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

Re: Why in the world would you own bonds?

#431

Post by glenmorangie_14 » Wed, Mar 17, 2021, 5:18 PM UTC

SamuelAdams wrote: post #414

cainxinth wrote: post #301

Earlier quoted context omitted.

> We seem to have an entire generation of people who think "stonks can only go up" I'm not denying the existence of bubbles, busts, and crashes, but historically and on average, the stock market does only go up. This market is overvalued and will likely correct, but that doesn't mean it won't continue to rise on the aggregate.

Exactly. Look at the stock market from 1970 to today. 2001 and 2008 are a blip on the radar. What this is missing is the amount of time investors are investing in. Day traders don’t care about tomorrow, they care about the difference between 9 am and 4 pm. Options traders might care about the next few weeks. If you are investing for 20+ years in a retirement account, you don’t care about the bubble. It will self corr…

The SP500 was around $950 in Sept of 1997. It was also around $950 in July of 2009. I would say the stock market went no where for 20 years.

I don't think it is fair to call 2001 and 2008 "blips". Their combined effect was we lost 20 years worth of potential growth.

Re: Why in the world would you own bonds?

#432

Post by mikeInAlaska » Wed, Mar 17, 2021, 5:19 PM UTC

During the Covid market crash my bonds barely changed. If I had rolled it all into small caps at the bottom there I could have doubled its value by now. (And then rolled it back into bonds at the top here.)

Additionally for bonds, the percent of earnings looks low on my positions statement but a few times a year I get some fat dividends on my bond holdings which I do not think it reflects.

Re: Why in the world would you own bonds?

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Post by zamfi » Wed, Mar 17, 2021, 5:19 PM UTC

nostromo wrote: post #167

zamfi wrote: post #162

Earlier quoted context omitted.

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.

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

I guess it depends on your definition of amazing.

If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns.

Personally, I don't find that particularly amazing, but to each their own!

Re: Why in the world would you own bonds?

#434

Post by AnimalMuppet » Wed, Mar 17, 2021, 5:20 PM UTC

nostrademons wrote: post #135

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.

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)…

Not the Great Salt Lake valley - too many people for the available food supply. That's not going to go well.

My own answer is Delta/Montrose, Colorado. It has water, good farmland, nearby mountains (timber) and coal fields. You could even do some hydro power from the river. It's somewhat defensible - an attacker would have to cross a fair amount of inhospitable terrain to get there, unless they came from the south, and the San Juans would not be that difficult to defend.

The one issue would be oil - there's oilfields around Aztec, New Mexico, but that's kind of a long way in a collapsed society.

Re: Why in the world would you own bonds?

#435

Post by zamfi » Wed, Mar 17, 2021, 5:21 PM UTC

DennisP wrote: post #266

zamfi wrote: post #165

Earlier quoted context omitted.

> 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.

Could also be that appraisers are being conservative (their "customers" are the banks, after all, not the buyers) in their estimates and haven't caught up with the higher bidding?

But isn't "recent sale prices of comparable properties" about market expectations though? Like isn't the implication of an appraisal that if you were forced to sell the house you could get the appraised amount for it?

Re: Why in the world would you own bonds?

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Post by michaelcampbell » Wed, Mar 17, 2021, 5:24 PM UTC

1_player wrote: post #417

DebtDeflation wrote: post #276

We seem to have an entire generation of people who think "stonks can only go up". Similar views were expressed about houses/real estate in 2007. At 47, I'm probably substantially older than the average HN poster, but having lived through the 2001 dotcom implosion and the 2008 financial crisis has given me some perspective. I'm getting some really bad vibes about the sustainability of the the economy and asset markets…

> SWE, BSCS, 4 YOE, $800K TC What is this supposed to mean to mere mortals?

Guessing: Bachelor of Science (degree) in Computer Science, 4 years of experience...

The other 2, no idea.

As a counterpoint, I have a BSCS, and closer to 35 YOE, and I have never, nor will ever in my lifetime see $800K/year. To date, not even a quarter that.

Re: Why in the world would you own bonds?

#437

Post by AnimalMuppet » Wed, Mar 17, 2021, 5:26 PM UTC

boyka wrote: post #174

> Real yields of reserve currency sovereign bonds are negative and the lowest ever. Real yields of cash are even worse though not as negative as they were in the 1930-45 and 1915-20 great monetization periods. This I cannot comprehend. Can someone explain to me how holding cash yields less than holding a bond at negative rates that will return me less cash?

Let's say inflation is 2%, and and bonds are returning 1%. That means real (that is, accounting for inflation) bond returns are -1%. But holding cash returns -2% (again after accounting for inflation).

Re: Why in the world would you own bonds?

#438

Post by azinman2 » Wed, Mar 17, 2021, 5:30 PM UTC

partiallypro wrote: post #396

wavefunction wrote: post #387

Earlier quoted context omitted.

In a world where WeWork can be valued at 47B USD by professional capitalists, there's something to be said for acknowledging that the stock market and stock valuations can be untethered to reality. I think the sentiment you mentioned is a combination of that and a bit of a humorous/nihilistic attitude towards the same.

Valuations simply don't matter right now, Tesla is bigger than every car company combined and makes less than virtually all of them. I don't get it, but that's how it is. There is no end in sight, if there were a moment to burst any bubble it would have been last March...and it didn't.

That’s because it’s about future earning potential for “growth stocks”, not current reality. The other car makers have reached a kind of equilibrium, while Tesla keeps putting out new products in a class they essentially invented.

That said, I also don’t own Tesla because I think it’s crazy overvalued.

Re: Why in the world would you own bonds?

#439

Post by lumost » Wed, Mar 17, 2021, 5:33 PM UTC

This article does a great job of laying out the end-game of the global quantitative easing program. Today the following occurs

1) Central banks print currency to buy debt that no one wants to buy at negative interest rates.

2) Debt issuers (the government/corporations) increase debt issuance

3) Debt issuers purchase any hard assets available in the local currency at the fastest possible rate and earn profits off of the delta between asset inflation and the bond rates.

All western economies assets are being inflated, and all western economies bonds have negative interest rates. There is no alternative until.

4) Debt buyers convert printed dollars to RMB and purchase chinese debt.

5) Debt issuers convert borrowed dollars to RMB and purchase chinese debt

6) The Fed prints more money to meet it's market stability objectives

7) The dollar falls relative to RMB, triggering consumer price inflation on items of Chinese origin. Limiting the effectiveness of printing money.

Re: Why in the world would you own bonds?

#440

Post by nostrademons » Wed, Mar 17, 2021, 5:35 PM UTC

stevievee wrote: post #270

darawk wrote: post #131

Earlier quoted context omitted.

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.

This could also be because he's right, and as more information comes out, the rest of the market is coming around to his line of thinking.

I made a number of bets on the tech industry early on in my career (2005-08): that the Web and Javascript would become increasingly more important, that Python would be a major language both for web development and for scientific computing, that Google and other new tech companies would continue growing until they were bigger than we could imagine, that startups would become a more respectable way of spending your career. I would happily crow about them to anyone that would listen, while also arranging my professional life to benefit from them. They happened. Did I cause the ascendancy of Javascript, or Python, or Google, or startups? Of course not. I called it, and then lots of other people, as events progressed, independently made the same call and jumped on the bandwagon.

So it is with Dalio (and Buffett, and other thought leaders in the financial industry). It's unlikely that their words are moving markets, particularly since their bets are often contrarian and unremarkable at the time they start publicly stating them, and financial markets often take years to catch up. Rather, they spot the trend, understand the implications, and then position themselves to benefit when everyone else spots the trend and understands the implications.