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Why in the world would you own bonds?

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Re: Why in the world would you own bonds?

#521

Post by omegaworks »

nostrademons wrote: post #482
omegaworks wrote: post #466

Earlier quoted context omitted.

It is the answer when the shortage is an abrupt, acute disruption in the money supply. A massive number of people were made unemployed by the pandemic. We had lines at food pantries stretching miles long. If you recall, at the beginning of the pandemic we we had farms ploughing under crops for lack of demand. Potatoes stacking up to high heavens, farmers offering them free to anyone who'd arrive with a bag to transpo…

We didn't have an abrupt, acute disruption in the money supply, though - at least not a negative one. The quantity of money available went up by 40% in March 2020, and velocity went down correspondingly. We had an abrupt, acute disruption in the labor supply: people were unable to work. We also had large disruptions in trade and in demand. This is not 2009, when there were plenty of people available to work, there wa…

The money supply at the bottom of the economy was disrupted. Mass unemployment disrupts the velocity of money at the bottom of the economy. The labor supply is there, the jobs that allow laborers to be paid for doing work are not. As these laborers are no longer able to buy goods from retailers that serve them, the demand evaporates. So you agree, there's not a disruption in the "supply of real goods" so we shouldn't see inflation as stimulus checks and family UBI relieve money supply issues exactly where that supply issue exists.

The quantity of money might have gone up for large companies, banks and those positioned correctly, but that's inaccessible to the majority of the American population. The majority of 2020 stimulus was delivered to private banks that prioritized their largest strictly for-profit customers. 2021 stimulus, in contrast, shifts the balance toward direct aid and city/state aid.

Re: Why in the world would you own bonds?

#522

Post by stjohnswarts »

floor2 wrote: post #285
pmastela wrote: post #64

Earlier quoted context omitted.

I don’t know a whole lot about professional investing, but if watching The Big Short has taught me anything it’s that the pros will say one thing publicly but do the opposite in private until it’s to their advantage to do a 180 and make their private stance actually public. Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase. The following exchange fr…

It's great that you recognize professional investing isn't something you know a lot about. It's a bit concerning that people believe a hollywood movie has taught them how the industry works. Keep in mind how hollywood portrays "hackers" or "scientists" or "Russians" or whatever group is an outsider or opposition to the protagonist and realize they're doing the same to finance.

What they said is a basic property of humans who value money (object of value) over morals, it's hardly limited to wall street. Whether it's depicted in a hollywood flick or medieval morality play. It's as old as humanity

Re: Why in the world would you own bonds?

#523

Post by darawk »

stevievee wrote: post #517
darawk wrote: post #507

Earlier quoted context omitted.

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

I don't really know what to tell you here other than that that is incorrect. Not all asset managers are macro experts, you're right. But all asset managers that make market-relevant macro trades sure are.

The kinds of people you would have to influence to move these markets are phd macro economists working for central banks, and portfolio managers at places like Pimco. These kinds of people are not reading Dalio's books and thinking "oh man, never thought about these debt cycles before, better go short treasuries".

Re: Why in the world would you own bonds?

#524

Post by thoughtstheseus »

paulmd wrote: post #498
thoughtstheseus wrote: post #351

Earlier quoted context omitted.

Banks? Seems like an obvious choice, given they have vaults and guards, etc.

FDIC insurance doesn't cover large balances (above 250k) so that's not free either. If you're talking about holding a vault full of physical cash, that's not free either. It has to be physically secured in a building and someone wants to be paid for the building and the security. All of which I said above. Holding cash isn't free at a macro scale, holding cash already has a negative return.

Have you seen $100 million dollars? It can fit in the average closet. How macro are we talking? Any small town with a few banks could hold billions in physical cash. It’s not a problem.

Re: Why in the world would you own bonds?

#525

Post by partiallypro »

azinman2 wrote: post #438
partiallypro wrote: post #396

Earlier quoted context omitted.

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.

That's why F/PE exists, even on that basis the current market doesn't make sense and valuation doesn't matter. Frankly, I think when/if SpaceX goes public, Tesla will start going down and people will plow into SpaceX (which IMO has more of a strong future and also what people investing in Tesla now are kind of thinking they have a part of)

Re: Why in the world would you own bonds?

#526

Post by refurb »

refurb wrote: post #493
aparsons wrote: post #271

Earlier quoted context omitted.

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

But what about all the other bids and asks in the book? If you’re trying to drive the price down, there will be buy orders at higher prices your sell order will be matched with first.

Apparently it was happening in the over the counter markets. No idea how that would work but the lack of oversight may make it easier.

Re: Why in the world would you own bonds?

#527

Post by Zanneth »

imtringued wrote: post #490
nostrademons wrote: post #462

Earlier quoted context omitted.

You can "demand" it all you want. If supply doesn't meet that demand, you get inflation. Ultimately living conditions are set by real goods & services, not by the amount of money flowing into a sector. If more money flows in and the supply of real goods remains fixed, it just makes everything cost more. I'd agree that most military spending is a waste of money - why does an F-22 cost $334M? But directing that spendin…

House construction is such a lucrative industry in the US, too bad they banned it. Imagine banning farms that produce more than a set amount of wheat or corn per acre. Absolutely ridiculous.

What are you talking about? In what way was it banned? Who is "they"?

Re: Why in the world would you own bonds?

#528

Post by reducesuffering »

alasdair_ wrote: post #478
reducesuffering wrote: post #472

Earlier quoted context omitted.

Long term US Govt. Bonds like VGLT did very well, increasing in value, in both 08 and Mar '20 covid crash.

This is good to know. I think most of the modelling I looked at in the past used medium duration bonds as a proxy for the bond market as a whole. I wonder what TIPS did during the same timeframe actually. EDIT: I looked at VGLT and the mean annual return is extremely low, roughly 0.75%. I like the seemingly negative correlation with equities but I'll need to do some modelling to see if it's worth the massive hit in a…

The best estimated guess for a bond ETF’s returns going forward are it’s SEC yield, not past returns. This is because efficient market hypothesis postulates that the aggregate of bond buyers and sellers has reached equilibrium at its current interest rate. So it’s our best guess at the average of interest rate increases and decreases and their likelihood of happening. Given that, we assume the return going forward is what it’s currently yielding, and in VGLT’s case, it’s 2.15%. When cash is yielding 0.5% max, these can be a useful way of further protecting against equity downturns (assuming VGLT increases in downturns, negatively correlated to equities, true the past 30 years, mixed truth over 70 years), while still providing much better yield than cash.

Re: Why in the world would you own bonds?

#530

Post by paulmd »

thoughtstheseus wrote: post #524
paulmd wrote: post #498

Earlier quoted context omitted.

FDIC insurance doesn't cover large balances (above 250k) so that's not free either. If you're talking about holding a vault full of physical cash, that's not free either. It has to be physically secured in a building and someone wants to be paid for the building and the security. All of which I said above. Holding cash isn't free at a macro scale, holding cash already has a negative return.

Have you seen $100 million dollars? It can fit in the average closet. How macro are we talking? Any small town with a few banks could hold billions in physical cash. It’s not a problem.

AFAIK the larger denominations are quite rare as they're only used for federal-reserve interbank transfers (which are almost entirely done digitally nowadays). Again, that's a solution that works for one entity, it doesn't work for the economy as a whole.

From an article:

* $1k bill: 165,372 in existence

* $5k bill: "fewer than 400 believed to exist", valued at significantly more than $5k

* $10k bill: "only a few hundred survive" (also valued at significantly more than face value)

* $100k bill: 42,000 ever printed and can only legally be used for transfers between federal reserve banks, illegal for private entities to hold

https://www.investopedia.com/6-famous-discontinued-and-uncom...

So no, not really enough physical large-denomination bills for everybody to hoard physical cash.

The FDIC commits to ensuring bank liquidity, it covers retail withdrawals, I don't think it's ever committed to printing specific combinations of bills to make it easy to hoard physical cash. In fact, they have already argued they don't need to, in order to discourage money laundering. The existing bills are mostly leftovers from the 1890s-1930s.

If they choose to give you a billion dollars in all 100s, well, sucks to be you. And again, they don't even really need to do that since only $250k per account is actually covered.

So I mean, to wit, have you ever seen 100 million dollars in a single bundle? Unless you work for the Federal Reserve doing inter-reserve settlement I doubt it, seeing as there’s only $165 million of $1k bills in existence. That would be over half of the $1k bills in existence and there's no other large bills in private hands in any significant quantities. Maybe you saw it as a movie plot point somewhere?

Regardless, not something that can be executed at scale. There are $21 trillion of treasures in private hands alone, there are only $165 million of $1k bills in existence.

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