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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?

#161

Post by runeks »

ping_pong wrote: post #122

People like Ray Dalio keep saying this, and scores of others have been talking about how fiat currency will fail, but it won't. Globally, no one that matters wants it to fail, therefore it won't. People like Paul Tudor Jones have been saying that the USD will fail for decades and people should buy gold. Even Peter Schiff has been talking about gold and hyperinflation since before the Great Recssion. All the bears hav…

> Globally, no one that matters wants it to fail, therefore it won't.

I’ve seen this argument before, and can’t help to think how naive it sounds.

Can you name one other case where the fact that we don’t want something to fail results in it being unable to fail?

Actions have consequences. No matter how much we don’t want a particular set of consequences to occur, they will if we perform the wrong actions.

Re: Why in the world would you own bonds?

#162

Post by zamfi »

nostromo wrote: post #148
ping_pong wrote: post #122

People like Ray Dalio keep saying this, and scores of others have been talking about how fiat currency will fail, but it won't. Globally, no one that matters wants it to fail, therefore it won't. People like Paul Tudor Jones have been saying that the USD will fail for decades and people should buy gold. Even Peter Schiff has been talking about gold and hyperinflation since before the Great Recssion. All the bears hav…

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)

This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)

Re: Why in the world would you own bonds?

#163

Post by ggm »

dkdk8283 wrote: post #23
ggm wrote: post #16

Why in the world would you want capitalism? Bonds exist because people want to lay off risk. Its not about the yield, as much as its about the risk. Sure, you want an upside, and the yield is about the upside. But the motivation in the first place, is about the risk. "as safe as houses" turns out, not to be that safe. "as good as gold" is still pretty good, but the next unobtanium is out there. by and large, absent r…

> Why in the world would you want capitalism? because anything less is corporate welfare. if you can’t pay your way well then...

You understand this was a rhetorical device, right? Bonds exist because people want capitalism. It's implictly about money, interest, risk and return.

Re: Why in the world would you own bonds?

#164

Post by Bancakes »

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…

Owning gov't bonds also boosts your ego. "The US owes me money, and they better pay up when I say, or else..."

Re: Why in the world would you own bonds?

#165

Post by zamfi »

JMTQp8lwXL wrote: post #83
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.…

> homes selling for tens or hundreds of thousands of dollars over appraisal

Except appraisal is an estimate of what a house will sell for, not any intrinsic notion of value. Selling over appraisal implies that the appraisers expect the value of the house to drop in nominal terms, not inflate.

Re: Why in the world would you own bonds?

#166

Post by WalterBright »

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.

Investors are subject to the sunk cost fallacy, whereby they hold a stock they currently believe is a bad investment, because to sell it is to admit it was a bad choice.

Re: Why in the world would you own bonds?

#167

Post by nostromo »

zamfi wrote: post #162
nostromo wrote: post #148

Earlier quoted context omitted.

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)

This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)

Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle.

2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon.

But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.

Re: Why in the world would you own bonds?

#168

Post by JohnJamesRambo »

rawtxapp wrote: post #49
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…

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…

The minute they try to impose those controls on crypto is the ultimate Streisand Effect moment that will confirm to everyone that they definitely need this asset. I suspect this is why they have avoided it so far.

Re: Why in the world would you own bonds?

#169

Post by xkjkls »

WalterBright wrote: post #166
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.

Investors are subject to the sunk cost fallacy, whereby they hold a stock they currently believe is a bad investment, because to sell it is to admit it was a bad choice.

Sure, are they also subject to a lost profits fallacy, where if they believe an investment is good but don't invest in it, they would be entirely rational? I don't see it.

Re: Why in the world would you own bonds?

#170

Post by WalterBright »

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 the climate crisis, which is the root cause of the migration crisis.

The driver of that is more like unfree markets which always result in mass poverty and misery.

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