Why in the world would you own bonds? • Hacker News Board

Re: Why in the world would you own bonds?

#131

Post by darawk » Wed, Mar 17, 2021, 5:53 AM UTC

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…

The idea that Dalio published this in order to move markets in his favor is patently absurd if you know anything at all about the markets in question. The markets that would have to move here are the world's most liquid by a mile. Retail investors reading this blog post are not going to move them at all. And institutional managers are not getting their market takes from blogs like this.

The only purpose of this essay is PR, for hiring and attracting capital. If you want to do the cynical self-interest take, that's the one you should be going with.

Re: Why in the world would you own bonds?

#132

Post by dharma1 » Wed, Mar 17, 2021, 5:55 AM UTC

neilwilson wrote: post #119

The reason you own bonds - particularly government bonds - is because they are better than the alternative. 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 ri…

I think pension funds are the bag holders here. They require 6% yield or so to function, and real yields are still negative or near zero. Yet their investment mandates often dictate they need to have bonds or a mix of equities and bonds.

Re: Why in the world would you own bonds?

#133

Post by wskish » Wed, Mar 17, 2021, 5:55 AM UTC

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"

Not sure I interpret it the same way. Wouldn't this advice heavily/completely discount/ignore the written words associated with the portfolio?

Re: Why in the world would you own bonds?

#134

Post by JMTQp8lwXL » Wed, Mar 17, 2021, 5:57 AM UTC

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!

Someone should brand junk bonds like they did with peer-to-peer lending. The latter was a bust (time and time again, I've read about the ills of P2P lending returns), but there could be a great dual-sided market opportunity for the former.

Re: Why in the world would you own bonds?

#135

Post by nostrademons » Wed, Mar 17, 2021, 6:01 AM UTC

ericd wrote: post #128

nostrademons wrote: post #90

Earlier quoted context omitted.

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…

I’m curious, since you seem to have thought a lot about this - any suggestions for defensible locations with plenty of natural resources? I’m guessing suburbia generally doesn’t meet that definition.

When I looked into it the top locations were in the Pacific Northwest (extending down to the Lost Coast in California) or Northern New England. Ample rainfall, surrounded by mountains, lots of timber, sea routes to reestablish trade or for fishing, and potentially farmable.

Some runners-up included the Bay Area & Coastal California (easily defensible & fertile, but has overpopulation, water issues and limited timber), the Great Salt Lake valley (ditto), and the Colorado & Wyoming foothills (pretty dry, but a great mining/oil shale area). The worst areas were in the Southwest (which already has a migrant crisis and is going to get totally screwed by global warming) and the Great Lakes area (overpopulated relative to its natural carrying capacity).

Suburbia could be a decent place, if the population density is low enough and it's surrounded by arable land and resources. Livermore, for example, wouldn't be a bad place. But the rows upon rows of tract houses (say San Jose or LA) would become a miserable place without the rest of society to support it, as would the inner cities. I think that the ideal density would be a small self-contained city of say 50-80K people: small enough to maintain social cohesion, but large enough to support some division of labor and have enough of a workforce to support & defend the region.

Re: Why in the world would you own bonds?

#136

Post by [deleted] » Wed, Mar 17, 2021, 6:01 AM UTC

fragmede wrote: post #99

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.

Unfortunately, there's a catch. People can say things they don't believe, especially if there is a large amount of money to be made. If I'm holding a large amount of X, and can convince enough other people to buy X that the price rises (hopefully by a lot), I can sell my shares of X for a (large) profit. Pump and dump schemes have been common forever, popularized in the the 2000 movie Boiler Room as well as Wolf of W…

[deleted]

Re: Why in the world would you own bonds?

#137

Post by ZephyrBlu » Wed, Mar 17, 2021, 6:09 AM UTC

nostrademons wrote: post #126

ZephyrBlu wrote: post #40

Earlier quoted context omitted.

I believe that every dollar the Fed has "printed" went into bonds because that is how the US financial system works. The government gets money from the Fed by selling them bonds in exchange for cash.

That's not how the U.S. financial system works. The government doesn't "get money from the Fed" - it gets money from the Treasury, which either collects it from taxes or issues government debt to raise funds. The Fed participates in open market operations, and one of the markets they participate in is the Treasury bond auction. But they participate in others as well: notably, they've recently been major participants…

Thank for you explaining it better.

> When they participate, they effectively inject cash into the system, since the amount they can pay is unlimited and subject only to their mandate to get full employment and limited inflation

In the case where they buy Treasury bonds, the government itself gets money that they can use as they see fit (I.e. stimulus checks), right? Whereas in this case they just "inject cash into the system" in general.

Re: Why in the world would you own bonds?

#138

Post by nostrademons » Wed, Mar 17, 2021, 6:13 AM UTC

AYBABTME wrote: post #125

nostrademons wrote: post #90

Earlier quoted context omitted.

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…

While interesting, I have a feeling that your prediction may be subject to recency and availability bias. If I picture myself looking from within the US, your scenario sure resonates. But looking from outside, I'm not convinced it does. From the other side of the planet, it looks like the US is having a moment but the other governments aren't sitting idle and letting entropy increase. I'm also not sure that 50 years…

I've been predicting something like this since about 2005, long before recent events. It just it felt like it was far off in the future, not something happening right now.

The other major factor is a demographic crisis: worldwide, we have a large bulge in the number of people who are just about hitting 30 in 2020. Historically, when a lot of people reach reproductive years and there aren't the resources needed to support all of them having families, violence and social instability tends to result. This has been predictable since all these kids were born in the 90s, but obviously I'd hoped it'd go differently and technology would find some way to alleviate resource limits. Now we're here and seeing all the discontent from peoples' lives not turning out quite how they envisioned as kids.

Re: Why in the world would you own bonds?

#139

Post by grupthink » Wed, Mar 17, 2021, 6:22 AM UTC

JMTQp8lwXL wrote: post #100

pmastela wrote: post #64

Earlier quoted context omitted.

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…

On this topic, I've seen news reports that the GME short squeeze will happen 'any day now' according to analysts. Now, that initially makes me believe they're attempting to encourage buying, which raises prices. (In prior weeks, financial media implored retail to get out; there has been a very apparent shift in sentiment). Assuming financial media is a mouthpiece for key market participants, I found the reports surpr…

Don't overthink it. They just want to sell to retail at the highest price possible. Either they want to short GME or they want to unload their current positions.

Re: Why in the world would you own bonds?

#140

Post by nostrademons » Wed, Mar 17, 2021, 6:24 AM UTC

Hammershaft wrote: post #110

nostrademons wrote: post #90

Earlier quoted context omitted.

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.

Autonomous/remote weapons let you take the human out of the weapon system, which lets you drastically shrink the weapon system. We haven't really seen the full effect of this yet, because we haven't expanded along the dimensions of freedom this allows: cost, quantity, expendability, scalability, and taking the human out of the kill loop. So far our remote weapons look basically like our piloted weapons, just with a computer and a data uplink in the driver's seat. But imagine that you make your remote weapons 1/100th the size, 1/100,000th the cost, and build 100,000x more of them. That fundamentally changes the nature of warfare. The goal is to overwhelm the enemy's decision-making and manufacturing capabilities as much as it is to outmaneuver them.

Shrinking the weapon system usually results in physics limitations on range and speed - a 20-ton plane can carry enough fuel to go 2000 miles, but a 1 kg drone might have enough charge to go 2 miles. This favors the defender and prevents the use of these weapons for power-projection. Drone swarms are great for close air support, field defense, and urban warfare, but you can't do precision strikes across a continent (but you can defend against precision strikes, as long as your drones are accurate enough to intercept a missile). That fundamentally changes the balance of power toward smaller political entities.