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

Re: Why in the world would you own bonds?

#251

Post by chii » Wed, Mar 17, 2021, 1:41 PM UTC

mrep wrote: post #195

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…

> The United States is the only major power with a strong ideological belief in unrestricted capital flows. Doesn't seem that way for citizens considering we still have to pay US taxes when living abroad (there are some tax agreements but still), have to pay an exit tax if we want to renounce our citizenship, and the US requires foreign banks to report US citizens assets to the US government.

unrestricted capital flow is not the same as untaxed earnings.

I don't like it, but the US is free to decide to want to tax their citizens even if the income is earned outside the borders - and they have the capability to enforce it.

Re: Why in the world would you own bonds?

#252

Post by eru » Wed, Mar 17, 2021, 1:41 PM 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…

> Bank deposits also suffer from the risk that the bank will fail.

Alas, thanks to widespread government deposit insurance, that's not really much of a risk.

Re: Why in the world would you own bonds?

#253

Post by dsr_ » Wed, Mar 17, 2021, 1:42 PM UTC

eru wrote: post #218

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…

I wouldn't rely on the Big Short for anything..

It's critical to explaining that investment banks can be wrong, stupid, or both for very long periods of time, and that can make the whole world worse off.

Re: Why in the world would you own bonds?

#254

Post by eru » Wed, Mar 17, 2021, 1:44 PM UTC

chii wrote: post #234

Bancakes wrote: post #164

Earlier quoted context omitted.

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

or else what? You gonna point your gun at them to pay up? They got a bigger gun than you, and almost every other entity in the world.

Also, getting paid doesn't do you much good nor does it put much pressure on the US:

Before you have some pieces of paper (bonds) that the US issued. Afterwards you have some pieces of paper (cash) that the US issued.

And the US can create arbitrary amounts of cash, if they really have to.

(Obviously, these days it's all entries in databases. But you get my drift.)

Re: Why in the world would you own bonds?

#255

Post by cirgue » Wed, Mar 17, 2021, 1:44 PM UTC

IgorPartola wrote: post #217

altcognito wrote: post #203

Earlier quoted context omitted.

Unless they are trying to move markets, which they do all the time. I mean, the entire WSB subreddit is basically dedicated to this.

I’ve been watching WSB with interest for a bit. This has not been what they’ve been about until January of this year. Before it was basically a place where the one eyed were leading the blind: someone would post their research on a particular play, like buying TSLA options for a particular date at a particular price because they think the phase of the moon and the mood of the CEO will line up to give the stock price…

> January of this year

I think this has been going on longer, but the players are different now. It looks like it used to be a forum for smaller players and well capitalized individuals to pump small volume options positions, because you can make a few k off of retail investors following your bait in a tiny pocket of the market. Now it’s something that bigger investors noticed and are now participating in.

Re: Why in the world would you own bonds?

#256

Post by eru » Wed, Mar 17, 2021, 1:44 PM UTC

emodendroket wrote: post #210

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…

Far fewer people than imagined even flee to different states within the US because of higher taxes. The notion that everyone's going to go live in the Caribbean and eschew their social lives and their kids' fancy schools seems unlikely. Consider: https://www.bloomberg.com/news/articles/2021-03-10/wall-stre...

You are right about the aggregate. But interesting things happen at the margins, too.

Re: Why in the world would you own bonds?

#257

Post by neilwilson » Wed, Mar 17, 2021, 1:50 PM UTC

zby wrote: post #189

neilwilson wrote: post #124

Earlier quoted context omitted.

"Non rhetorical question: are there any scenarios where the US defaults on their debts?" No. Since it is just a bond swap. To anybody not in the US (like me), the US dollar is just a 0% permanent bearer bond. When a bond matures it is swapped for central bank reserves (floating debt). When one is sold it is swapped back (fixed rate term debt). The monetary system is reflexive. No financial institution is going to hol…

You make it sound as if that swap was something that happens automatically - but it is not. It is something easy to do and it has been done so far consistently - but there must be circumstances where they stop doing it at least temporarily (a stalemate in the Congress or something).

It may do in the US Congress due to interaction with the debt ceiling legislation and the like and, of course, it being the US it will no doubt end up in court.

Here in the UK, by contrast, it is a 'standing service' on the Consolidated Fund that is governed by two acts of Parliament (The National Loans Act 1968 and the Exchequer and Audit Departments Act 1866). It is entirely automatic and mandated by statute. Nothing can stop it happening. Nothing can even delay it happening - short of a technical failure in the computer systems. Gilts will always be deleted, and the replacement bank reserves created by the Bank of England on the date of maturity.

Re: Why in the world would you own bonds?

#258

Post by Bancakes » Wed, Mar 17, 2021, 1:50 PM UTC

chii wrote: post #234

Bancakes wrote: post #164

Earlier quoted context omitted.

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

or else what? You gonna point your gun at them to pay up? They got a bigger gun than you, and almost every other entity in the world.

Or else I get a free tourist trip to the court room for my free money. Provided the conditions for payout are met of course.

Re: Why in the world would you own bonds?

#259

Post by neilwilson » Wed, Mar 17, 2021, 1:51 PM UTC

eru wrote: post #252

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…

> Bank deposits also suffer from the risk that the bank will fail. Alas, thanks to widespread government deposit insurance, that's not really much of a risk.

It is when over the limit for insurance.

Re: Why in the world would you own bonds?

#260

Post by DennisP » Wed, Mar 17, 2021, 1:51 PM UTC

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…

Dalio takes a long view. His fund looks at the sort of vast structural changes that have regularly occurred over the past 500 years of financial history. It's not a great rebuttal to say he's wrong because the last few decades have been great.

And Dalio has not always been saying this. He used to advocate an "All-Weather" portfolio that was 55% US treasury bonds: https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio...