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Why in the world would you own bonds?

bridgewater.com

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Re: Why in the world would you own bonds?

#71

Post by riffraff »

atombender wrote: post #48
dannyw wrote: post #12

Earlier quoted context omitted.

This argument doesn't work when the Federal Reserve, an entity unconcerned about ROI, is purchasing bonds out of thin air. They now own $7 TRILLION of US govt bonds. This number was less than $100 billion before the GFC. https://www.pgpf.org/blog/2021/01/the-federal-reserve-holds-... So, yes, no investor wants bonds. Why would you buy something that's a guaranteed loss? It's increasingly just the Fed.

What happens to a bond when the Fed buys treasuries? Are they "cancelled"? Or does the Fed actually hold those bonds? The latter sounds nonsensical, but I don't know enough about how the Fed works.

they hold them, receive payment, and redistribute it.

There is a predetermined amount of the Fed dividends which gets payed to the constituent banks, and the rest is given back to the treasury.

The same happens for the European Central Bank, and AFAICT, most central banks.

Re: Why in the world would you own bonds?

#72

Post by drfuchs »

vermilingua wrote: post #54
drfuchs wrote: post #51

Earlier quoted context omitted.

That’s what a “Pump and Dump” is: buy bad investment, talk it up, sell to bigger fools. (Not that this is what’s going on here; think GameStop perhaps.)

Sure, but I’ve no idea how that would apply to this strategy, there are no prescribed purchases, and what could they possibly go short on if nobody buys bonds, the government? Then they’d have bigger problems.

You’re right, considering the context. Looks like I’m the bigger fool.

Re: Why in the world would you own bonds?

#73

Post by anm89 »

paulmd wrote: post #42

> …The economics of investing in bonds (and most financial assets) has become stupid ... Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better? That is indeed the point of driving interest rates low or negative - to force people into economic activity. If holding a bond makes you negative money, you might as well buy something with it, which goes back into th…

> force people into economic activity

Try telling that to the pensions.

Re: Why in the world would you own bonds?

#74

Post by anm89 »

adeelk93 wrote: post #10

“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”

Nobody goes to the restaurant because it's too crowded with the owner and their friends.

Or something like that

Re: Why in the world would you own bonds?

#75

Post by thoughtstheseus »

paulmd wrote: post #47
thoughtstheseus wrote: post #21

Earlier quoted context omitted.

Just hold cash...

At a macro scale, holding cash isn't free either. If it's in a bank account then welp, $250k FDIC limit. If it's physical then welp, gotta rent and secure a warehouse that is literally chock full of cash for anyone to steal. Etc etc. Zero/negative interest rates are supposed to encourage productive activity, or at least spending.

Cash is making money if your alternative is a negative yielding asset.

Re: Why in the world would you own bonds?

#76

Post by anm89 »

tlbsofware wrote: post #35

Benjamin Graham and Warren Buffett would disagree, they don’t exactly recommend buying and holding bonds until maturity but instead to buy bonds on the market, when the bond yield is say at 6% any bond with a coupon value less than that will be worth less than its face value, when those rates drop the bond will be worth more than its face value, if you buy bonds when interest rates are high and then sell them when th…

Sure. Let us know when Bonds are at 6% again. The point is the number of narratives where bonds can go lower is getting smaller and smaller.

Re: Why in the world would you own bonds?

#77

Post by jonmc12 »

pmastela wrote: post #64
nlh wrote: post #24

One thing I've learned about professional investors is that no matter what, at the end of the day they're talking their book. So whether you buy these arguments or not, Ray Dalio is simply promoting a position that Bridgewater no doubt has taken. So when he says: "I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix tha…

I don’t know a whole lot about professional investing, but if watching The Big Short has taught me anything it’s that the pros will say one thing publicly but do the opposite in private until it’s to their advantage to do a 180 and make their private stance actually public. Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase. The following exchange fr…

https://finbox.com/ideas/ray-dalio

Re: Why in the world would you own bonds?

#78

Post by 55555 »

aerovistae wrote: post #67

I discovered awhile ago that so-called "junk bonds" are in fact very rewarding investments that are actually only risky by comparison to other bonds, and not by comparison to other popular asset classes like stocks. Been making $120/year off an $800 bond I bought that has grown in value to $950. Win!

Do you have any recommended reading on this?

Re: Why in the world would you own bonds?

#80

Post by JumpCrisscross »

vecinu wrote: post #20

The conclusion kind of scares me, especially coming from Dalio. > so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected. Who truly believes this is a likely scenario? A number of folks I know are already considering fleeing the US but if this was to pass, that number would skyrocket…

> Who truly believes this is a likely scenario?

The United States is the only major power with a strong ideological belief in unrestricted capital flows. The EU and China have both implemented capital controls in the modern era, sometimes repeatedly. (U.K. currently stands out, too.) All it takes is a populist “the rich are fleeing with their capital” trope to take hold on the far left and/or the right, and the centre to crumble, for such policy to become politically palatable. At that point, there really isn’t anyone else defending free market capitalism.

Put another way, do you really think you couldn’t get a lot of people in e.g. San Francisco to sign onto a mandate that requires the rich to register outgoing capital flows?

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