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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?

#151

Post by jamesgreenleaf »

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…

Likewise. Hearing Michael Burry recently talk about hyperinflation as a possibility, albeit a small one, is also frightening.

I don't know if gold is under threat, but there's certainly historical precedent for it, as mentioned in the article.

For Bitcoin, India and China have both been taking small steps toward limiting or banning it. Western media and influential figures (Bill Gates) have been recently talking about how wasteful it is.

No matter your arguments on either topic, the fact remains that governments can limit their own citizenry, by threat of force, from transacting with any instrument.

Re: Why in the world would you own bonds?

#153

Post by [deleted] »

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…

[deleted]

Re: Why in the world would you own bonds?

#154

Post by everybodyknows »

fspeech wrote: post #123
every wrote: post #97

Earlier quoted context omitted.

I don't know. Have we averaged greater than 3.5 to 4.0 percent inflation recently? Those are the current returns from my munies, not counting the tax exemption...

You are likely confusing yield with coupon. The current yield of munis are below inflation. However their coupon rates are determined at time of issue so bonds issued a while ago tend to have coupon rates above inflation. What this means is one can sell these bonds now significantly above face value (and possibly incur capital gain tax). What it also means is that new investors in today's bonds will get below inflati…

Right. It’s a surprisingly common fallacy that holding to maturity somehow makes one whole despite rising inflation.

One way to expose the fallacy is perhaps by the thought experiment of selling on the secondary market a day or a week before maturity. Prices of any highly liquid bond will have converged toward redemption value, differing by no more than some small epsilon.

Re: Why in the world would you own bonds?

#155

Post by Hammershaft »

nostrademons wrote: post #140
Hammershaft wrote: post #110

Earlier quoted context omitted.

> 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 c…

> But imagine that you make your remote weapons 1/100th the size, 1/100,000th the cost, and build 100,000x more of them.

The transistor is the only physical process that I know of that has improved at that pace. What makes you think drones can improve to that magnitude?

Re: Why in the world would you own bonds?

#156

Post by throwaway4good »

The text answers the question: The central banks are buying the bonds in a scheme that essientially boils down to print money until debt levels no longer matter.

The money printing causes:

- Inflation (as in rising consumer prices)

- Massive swings and bubbles in the financial markets

- Increasing wealth inequality

This has happened until now in a global coordinated manner. This was also the policy after 2008.

However it seems that challenge today is that China is not willing to print money at same level as Europe and USA. The question is what happens then?

Yes. The Chinese currency will go up compared to the dollar and the euro. However I think effects will go much further than that. The stability of the west will be challenged and the dominance of our financial markets will decay.

In the end, the existance of a big economy, that does not embark in the same aggressive monetary policy as we do, will put a hard limit on how far we can go.

Re: Why in the world would you own bonds?

#157

Post by everybodyknows »

dragontamer wrote: post #50
every wrote: post #11

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…

> Consider US tax-free municipal bonds (munies). They are safe Are they? COVID19 has destroyed the tax-budgets of many states and cities. Deficit spending / stimulus is the current plan, but how long can States keep it up? I know there's been a stimulus bill just passed. But is it enough to get state budgets back in order after a tough year?

All state bonds are well positioned for generous bailout terms from Washington.

Re: Why in the world would you own bonds?

#158

Post by Hammershaft »

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…

In Bangladesh alone 150 million people are projected to be displaced by rising sea levels by 2050. Many South American countries are suffering from spiking rates of kidney failure as the climate warms, which is already a factor in the US border crisis as an increasing proportion of migrants suffer from kidney disease.

Re: Why in the world would you own bonds?

#159

Post by [deleted] »

dejj wrote: post #146
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…

TIL the word “avuncular”. It’s perfectly cromulent.

[deleted]

Re: Why in the world would you own bonds?

#160

Post by JumpCrisscross »

nemothekid wrote: post #121
JumpCrisscross wrote: post #80

Earlier quoted context omitted.

> 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 centr…

> 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? Your example is poor; there are 10s of millions of people in California who have been trying to get healthcare reform passed for nearly a decade now and the trend so far has been Obamacare being slowly unwound. It's unclear if the far left/righ…

> there are 10s of millions of people in California who have been trying to get healthcare reform passed

I was responding to "who...believes this is a likely scenario?" The argument isn't "this will happen." Just that it shouldn't be beyond the pale of reasonable debate. (Like universal healthcare.)

> If the Federal Reserve decided to implement capital controls, I doubt it would happen democratically

Capital controls are populist. They shift power away from the wealthy to those at the political levers. The Fed would almost certainly not do this; the Treasury could under emergency powers. The potential for popular support would give them cover to do so.

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