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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?

#81

Post by obviouslynotme »

atombender wrote: post #68
obviouslynotme wrote: post #61

Earlier quoted context omitted.

The Fed isn't part of the US government. They are a private bank with special powers granted by Congress. When they purchase USG bonds, they hold them and receive interest.

But the Fed pays earnings back to the Treasury. And while the Fed is independent, it's certainly deeply intertwined with the US government. The Fed holding US government debt seems intuitively counterproductive to me.

They don't pay all earnings to the USG, only everything above a certain threshold IIRC. It's only counterproductive if you think like a normal person instead of a central bank. Their mission is to keep the dollar stable. They are doing that by keeping the USG stable. All the central banks are acting in concert right now to save the global financial system. My guess is that we are being slowly transitioned to removing the USD as the world reserve currency and replacing it with a World Bank electronic one.

Re: Why in the world would you own bonds?

#82

Post by gjs278 »

pascalxus wrote: post #8

What i find particularly scary is the run on the banks scenario the author outlines. this really smashes the idea that bonds are the safe thing to get your money back. I know a lot of bonds have been selling, that's why the fed needs to buy so much every month, to make up for all that selling people are doing. Personally, i'm surprised even more people haven't been selling bonds. With the threat of inflation looming…

uh risk averse is the bonds. they even have I-bonds. it’s ridiculous to think stocks are just going to keep going up 8% every year. it’s one black swan event away from a potential 10 - 20 year recovery of your initial investment.

Re: Why in the world would you own bonds?

#83

Post by JMTQp8lwXL »

pascalxus wrote: post #8

What i find particularly scary is the run on the banks scenario the author outlines. this really smashes the idea that bonds are the safe thing to get your money back. I know a lot of bonds have been selling, that's why the fed needs to buy so much every month, to make up for all that selling people are doing. Personally, i'm surprised even more people haven't been selling bonds. With the threat of inflation looming…

The signs of inflation have already presented. There are regular anecdotal reports in urban housing markets nationwide for homes selling for tens or hundreds of thousands of dollars over appraisal (which is meaningfully different enough from 'over list', as some agents in extremely hot markets intentionally underlist to attract bidding wars).

Some of this is due to interest rates, but those have already bottomed out. At this point, it's a near certainty Covid will continue impacting markets for quarters to come.

As mentioned, a little inflation is a good thing. If we think of the financial system like a rube goldberg machine or some heavy enterprise SaaS application --things you can't just tear down and start over-- the most viably peaceful way out of our problems is inflating the debt.

Re: Why in the world would you own bonds?

#84

Post by kgin »

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…

India is seriously considering it now.

https://www.reuters.com/article/uk-india-cryptocurrency-ban/...

Re: Why in the world would you own bonds?

#85

Post by ericd »

every wrote: post #41
mdorazio wrote: post #33

Earlier quoted context omitted.

Keep in mind there's a hidden gotcha with bond funds like vwalx in that the price of bonds changes over time roughly correlated with expected inflation. If you've been paying attention to vwalx and other bonds over the last month, you'll have seen the price go down significantly as treasury yields have gone up. So there's a risk that while your %yield on invested capital remains the same, the value of your invested c…

That is perhaps only relevant if you plan on selling them. I have no such plans. For me they are an ever accruing "money hose" I can turn off or on as needed...

Haven’t munis had negative real (ie after inflation) returns for a while now?

Re: Why in the world would you own bonds?

#86

Post by aerovistae »

55555 wrote: post #78
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?

I can't say that I do-- I mostly learn about investment things by googling a question or a term and then reading all the results that come up and mentally aggregating what they have to say.

I will add that The Balance and Investopedia have been the leading sources of my education, all in all.

Re: Why in the world would you own bonds?

#87

Post by vtbg »

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 once spoke to a commodities trader who (half-jokingly) explained his job as: predicting the market in the morning, then letting his clients bet and make this happen during the day. Repeat.

Re: Why in the world would you own bonds?

#88

Post by hutch120 »

neighbour wrote: post #53
xkjkls wrote: post #43

Earlier quoted context omitted.

> One thing I've learned about professional investors is that no matter what, at the end of the day they're talking their book. That doesn't make them wrong. It's basically just a tautology. If you believe X is a great investment, and you aren't investing in it , that would be a far stranger situation.

Basically what Taleb describes as Skin in the Game: >"Don’t Tell Me What You Think, Tell Me What You Have In Your Portfolio"

Only if it going to actually hurt to lose it... when did these guys every really get hurt... they hedge their bets exactly so they never put themselves in a position to literally loose their house(s).

Re: Why in the world would you own bonds?

#89

Post by ericd »

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…

It happened during the Great Depression (the outlawing of private gold ownership). I wouldn’t say it’s that unlikely if things get rough.

Re: Why in the world would you own bonds?

#90

Post by nostrademons »

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…

I actually believe something far scarier. I think we're going to see a worldwide disintegration of governments and then sort of a feudal anarchy - basically the Syrian Civil War, but spread across the globe. People will stop taking the government seriously and just go do what they want, with a lot of local bullies and warlords springing up to take their place.

The financial picture Dalio paints is the first stage of this, but it merges with a lot of other trends to make something horrible. There's the ongoing migration crisis; conditions are becoming inhospitable in areas like Central America and the Middle East, which is driving migrants to developed nations like the U.S. and Europe and destabilizing those countries. There's the climate crisis, which is the root cause of the migration crisis. There's a trust crisis propagated by the Internet and Big Tech, where nobody knows what to believe anymore. There's a pending military technology shift where cheap autonomous weaponry fundamentally changes the power balance between large nation states and small insurgencies. And then there's a population that's just fed up, as evidenced by the Capitol Riots and lockdown protests (as well as plenty of Internet vitriol).

Unfortunately fleeing the U.S. won't do anything for this, because if the U.S. goes, the whole world will erupt in flames. Better to put down roots in a community whose values you agree with, ideally one in a well-defensible location with plenty of natural resources.

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