111–120 of 532 posts
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!
Trying to speculate on the commercial bond market is exceedingly difficult and risky. Even the experts often take a beating. But using certain sectors of the bond market as a savings and retirement mechanism can be quite effective. Consider US tax-free municipal bonds (munies). They are safe, with defaults at a miniscule percentage of corporate bonds. And many are backed with third party insurance against defaults. T…
I mean sort of. Just staying as long bonds and bills as possible has barely lost for a quarter in the last half century. As the article mentions that paradigm is probably over.
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Sure, but if he didn’t actually believe what he’s saying, why stake the money on it? Your argument seems like a tautology.
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.)
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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.
The main difference between bonds and cash is mostly based on the fact that cash is the means of settlement.
But in fact what we call cash can also have two main forms: federal reserves (debt of the feds) that can be dealt with only by banks and regular bank depositories (debt of the particular bank). And there is even a third layer of Euro Dollar which is debt of non-US banks who cannot hold federal reserves and who can only rely on deposits at 'correspondent banks' in the US who can hold federal reserves.
The fed reserves is the most liquid form of money - but it cannot be held by individuals, only by US banks. Bank depositories are less liquid because there can be a bank run - in that respect US government bonds are in fact less risky even though they are not used as a settlement or accounting mechanism. They are less risky because the US government will always pay them back, because they are USD denominated and there is no gold parity any more. Non rhetorical question: are there any scenarios where the US defaults on their debts?
It is only 50 years that we can a complete fiat based money - before that the system was based on gold (and silver and other resources like shells) - so the current USD based system is really incomparable with the past reserve currencies. Somehow Ray Dalio in his essays with historical comparisons completely misses that - but of course it only makes his thesis stronger.
Non US bonds denominated in USD are completely different - because they can default. In gold based system all bonds used to be like that, because in the end no government could print gold.
Maybe 50 years is not enough to have any full cycle and there is no way to extrapolate.
The economists base their inflation and similar models mostly on the US economy and fiscal mechanisms - but because of globalisation the share of USD transactions outside of the US economy is probably growing. I would love to see stats on that.
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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
Looking just at holdings of any one fund can be pointless since you never know how these holding are part of some bigger strategy especially when you don't know what other derivatives they're holding like options / futures and other non publicly traded products. Any particular holding might also be part of a bigger ploy. It can be part of a hedge / bet / short / or acquisition strategy. Any single holding can also be part of multiple portfolios within one fund each with their own diverse investment goals.
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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?
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Bonds are a safe way to get your money back. It just might not buy as many cheeseburgers as you expected.
This is not a guarantee at all; if inflation is sufficiently high then you could be actively losing money holding a bond that fewer and fewer people want.
At the point somebody is bidding in a primary government bond auction, they are either a pension fund with a bank deposit, and/or the bank backing that deposit with central bank reserves.
Even with all the investment options available, somebody always has to end up in that position in aggregate. Asset prices rise across the board until this indifference level is reached.
Central Bank reserves are remunerated at a fraction of one percent at the moment. Bank deposits even less. Bank deposits also suffer from the risk that the bank will fail.
Therefore relative to the only options left, government bonds represent a good investment. Particularly if you are a pension fund under regulatory instructions to fix your income with certainty.
What's particularly interesting is that the bid for the bond will come from two places - the pension fund, and the bank itself - using essentially the same money. The sale to either is settled with precisely the same set of central bank reserves. If the bank wins the auction it will end up backing the bank deposit with the bond rather than reserves. If the pension fund wins the auction, the deposit and the bank reserves are deleted from the bank's books.
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This was the part that caught my attention as well, it would be super interesting to see it play in real-time. For one, how would they even put capital movements controls on crypto? For example, I just have to remember my 12 word seed and I can hop on a plane to another country and my crypto comes with me. The other part is, wouldn't those capital controls be the last nail in the coffin of "we lost complete control o…
Well, if they impose such restrictions (I agree that's very unlikely), how much do you think your crypto will be worth then?