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Author: hackshark Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Bond sentiment so bad, it's good Date: 5/28/2002 12:58 AM
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http://www.marketwatch.com/news/yhoo/story.asp?guid=%7B3BBDEC1B-8C86-4212-B091-E3639C1B92B1%7D&siteid=myyahoo&dist=myyahoo

Bond sentiment so bad, it's good

By Mark Hulbert, CBS.MarketWatch.com
Last Update: 12:21 AM ET May 28, 2002

ANNADALE, Va. (CBS.MW) -- Sentiment is fast approaching a bearish
extreme among bond-timing newsletters. From a contrarian point of
view, that's bullish.


The Hulbert Financial
Digest's bond sentiment
index currently stands at
-53.8 percent. That's only a
couple of percentage points
away from the index's
record low of -56.3 percent.

This HFD sentiment index
to which I refer measures
the average bond market
exposure among timing
newsletters that
communicate their thoughts
daily with their subscribers.
The latest reading
incorporates advisers'
reactions through the close
of trading on Friday.

This very low reading
stands in stark contrast to
the sentiment picture that
which prevailed two weeks
ago, when I last wrote about
the bond-timing newsletters
on May 15. Then the HFD's
bond sentiment index stood
at 1.3 percent. In other
words, this index has
slipped more than 55
percentage points in less
than two weeks.

Contrarians almost always
think it is bullish when
advisers are falling over
themselves jumping on the
bearish bandwagon. But
such behavior is seen as
particularly bullish today, in
light of bonds' recent strength. Over the last two weeks, in fact, the nearby
T-Bond futures contrast has recovered much of its early May losses.

Usually bond sentiment drops in the wake of market weakness. When it instead
drops in the face of market strength, it betrays a thoroughgoing despair on the
part of market timers.

This very well may be the wall of worry that the bond market needs in order to
climb significantly higher.

_________________________________

this is something i had noted and commented on within the past few weeks. All of the fear about buying long bonds makes me wonder if maybe the fear is a little overdone... how can everyone be right? Contrarians would point out that they are usually wrong whenever the opinion gets too lopsided. However there are few contrary indicators of which I am aware when it comes to bonds, unlike stocks. This Hulbert newsletter survey sounds like an interesting and potentially useful measurement.

-hack
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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3772 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/28/2002 2:24 PM
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Let's see. The commentators on the commentators are saying that the market is saying X, therefore -- if one is a contrarian--, then not-X must be the case, right?

But if one is truly a contrarian's contrarian, then, of course, X is the case after all.

LOL. Way above my pay grade. Charlie

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Author: hackshark Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3773 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/28/2002 2:30 PM
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Let's see. The commentators on the commentators are saying that the market is saying X, therefore -- if one is a contrarian--, then not-X must be the case, right?

But if one is truly a contrarian's contrarian, then, of course, X is the case after all.



I just see it all saying that if a lot of commentators and market participants are saying that the long bond is headed down and it is a rotten time to buy, one can easily surmise that they already would have taken positions based upon those opinions. If that is true, then the selling may already have occured and the potential surprises could be on the upside, especially with expectations being so low.

I honestly don't know if contrary opinion indicators can be successfully implied with bonds the way they can with equities. it seems reasonable enough though. A lack of disagreement usually indicates a probability that is being mispriced by market participants. It takes lots of informed and motivated buyers and sellers to have the most efficient marketplace. When either side gets too anxious, opportunities may arise. That is my operating hypothesis, anyway.

-hack

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3775 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/28/2002 3:52 PM
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I'd be wary of taking contrarian positions WRT bonds. In equities, nobody HAS to buy stock (aside from index funds). In contrast, there are an awful lot of financial institutions that pretty much have to buy bonds (or fairly similar stuff like mortgages, etc.). I'm thinking particularly of insurance coompanies, pension funds, etc. These entities are managing huge amounts of funds and can easily prop up a bond market even when it is pretty clear that what goes up must come down. Furthermore, they don't really care if their long bods go into the crapper because the value of their liabilities will also decline (assuming that they are being good about duration matching, etc.).

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3776 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/28/2002 4:46 PM
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I honestly don't know if contrary opinion indicators can be successfully implied with bonds the way they can with equities. It seems reasonable enough though.

Hack, let's pursue that thought a bit further.

How are stocks and bonds similiar (or different) from bell peppers and broccoli? Are all four subject to the same supply/demand dynamics? or, are securities a bit wierd because of the anticipatory nature of financial markets, such that the operating principle seems to be "buy on the rumor; sell on the news" and the fact that consumers do make grocery substitutions, but not financial ones? E.g., when fresh broccoli is higher than usual, perhaps due to bad weather, you switch to cabbage or whatever for a week or so. But if XYZ is the hot stock, as is evidenced by the fact it is going up, or fears are fanning a retreat to quality, then the fact of the stock's strength or the bond's safety creates desirability and everyone wants a piece of the action and pays the higher price.

Against that background, let's ask your question of whether :
... it is a rotten time to buy[?]


"time" is the operative word in that question. What is your investment time frame? Pick the right time frame, and you can make almost any investment work, but will it be the best investment compared to other opportunities, all other things being equal? [which, of course, they never are.] But, what are the qualities of safety and return that you require from bonds and can substitutes be found if the current prognosis for interest rates is at best uncertain? Rather than try to solve a timing problem that even the pros agree is all but intractable, why not do the commonsense consumer thing of side-stepping the issue until things resolve themselves? If bonds are expensive and their direction is uncertain, create synthetic instruments for your portfolio that will achieve the same purpose.

Charlie



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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3778 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/28/2002 11:23 PM
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Food exists to be consumed.

Stocks exist to be a store of value that you must eventually sell to someone else. No defined expiration.

Bonds exist to play games with interest rates. They have a definite time to expiration. You get use (coupon payments) out of a bond while you hold it.

Within one credit rating, one bond is more or less interchangeable for another (if your portfolio is diversified enough). Not so for stocks.

Hey, I just made the case that bonds are consumables!

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3789 of 35400
Subject: Re: Bond sentiment so bad, it's good Date: 5/29/2002 11:25 AM
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Within one credit rating, one bond is more or less interchangeable for another

Keep in mind, however, that the futher away from AAA you move, the less interchangeable those corpoate bonds become and the greater importance that has to be given to company-specific factors. Also keep in mind that even AAA issues default (though rarely) and they get downgraded (a more frequent event). A rating from Moody's, SP, Fitches, etc, is only an opinion of credit-worthiness and the likelihood the company will fufill its promise, not guarantee to pay interest and return principal. Only the governement guarantees its debt issues.


if your portfolio is diversified enough).

jrr7, I think that qualification contradicts the first half of your assertion. Either an issue is interchangeable, or it isn't. If you have to depend on diversification to bail you out of mistakes, then the issues weren't interchangeable. Issue A failed, but Issue B didn't.

In my opinion, only guaranteed issues are truly interchangeable. Everything else is a calculated gamble against which good Due Diligence and Proper Diversification are the only defense.

Charlie



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