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

Re: Why in the world would you own bonds?

#271

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

refurb wrote: post #245

IgorPartola wrote: post #225

Earlier quoted context omitted.

Not an expert at all but the way WSB explains it, it’s where hedge funds trade GME back and forth between each other, gradually lowering the price with each trade. It’s a coordinated effort toy manipulate the market and is illegal. According to WSB the SEC either doesn’t care or fines hedge funds so little for stuff like this that it’s worth it to them to do it anyways (as well as selling naked short and under report…

How do they sell a public stock back and forth between each other? How could one fund put shares up at a given price (especially one below the current bid price) and ensure their partner fund is matched as the buyer? Wouldn’t a market maker need to collude as well? Not saying it’s not true, I genuinely curious as to the mechanics.

Presumably, fund A places a limit buy at price - $n and fund B places a limit sell at price - $n - $0.1

Re: Why in the world would you own bonds?

#272

Post by DennisP » Wed, Mar 17, 2021, 2:09 PM UTC

thoughtstheseus wrote: post #21

blacksqr wrote: post #9

It's possible for bond rates to go negative. Just because rates are near zero now doesn't mean there isn't room for further movement.

Just hold cash...

That's not actually better, as long as interest rates keep falling. If you're holding 30-year bonds at zero interest, and the 30-yr rates go to -1%, then you get a capital gain of 35%. If rates go from -1% to -2%, that's a 40% capital gain.

https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...

Of course the reverse is true as well. If rates go up, you get equivalent capital losses. (You can avoid taking the loss by holding to maturity, but you'll have the same result as if you sold your low-interest bond, taking the loss, and invested your remaining money in a new higher-interest bond that matures at the same time.)

Re: Why in the world would you own bonds?

#273

Post by clipradiowallet » Wed, Mar 17, 2021, 2:09 PM UTC

> Why in the world would you own bonds?

Because when every corp/muni bond folds - government issued bonds do not(and never have). Also, because they skyrocket in value during government-to-government conflict. Military action? 150% bond prices. It's a low risk instrument that turns into a winning lottery ticket for events such as.. North Korea launching a ballistic missile ~2 years ago, Donald Trump being accused of Russian collusion 3 years ago, and every military conflict ever.

Note, I'm not saying "govt bonds are great! buy them!"...I'm saying there are very old and valid reasons to own bonds of the government-backed variety.

Re: Why in the world would you own bonds?

#274

Post by DennisP » Wed, Mar 17, 2021, 2:11 PM UTC

emodendroket wrote: post #13

I suppose a forty-year bubble is possible but it seems like a novel idea to my mind.

Dalio takes a very long view. He mentions "my study of markets and economies over the last several hundred years."

Re: Why in the world would you own bonds?

#275

Post by tryptophan » Wed, Mar 17, 2021, 2:13 PM UTC

aerovistae wrote: post #67

I discovered awhile ago that so-called "junk bonds" are in fact very rewarding investments that are actually only risky by comparison to other bonds, and not by comparison to other popular asset classes like stocks. Been making $120/year off an $800 bond I bought that has grown in value to $950. Win!

The risk/reward ratio on junk bonds is much worse than that of stocks or normal bonds.

If you want less risk than stocks, just titrate to your desired risk level using a ratio of treasuries and stocks.

Fore example, 80% stock, 20% bond gets you the same risk as 100% junk bonds, but you get a 9.5% return instead of 5.3%.

Re: Why in the world would you own bonds?

#276

Post by DebtDeflation » Wed, Mar 17, 2021, 2:14 PM UTC

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. Seeing all of the "SWE, BSCS, 4 YOE, $800K TC, am I underpaid?" posts on Blind certainly doesn't help my feeling that a crash is coming.

Re: Why in the world would you own bonds?

#277

Post by clipradiowallet » Wed, Mar 17, 2021, 2:14 PM UTC

IgorPartola wrote: post #225

eru wrote: post #219

Earlier quoted context omitted.

What's a ladder attack?

Not an expert at all but the way WSB explains it, it’s where hedge funds trade GME back and forth between each other, gradually lowering the price with each trade. It’s a coordinated effort toy manipulate the market and is illegal. According to WSB the SEC either doesn’t care or fines hedge funds so little for stuff like this that it’s worth it to them to do it anyways (as well as selling naked short and under report…

The SEC is on the hook to investigate anything reported to them. If they aren't investigating, then it's not being reported. Additionally, there is an incentive to report shady behavior(such as wash sales to lower price, as you described): https://www.sec.gov/whistleblower

tldr; the SEC pays you a portion of any fine they levy against an entity.

Re: Why in the world would you own bonds?

#278

Post by analyte123 » Wed, Mar 17, 2021, 2:15 PM UTC

throw0101a wrote: post #262

eru wrote: post #250

Earlier quoted context omitted.

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?

See this massive list of countries where this has occurred: https://en.m.wikipedia.org/wiki/Land_reforms_by_country

This is not even to mention the prospect of “constructive” land reform, e.g. squeezing landowners (or certain disfavored types of landowners) with policy and then increasing property or income taxes to the point where they have no choice but to sell at a loss.

Re: Why in the world would you own bonds?

#279

Post by popcat » Wed, Mar 17, 2021, 2:20 PM UTC

clipradiowallet wrote: post #273

> Why in the world would you own bonds? Because when every corp/muni bond folds - government issued bonds do not(and never have). Also, because they skyrocket in value during government-to-government conflict. Military action? 150% bond prices. It's a low risk instrument that turns into a winning lottery ticket for events such as.. North Korea launching a ballistic missile ~2 years ago, Donald Trump being accused of…

I think you have a fundamental misunderstanding of how bonds work. What you are saying is mostly true, BUT the coupon rate is set at bond issuance. Meaning if you own a bond now, and coupon rates go up because of an event, your rate does not magically adjust. When event like you describe happens, it means it's a good time to enter the bond market.

What Dalio is saying is that currently real returns on bond are rock bottom or even negative. So why would you own them? He's not saying to NEVER own bonds, just that it currently does not make sense. If in the future, bond coupon rates increase, then it will once again make sense to own bonds.

Re: Why in the world would you own bonds?

#280

Post by dash2 » Wed, Mar 17, 2021, 2:21 PM UTC

roland35 wrote: post #220

nostromo wrote: post #148

Earlier quoted context omitted.

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)

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...

Are SPDR GLD shares the same as real gold? I read somewhere that ETFs sometimes have to use special tricks to try and match commodity prices....