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Why in the world would you own bonds?

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Re: Why in the world would you own bonds?

#101

Post by dragonwriter »

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.

> And while the Fed is independent, it’s certainly deeply intertwined with the US government.

The Fed is…complicated.

The Federal Reserve Board of Governors is an agency of the executive branch (an “independent” agency, but not independent of the government, independent within the government, like the FCC, FTC, and a number of other boards, commissions, etc.)

The Federal Reserve System consists of a network of Federal Reserve Banks, each of which has a nine member board of directors, six of which are elected by member commercial banks, and three of which are selected by the Board of Governors.

But the actual setting of monetary policy is done by the Federal Reserve Open Market Committee, which has 12 members — the seven members of the Board of Governors, the President of the Federal Reserve Bank of New York, and four of the other Federal Reserve Bank Presidents.

Re: Why in the world would you own bonds?

#102

Post by wskish »

xkjkls wrote: post #43
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…

> 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.

It doesn't make them wrong, but nothing can exclude the possibility that an investor believes that they have the ability to convince others via their media platform that X is a great investment without actually believing X is /otherwise/ a great investment. In which case the investment thesis could be purely "access to greater fools"...

Re: Why in the world would you own bonds?

#103

Post by nerfhammer »

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 the bonds. the fed has a balance sheet with whatever assets it holds. the fed just doesn't hold cash. any money it spends is created, any money paid to it ceases to exist.

the fed buys bonds from the treasury department, which must slowly repay them as if the fed were any other bondholder.

this provides a mechanism to reverse the creation of money, when bonds the fed holds are redeemed slightly more money than was created will be destroyed. Or they can destroy money by selling bonds on the open market earlier than that.

Re: Why in the world would you own bonds?

#104

Post by anfilt »

Goverment bonds yields are quite low. You get can Non-Governmental Bonds that have better yields. However, make sure the issuer has physical assets so if they go belly up your not left holding the entire bag.

The other annoying thing about bonds as each bond tends be a fair amount of capital, so you need a lot of capital to properly diversify.

Re: Why in the world would you own bonds?

#105

Post by [deleted] »

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…

[deleted]

Re: Why in the world would you own bonds?

#106

Post by selimthegrim »

nostrademons wrote: post #90
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…

The Silicon Age Collapse?

Re: Why in the world would you own bonds?

#107

Post by nemothekid »

toomim wrote: post #27
nemothekid wrote: post #26

Earlier quoted context omitted.

Where would you go? The EU and Japan are already in a worse position than the US and if the US decides to commit to capital controls, they would probably follow. That only leaves China which already has capital controls.

> That only leaves China There are 195 different nations on earth. That leaves a lot more options than the EU, Japan, and China. A lot of crypto-expats are going to carribean island nations.

>A lot of crypto-expats are going to carribean island nations.

Are they going to buy Lamborghinis in pesos? More seriously, yes, some people are content with living like a rich native in the global south but for anyone else who plans to participate in the global economy (and I assume they do, because capital controls would likely only affect high net worth individuals), they would need to convert to EUR/JPY/CNY/USD.

Re: Why in the world would you own bonds?

#108

Post by mrb »

What does this sentence mean: «The charts below show these payback periods for holding cash» What's the payback period for holding cash? By definition if you hold cash you can be "paid back" immediately in full.

Re: Why in the world would you own bonds?

#109

Post by nerfhammer »

riffraff wrote: post #36
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.

but the amount of US bonds debt is $20 trillion, no? There seem to be way more bonds around than what the fed owns.

The Fed only owns some percent of Treasury bonds. It's never been anything close to a majority. It's about 16.5% at the moment, which is unusually high.

Re: Why in the world would you own bonds?

#110

Post by Hammershaft »

nostrademons wrote: post #90
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…

> There's a pending military technology shift where cheap autonomous weaponry fundamentally changes the power balance between large nation states and small insurgencies.

It would seem to me that this shift towards remote weapons would favor the military, not insurgents in the event of civil strife.

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