. The bucket that generically has the least credit risk, but think again why this bucket. Bucket = street term for "maturity bucket" or a certain range of maturity dates. Think the same reason as my apple basket analogy. If you can keep the basket from overflowing, then there is room for other risk across the curve.

For the same sized basket, the risk gets fuller with longer dated and riskier big apples rather than shorter dated, smaller apples. Why might the basket be getting full? There's been some bond borrowings through this with the recent large TD NVCC deal as an example. Typically, investors will sell shorter dated credit to move out the curve. There are other reasons, but they may not be as important.

Conclusion: All else being equal, although they never are, the credit curve might steepen. 1 to 5 year corporate spreads tighter with > 5 year spreads wider.
Last edited by MrMom on Apr 16th, 2020 6:08 pm, edited 1 time in total.
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freilona wrote: Here’s the target asset allocation I planned earlier for 2021 (reallocating ~20% that were in GICs and bonds ETFs back into equities, while keeping a healthy non-investable “cash wedge” aside):

10% GICs
10% Global Bonds
5% Preferreds

15% Canadian

18% Developed
7% Emerging

35% US

So.. stick to the plan - or back to the drawing board? :)
This looks like a perfectly good portfolio to me. I'm not clear from your post as to what changes you are now considering making to it?
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MrMom wrote: Conclusion: All else being equal, although they never are, the credit curve might steepen. 1 to 5 year corporate spreads tighter with > 5 year spreads wider.
Thank you, @MrMom ! I’m leaning towards selling ZCM in my RRSP (instead of buying more of it in LRSP) It’s only ~2% of the overall portfolio, and is currently slightly above my average purchase price. I’ll keep ZIC (US corporate mid-terms) in husband’s RRSP for now (5%+ of the overall portfolio, up 14%+ - mostly thanks to fallen CAD, which was the hope when buying unhedged) and 2 individual bonds to maturity.

I wasn’t hot on VAB and ZAG even before seeing them drop in March, and would rather buy another GIC than a bonds ETF with unpredictable behaviour and paltry YTM. Will be checking individual bonds as well :)
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llpresident wrote: This looks like a perfectly good portfolio to me. I'm not clear from your post as to what changes you are now considering making to it?
Thank you :) It’s pretty close to our previous asset allocation until last summer when I got jitters and started decreasing equities allocation. Here’s our current actual asset allocations (including upcoming DB pension transfer):

12.5% Cash (only in my RRSP and new LRSP)
14.8% GICs
8.3% Global Bonds
4.1% Preferreds

7.1% Canadian (2.8% ETF, 4.3% in 4 individual stocks)

15.4% Developed
5.5% Emerging

32.3% US

Theoretically, I could just buy bonds and/or GICs with that cash and we’d have a balanced 40/60 portfolio “as is”. But if I want to start increasing equities allocations back to 75%+ - do I really want to buy more of Canadian, Developed and Emerging Markets equities, not just US ones? Do I still believe that “one day” in the next 5 years one of those markets will outperform the US? Last 5 years they didn’t. And I know it’s an unpopular notion among indexers to go ‘all-in” US, but I’m not the only one on the forum at least overweighing them before, so considering bringing US equities allocation to up to 50% of the overall portfolio :)

I wish I had guts to get rid of preferred shares at the losses. But hopefully will at least sell them in registered accounts and buy in non-registered when non-reg GIC matures.

Also considering buying REITs (individual or an ETF) in the LRSP account - to bring Canadian allocation up to 10%.

And oh yeah, sell ZCM.. So 2021 target allocations will become more like this:

10% GICs
7% Global Bonds
3% Preferreds

10% Canadian

15% Developed
5% Emerging

50% US

(Once again, we have no debts, enough cash set aside for about 3 years of modest living expenses, our RRSPs are maxed, so all future DIY contributions will be TFSAs and non-reg)
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@freilona In RORO environments.correlations go to one.

Credit spreads should be tighter if the GILD led rally continues into RTH. DK what the underlying Rates market will do though. Here's the correlation chart of ZCM vs SPX. High recently.
http://schrts.co/VXzeysfr

Update
Last edited by MrMom on Apr 17th, 2020 12:27 am, edited 1 time in total.
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The BIS published this on April 2, "Leverage and margin spirals in fixed income markets during the Covid-19 crisis," three weeks after the twittersphere had figured it out.

I've updated the "Why does it appear to Main St that the Fed is only helping Wall Street?" post where I used apples to explain the bond market gyrations. Hopefully it all makes sense now on why the Fed needed to step in back then. If you understood the apples, the full BIS analysis will be a piece of pie.

I'll post the BIS url in the initial post.
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freilona wrote: So 2021 target allocations will become more like this:

10% GICs
7% Global Bonds
3% Preferreds

10% Canadian

15% Developed
5% Emerging

50% US
That’s not too far off my current portfolio other then my very small developed markets and more cash (which I’m looking to put to work):

US - 46.5%
CDN - 9.5%
Developed - 2.75%
Emerging - 2%
Bonds - 10.75%
Cash - 28.5%

As you can see, I see no issue with going overweight US. I do intend to grow the Canadian portion by buying Canadian dividend paying stocks in my unregistered for tax efficient income. However, that will be with new cash. I will likely grow the emerging. I don’t like Europe or Japan as an investment so I’m not overly interested in developed.
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llpresident wrote: That’s not too far off my current portfolio other then my very small developed markets and more cash (which I’m looking to put to work):

US - 46.5%
CDN - 9.5%
Developed - 2.75%
Emerging - 2%
Bonds - 10.75%
Cash - 28.5%

As you can see, I see no issue with going overweight US. I do intend to grow the Canadian portion by buying Canadian dividend paying stocks in my unregistered for tax efficient income. However, that will be with new cash. I will likely grow the emerging. I don’t like Europe or Japan as an investment so I’m not overly interested in developed.
Glad to hear that! :) Discussed my latest portfolio musings with dear husband. Agreed to:

1) Sell both ZCM and ZIC Bonds ETFs
2) Buy Loblaws in either RRSP (as won’t be adding cash to the non-reg till December)
3) Start buying ZQQ in my new LRSP
4) Add to VTI and IEMG in my RRSP, as planned
5) Don’t add to XEF and no REITs until we get a better idea about their rental losses
6) Don’t rush to deploy cash :)
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Been slowly buying bits and pieces here and there for the last few weeks, and just realized I'm down to 10% deployable cash already. Looks like it's time to sit back and just watch for a while, maybe take some profits in a few spots and wait for the next big dip/drop to invest the rest. My timing was waaaay off for the most part, but I did manage to get about 1% in right near the bottom. Smiling Face With Open Mouth

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