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

Re: Why in the world would you own bonds?

#261

Post by em500 » Wed, Mar 17, 2021, 1:52 PM UTC

BenoitEssiambre wrote: post #224

paulmd wrote: post #42

> …The economics of investing in bonds (and most financial assets) has become stupid ... Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better? That is indeed the point of driving interest rates low or negative - to force people into economic activity. If holding a bond makes you negative money, you might as well buy something with it, which goes back into th…

Also note that you can save by buying stuff. Materialize your savings for a 2% a year compounding tax free return. Get discounts by buying in bulk. Urban dwellers might be more limited but for people who have unused or underused space, this is a way to get a return on that space. Buy all you will need for the next decade of: Salt, sugar, socks, underwear, under-shirts, vinegar, soap bars, toothbrushes, razor blades,…

It's hard to tell if this post was satire or something the author genuinely believes.

Re: Why in the world would you own bonds?

#262

Post by throw0101a » Wed, Mar 17, 2021, 1:55 PM UTC

eru wrote: post #250

throw0101a wrote: post #198

Earlier quoted context omitted.

And in six of those years (2013-2019) it was absolutely flat: * https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I. I am constantly reminded of Buffett's 2011 take: > Let’s now create a pile B costing an equal amount. For that, we could buy all U.S…

Of course, farmland might get confiscated from you. Or you might have to pay taxes on it, etc. A small amount of gold might get lost or stolen and it's usually more annoying to sell than stocks. But otherwise, you can just keep it in a sock under your pillow and be reasonably sure it's still there in a few decades.

> Of course, farmland might get confiscated from you.

In what area of the world do you live in that these scenarios are actually keeping you up at night?

Re: Why in the world would you own bonds?

#263

Post by neilwilson » Wed, Mar 17, 2021, 1:55 PM UTC

Gustomaximus wrote: post #228

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…

"Non rhetorical question: are there any scenarios where the US defaults on their debts?" 1) Technically they have defaulted in '79, though it was more of a delay. 2) See how divided politics has become. What happens if the US hits the debt ceiling and the other party decide enough is enough and wont approve appropriate borrowing capacity and all budget. Given divisive politics of recent does this seem that far fetche…

> What if they decide to drop a trillion onto the market while US has other crisis compounding value issues and currency runs?

And sell it to whom? What happens to every other currency in the world when that happens? Including all those countries who relying upon exports to the USA.

If China dropped a trillion onto the market, then they would probably get Mexican Pesos in return as the Mexicans hoovered then up to stop their currency getting into nosebleed territory.

The currency system is like a waterbed. You can't just jump on one end and not expect a systemic response and feedback that will throw you off just as hard.

Re: Why in the world would you own bonds?

#264

Post by ericd » Wed, Mar 17, 2021, 1:58 PM UTC

emodendroket wrote: post #213

ericd wrote: post #128

Earlier quoted context omitted.

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.

People are just going to set your house on fire unless you have a 24-hour patrol. A bit of a fantasy to imagine you can just escape the total collapse of society.

I don’t think what they’re describing is full Mad Max/total collapse, more like regional collapses/nation states breaking into states or city states.

Re: Why in the world would you own bonds?

#265

Post by altcognito » Wed, Mar 17, 2021, 1:59 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…

WSB is an "extreme" example. I think it happens ALL the time in very common places (including HN).

Some types of market manipulation are truly a bad thing. I'm sure someone engaging in some of the more egregious cases could rationalize their behavior as "it's just guerilla marketing, everybody does that".

That's not wholly wrong -- the intent is really more important than the action in these cases. Were people buying GME because they legit thought the fundamentals of the company were good now or were they riding a bubble?

I'm already too far down the river though, because now we could argue about whether there is something fundamentally wrong about speculating on pricing alone.

Re: Why in the world would you own bonds?

#266

Post by DennisP » Wed, Mar 17, 2021, 2:00 PM UTC

zamfi wrote: post #165

JMTQp8lwXL wrote: post #83

Earlier quoted context omitted.

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.

That makes sense, but when I took the real estate appraiser courses a couple decades ago, none of it was about market expectations. It was entirely about recent sale prices of comparable properties.

Maybe experienced appraisers do more than that, but my state at least doesn't expect them to.

Re: Why in the world would you own bonds?

#267

Post by jl2718 » Wed, Mar 17, 2021, 2:02 PM UTC

>> The United States could become perceived as a place that is inhospitable to capitalism and capitalists.

USA is already perceived as the most restrictive government in the world for citizen participation in any non-bank finance. And I have news for regulators: the banks are an anachronism. They are not making loans anymore. They only exist to sell loans to the government and buy them back as treasury-backed assets at a lower price. The difference comes from taxes. It’s a direct transfer of wealth from citizens to banks. They will probably be nationalized because citizens will realize how useless and parasitic they are. All business activity will abandon the banks and all investment will go into stateless financial systems. There is nothing anybody can do to stop this. The ‘protections’ (restrictions) offered by regulators now have negative value to US citizens. This is not some far-out warning. This is happening now. US financial startups are like rats abandoning ship to organize in Canada, Switzerland, Singapore etc. And they are all led by non-citizen US residents, because citizens take that regulation with them anywhere in the world. The best deal in the world right now is to be a permanent US resident with some other citizenship. That seems wrong.

Re: Why in the world would you own bonds?

#268

Post by iSnow » Wed, Mar 17, 2021, 2:02 PM UTC

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 fiat on/off-ramps are the choke points of the whole crypto world. Yes, you could use your BTC to buy Teslas and drugs, but that's it. You can't pay at the supermarket or on the web directly, it all goes through payment providers who are regulated.

Re: Why in the world would you own bonds?

#269

Post by bradleyjg » Wed, Mar 17, 2021, 2:04 PM UTC

every wrote: post #244

bradleyjg wrote: post #236

Earlier quoted context omitted.

> But using certain sectors of the bond market as a savings and retirement mechanism can be quite effective. > returns are multiples of US Treasuries, CDs, money markets Multiples of tiny numbers are still tiny. What role should a muni bond yielding 2% and maturing in twenty five years play in my retirement portfolio? That might not even beat inflation.

Probably none. That's why my link is to a high yield municipal bond fund with low fees. I roll over my monthly distributions and buy more shares. I've never sold or traded a single share. I took Warren Buffett's advice to heart: "Wall Street makes its money on activity. You make your money on inactivity."

If you look at the price (not total return) history of your selected fund it has significant growth, about 20%, over the last ten years. Bond prices increase when the risk free rate (i.e. treasuries) decreases.

Over the last forty years treasury rates have been more or less steadily decreasing. The ten year treasury was paying over 15% in 1981 and now it’s paying a little over 1.5%.

What this means is that bond investors over that 40 year period have gotten juiced returns—-they got whatever the bonds were yielding plus price appreciation from falling interest rates.

This dynamic was in place for the adult lives of everyone under the age of 60 today. Our intuitions, rules of thumb, and understandings of how bonds contribute to a portfolio we’re all developed in the shadow of this phenomenon.

But now interest rates have nowhere left to fall. The zero bound forces an end to this dynamic.+ From now on not only will bond returns not be juiced they could well be reduced by the opposite effect. From 80 to 40 years ago interest rates more or less steadily increased over that period, causing bond prices to constantly be falling.

+ Negative nominal rates could extend it a few more years but the cash cost of carry is a hard bottom.

Re: Why in the world would you own bonds?

#270

Post by stevievee » Wed, Mar 17, 2021, 2:06 PM UTC

darawk wrote: post #131

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 essa…

The ideas and narratives put forth by Bridgewater/Dalio over the past 1-3 years are permeating markets and shaping investor sentiment more than you think. Both retail and institutional.