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

Re: Why in the world would you own bonds?

#441

Post by stevievee » Wed, Mar 17, 2021, 5:37 PM UTC

elefanten wrote: post #418

stevievee wrote: post #270

Earlier quoted context omitted.

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.

Got any links or sources to read up on this? Or any particular narratives you're referring? Asking out of curiosity

You will not struggle to find Bridgewater/Dalio talking about the following themes: - The concept of "Debt cycles" (From Dalio's book "Principles for Navigating Big Debt Crises") - Interpretation of monetary policy effects on markets - Emerging markets (Mainly China) and the rise and fall of "reserve currencies"

Re: Why in the world would you own bonds?

#442

Post by choeger » Wed, Mar 17, 2021, 5:42 PM UTC

IgorPartola wrote: post #298

altcognito wrote: post #265

Earlier quoted context omitted.

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…

From what I can tell, currently WSB is riding the bubble. Or rather their thesis is that a short squeeze will happen. In some conversations they try to justify that the company will actually turn itself around using the capital raised from selling the new generation of consoles, but quickly the conversation turns to the prospect of the squeeze. In other words, most people who are buying GME from WSB advice aren't the…

> but it seems like a hedge fund can just buy the shares from the people they borrowed from

That's not how it works. A short position is basically the contract to deliver a stock regardless of its price at that point, so neither the short holder nor the party that gave them the stock in the first place actually hold that stock anymore.

Now I don't know this exactly and I am not an expert, but I wouldn't be surprised if short positions can exist absolutely independently from the existence of any actual stock. In principle, there can be agreements that only deal with the price of the stock. And something that can exist in principle probably also exists in the financial markets.

So whether or not an actual short squeeze will occur depends on the technicalities of the short positions.

Re: Why in the world would you own bonds?

#443

Post by jljljl » Wed, Mar 17, 2021, 5:42 PM UTC

randomopining wrote: post #309

jljljl wrote: post #56

Earlier quoted context omitted.

If the USG (or Europe, or China) still have a strong military, or a lot of influence over the financial sector at that point, you may have a tough time finding a bank to convert your crypto into Fiat. At that point, you’d have to find a country that accepts Bitcoin directly as a payment method or whose financial system can shrug off regulations. That might be harder to find than you think, or might require a signific…

Can you not just go p2p/otc with the crypto and buy a hard asset plus some paper fiat? It’s like cash but even more effective for this purpose.

The problem is that if you can’t easily convert it, the OTC price is going to plummet.

Since the ledger is public, if the government knows which wallet is linked to you (easy if you’ve done KYC in order to use an exchange), they could also sanction any wallets that transact with your wallet, severely limiting who will be willing to do P2P/otc with you

Re: Why in the world would you own bonds?

#444

Post by julienchastang » Wed, Mar 17, 2021, 5:43 PM UTC

For retirees, consider replacing some of your bond holdings in your portfolio with annuities [1]. A million dollars will buy you a ~$50,000/year annuity for life. That said, annuities have major downsides too (i.e., they are degraded by inflation).

[1] https://www.wsj.com/articles/the-case-for-replacing-some-bon...

Re: Why in the world would you own bonds?

#445

Post by snikeris » Wed, Mar 17, 2021, 5:45 PM UTC

...because yields may continue going down. Other countries have shown us that 0% yield isn't even the floor.

A couple years ago, 30 year treasury yield was around 3% and people were saying the same thing...why would you own bonds. People who bought bonds at that time made good money as the yield fell further.

Re: Why in the world would you own bonds?

#446

Post by nostrademons » Wed, Mar 17, 2021, 5:47 PM UTC

meowfly wrote: post #406

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…

I mean it isn't that people actually think "stocks only go up", it's that the donor class own stocks and that then means political landscape is designed to always bail them out. I'm closer to your age and experienced those recessions but my take away isn't that stocks go down, it's that the government will pull every tool it has to keep the wealthy wealthy.

This. I don't doubt that there's going to be a crisis and a reckoning, but I changed my mind in 2020 on what that crisis will look like. The Fed & government's actions (both during the pandemic and, in retrospect, in 2018) show that they're not going to let a financial crisis happen. Instead, we're going to get a currency crisis, since whenever asset values go down the Fed prints to restore them.

The fact that a currency crisis and hyperinflation seems unthinkable to many people pours fuel on this. A number of people are pushing the idea that we can and should print as much money as we can to get back to full employment (and even beyond that - "living wage" is the bar now), and they're being taken seriously in government. This has somewhat predictable results - other governments have believed it throughout history, and (like with many things market-related) the point at which people believe it is the point at which it's no longer true.

Re: Why in the world would you own bonds?

#447

Post by julienchastang » Wed, Mar 17, 2021, 5:49 PM UTC

psychiatrist24 wrote: post #191

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…

"All the bears have been completely wrong, except for short periods of time." Unfortunately, those short periods of time are enough to bankrupt people. I don't think anybody is claiming fiat currencies will go away forever.

And those "short periods" are sometimes not so short. The longest bull market in US history was ~5 years, I believe.[1]

[1] https://apnews.com/article/84ee301c404539d8731da34128330752

Re: Why in the world would you own bonds?

#448

Post by DebtDeflation » Wed, Mar 17, 2021, 5:51 PM UTC

michaelcampbell wrote: post #436

1_player wrote: post #417

Earlier quoted context omitted.

> 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.

Download the Blind app and read some of the posts, you'll get a kick out of it. I'm honestly not sure what to make of all the 25 year olds claiming >$500K TC. Near as I can tell 1) it's largely a FAANG/SV echo chamber 2) 80% of the TC claimed consists of an initial grant of RSUs divided over a 4 year vesting period with an assumption that "refreshers" are coming and 3) people include price appreciation in unvested stock as part of the TC. Either that or I'm seriously underpaid with 25 YOE despite being well within the top decile of US income earners.

Re: Why in the world would you own bonds?

#449

Post by tomatocracy » Wed, Mar 17, 2021, 5:57 PM UTC

bradleyjg wrote: post #269

every wrote: post #244

Earlier quoted context omitted.

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 inves…

"Juiced returns" is a consequence of some investment strategies, but not all. For example, if you aimed to hold a constant-maturity bond portfolio then that involves a degree of enforced trading - you need to sell shorter maturities and buy longer ones as time passes so that you don't end up with a year less maturity for each year the passes (or worse if defaults or other events lead to early calls or early payments without make-whole compensation). Likely you'd have got better than expected returns doing this (but then it was always a bet on falling rates).

But if you'd just bought a portfolio of bonds to give you a fixed bucket of maturities (which is what by far the larger part of the market has usually tended to do) and only reinvested cashflows as you received them from the issuers, you'd have likely underperformed your initial expectations because you faced reinvestment risk.

That lower return probably would have been compensated by inflation also falling for some of that time. But real yields have now been negative for quite a while, so to maintain returns you'd have been forced to accept more risk.

Re: Why in the world would you own bonds?

#450

Post by diegocg » Wed, Mar 17, 2021, 5:59 PM UTC

kmeisthax wrote: post #413

partiallypro wrote: post #383

Earlier quoted context omitted.

We still live in a generation where people think "real estate only goes up." I have so many people bragging about how they've nearly doubled the equity in their home around here in Nashville. 2007 didn't change anything, it was just a blip. People are still flipping houses and leveraging their existing homes to buy new ones. In the long run though, the saying hasn't really been proven false, asset prices tend to alwa…

Real estate is a bit different because the government actively restricts the supply of developable land and legally-buildable housing units on that land. The crash will come once average suburbanites stop protesting everything denser than a half-acre single-family home and city councils realize that mixed-zoning is far more sustainable.

This is true in many areas (California), but not in others. There are ghost residential areas in many countries. In 2004 in Spain 675.000 house starts - more than UK, Germany and France combined (45 millions citizens in Spain vs 80+65+65).

There were not unsurmountable government restrictions (obviously). There was no real demand for it. The housing demand was largely speculative, people investing in houses because "prices never go down". Often, they didn't even get rented - why bother, if the valuation of your "investment" grows faster than what you can get from rent?

In markets like these, huge increases in supply don't drive the prices down. Hoarding, speculation and housing flipping absorb everything that gets built. We still have insanely high housing prices today.