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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?

#511

Post by eru »

api wrote: post #240
eru wrote: post #237

Earlier quoted context omitted.

Actually, the general public kept demanding a housing price collapse around 2008. It's rather tragic. See https://www.goodreads.com/book/show/43062766-shut-out for more detail than you ever wanted to know, or check out the author's blog at https://www.idiosyncraticwhisk.com/

Housing prices that are too high are terrible too. They effectively lock people out of homeownership on reasonable terms. I would prefer reasonable home prices, which means neither collapse nor bubble mania.

I agree with your sentiment.

But it's not house prices that are important. It's housing affordability, which is better measured by monthly mortgage payments (and rents).

However, that was not what happened in and after 2008.

Availability of credit collapsed. So owning housing got cheaper for people who could still get credit, but renting did not become cheaper. Have a look at the backlog of https://www.idiosyncraticwhisk.com/ for more than you ever wanted to know about the topic. (Or splurge on the author's book.)

Re: Why in the world would you own bonds?

#512

Post by eru »

betterunix2 wrote: post #363
eru wrote: post #226

Earlier quoted context omitted.

Huh, why? If the US economy is going to do well, bond yields will be going up. That means a bond short position will pay off. Being short on bonds is basically financially almost exactly the same thing as borrowing money. (The US treasury is 'short' on T-bills. They have to essentially 'buy them back' when they become due.)

It is not that simple. Right now interest rates are extremely low, so what you said is likely to be the case. On the other hand, as the economy improves credit risk will decline, and lower credit risk can drive bond yields lower (this is exactly what happens in the high yield market), which is more or less what happened for three decades beginning in the 1980s.

Yes, that's true.

Might point was just that a short position in the bond market is not automatically 'betting against the Western financial growth and stability.'

(And, of course, the Western world is bigger than the US.)

Re: Why in the world would you own bonds?

#513

Post by eru »

ric2b wrote: post #487
eru wrote: post #252

Earlier quoted context omitted.

> 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.

Pretty sure that's only for individuals.

The formal guarantees, yes.

There are additional informal expectations about bailouts.

Too-big-too-fail is a thing for a reason.

Re: Why in the world would you own bonds?

#514

Post by roland35 »

lorenzhs wrote: post #349
roland35 wrote: post #220

Earlier quoted context omitted.

It looks like GLD has underperformed SPY overall, with a lower Sharpe ratio (risk adjusted return). Gold did have a good run between 2010-2013 though! https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

When investing the same amount every month (dollar-cost averaging), the difference becomes even larger. Using your portfolios, but adding $250/month in addition to the initial investment of $10k, you end up with $128k with gold and $207k with SPY (total investment ~$85k): https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... (with QQQ, it'd be $380k) Comparing one-off investments is very dependent on the st…

Yes that is a good point, and is something to think about when comparing investments. Everyone's investment goals are different so make sure you understand what your goals are when reading research!

Re: Why in the world would you own bonds?

#515

Post by choeger »

IgorPartola wrote: post #474
choeger wrote: post #442

Earlier quoted context omitted.

> 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…

The crux of the situation I don't understand is (a) where does the claim that hedge funds would have to buy all the available shares on the market comes from? and (b) what exactly happens if [a] is true, but I'm not selling my 1 share that they need to return to you the share they borrowed? In this case, do they pay a penalty, does they go out of business and you don't get your share back, or does the whole system co…

a) (hopefully) comes from an analysis of standardized and published contracts ("short positions"). Presumably, a hedge fund has to publicly announce which such positions they hold. So in theory, you should be able to dog through the data and sum up all the positions. If people on wsb did this, if it even works that way, I don't know.

Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.

Re: Why in the world would you own bonds?

#516

Post by JanisL »

every wrote: post #97
ericd wrote: post #85

Earlier quoted context omitted.

Haven’t munis had negative real (ie after inflation) returns for a while now?

I don't know. Have we averaged greater than 3.5 to 4.0 percent inflation recently? Those are the current returns from my munies, not counting the tax exemption...

> Have we averaged greater than 3.5 to 4.0 percent inflation recently?

Lately almost certainly yes. The tax benefits might still make it worthwhile but inflation is most definitely higher than than 4% at the moment

Re: Why in the world would you own bonds?

#517

Post by stevievee »

darawk wrote: post #507
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.

The people making these investing decisions are actually experts in their fields. If you're managing the kind of money that moves these markets, you are a world recognized expert in what you do. These people are not materially being influenced by Ray Dalio's blog posts and books, and Dalio isn't trying to influence them to move markets, because he knows this. This idea is just not at all based in reality. This sort o…

Sorry I disagree - I am not saying they are purposefully influencing the flow of capital but their ideas are brought up for discussion by the so-called experts a lot more often because of who he is and how much they manage. Most managers are also not experts in making macro plays

Re: Why in the world would you own bonds?

#518

Post by ISL »

pascalxus wrote: post #127
ISL wrote: post #118

Earlier quoted context omitted.

A $1000 T-Bill will yield $1000 at maturity, every time.

that may be so but most people can't have a 30 year commitment so they buy ETFs. And ETFs need a buyer for that bond to have value. if those buyers don't exist then the bond could be worth a lot less than 1000$. this is what the author was talking about with the comparison to run on the banks for bonds.

Individuals can transact directly with the federal government on shorter-duration T-Bills (4-52 weeks) through Treasury Direct.

Re: Why in the world would you own bonds?

#519

Post by [deleted] »

deanmoriarty wrote: post #496
mikestew wrote: post #452

Earlier quoted context omitted.

You could likely write the list, billionaire or not, on a Post-It(tm). I mean maybe billionaires keep 10 years of billionaire lifestyle in cold hard, but that would seem to be a poor use of such a huge chunk of cash.

I have 10 years in cash/short term bonds, and 40 years of expenses in stocks. It’s basically roughly a 80/20 portfolio, nothing unheard of, especially for retirees (though I’m still working).

[deleted]
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