Does it make sense to buy long bonds now?

Discussion of the Bond portion of the Permanent Portfolio

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doodle
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Re: Does it make sense to buy long bonds now?

Post by doodle » Wed Oct 14, 2020 11:24 pm

There is some argument to be made that negative rates are actually deflationary instead of stimulative in that they rob so many of interest income. I know I am getting screwed by these rates. In a normal interest rate environment I'd be fully retired by now...need about 3 times what I planned would be enough because of these low rates. So much for plans.
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Re: Does it make sense to buy long bonds now?

Post by boglerdude » Thu Oct 15, 2020 3:01 am

MMT says that interest is corporate welfare. Why does anyone deserve risk free return. population growth is the only very low risk return (new people need loans for cars and homes)

http://bilbo.economicoutlook.net/blog/?p=10404
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Re: Does it make sense to buy long bonds now?

Post by vnatale » Thu Oct 15, 2020 7:59 am

doodle wrote:
Wed Oct 14, 2020 11:24 pm
There is some argument to be made that negative rates are actually deflationary instead of stimulative in that they rob so many of interest income. I know I am getting screwed by these rates. In a normal interest rate environment I'd be fully retired by now...need about 3 times what I planned would be enough because of these low rates. So much for plans.
The financial system is set up to reward the profligate and penalize the saver!

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Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Does it make sense to buy long bonds now?

Post by ahhrunforthehills » Thu Oct 15, 2020 11:14 am

boglerdude wrote:
Thu Oct 15, 2020 3:01 am
MMT says that interest is corporate welfare. Why does anyone deserve risk free return. population growth is the only very low risk return (new people need loans for cars and homes)
Fantastic point. Why does anyone deserve risk free return?

I personally expect ZERO return. However, I know I need to make up for inflation. Then I need to make up for that inflation's taxes. I guess that explains the gold bugs.

On top of that, the entire investing environment is so bastardized. Investment is about risk/return. If I wanted to opt out, I should be able to. However, society as a whole throws your children and your children's children under the bus for short-term gains. So by not playing the game, you are just getting both ends of the shaft (assuming that you have a vested interest in future generations).
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Re: Does it make sense to buy long bonds now?

Post by Kriegsspiel » Thu Oct 15, 2020 11:21 am

I was trying to find something Marc Andreessen wrote, questioning why people thought they deserved risk-free returns, and I found this page, thought you might want to read.
You there, Ephialtes. May you live forever.
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Re: Does it make sense to buy long bonds now?

Post by doodle » Thu Oct 15, 2020 11:46 am

I'd be fine without any risk free return as long central banks agreed not to actively devalue the money that I had earned and saved and eliminated banks ability to create loans out of thin air thereby driving up prices by extension of credit. I don't have any issue with spending what one earns. I don't see our system working that way at all. I see lots of people spending what they haven't earned and then getting bailed out when those decisions threaten bankruptcy.
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Re: Does it make sense to buy long bonds now?

Post by ahhrunforthehills » Thu Oct 15, 2020 2:04 pm

Kriegsspiel wrote:
Thu Oct 15, 2020 11:21 am
I was trying to find something Marc Andreessen wrote, questioning why people thought they deserved risk-free returns, and I found this page, thought you might want to read.
Interesting article. Thanks!
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Re: Does it make sense to buy long bonds now?

Post by boglerdude » Thu Oct 15, 2020 10:14 pm

^ From the comments: "The idea of a “risk-free” is misleading.

As a user of a currency, I want that currency to be stable. If too much money chases too few goods, the currency becomes unstable, which is a bad thing. Therefore, as a user of the currency who cares about its stability, I would be willing to pay people not to chase more goods than there are available to be chased. I cannot personally do that, but the government, on behalf of all of us users of currency, can do it by paying interest on deposits in the Treasury, aka Treasury securities. That so-called “risk-free” rate is better understood as a “risk-independent” rate, because it is paid for not chasing goods and is only as high as it needs to be to prevent people from chasing goods.

All other users of money and credit compete with the Treasury for money, so they must pay more than the risk-independent rate being paid by the Treasury for mere non-spending. Or, as in the case of a commercial bank, they must provide a service like checking to compensate for the use of the money. The Treasury does not allow checking against your account; your bank does allow it, and that is compensation for the use of the money above and beyond what the Treasury is paying. But the point is that we reckon the return on a financial instrument in terms of the payment made to match the Treasury PLUS an amount to account for the risks taken by investing the money in a project more risky than depositing it in the Treasury (hence, the term “risk-free” rate).

What, then, determines what the Treasury should pay people for money? The answer is the amount necessary to prevent inflation by convincing people to deposit their money in the Treasury. That amount is a function of the demand that would exist, relative to the supply that could meet it, in the real economy at any time. Without trying to divine what that number should be, I think it is enough to note that it is not “inherently” positive or negative, so the rate may go to zero, and it may stay there for a long time, or it may not. But “go away” seems to me too binary a concept. Zero is just one interest rate among many, not some special condition of non-existence."

https://en.wikipedia.org/wiki/Financial_repression
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Re: Does it make sense to buy long bonds now?

Post by europeanwizard » Sun Nov 08, 2020 2:05 am

doodle wrote:
Tue Oct 13, 2020 2:46 pm
I don't understand...who is holding japanese and european bonds then? Is it all being held by the central banks?
Old topic, but I figured it's worth replying. As I understand, here in The Netherlands, insurance companies, pension funds and housing cooperatives are tied to regulations that more or less force them to buy bonds.

That's incidentally also the reason why some Dutch economists (amongst others Kees de Korte) have observed that our excellent Dutch pension system is being hollowed out by the actions of the European Central Bank.
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Re: Does it make sense to buy long bonds now?

Post by mathjak107 » Sun Nov 08, 2020 3:30 am

bonds to insurers will work very differently than to us .

those who die pay for those who live and their bond returns are magnified greatly .

if you or i buy a bond , all we may get is 1-2% ....

but if 30 of us bought a bond and the deal is that if one of us dies a year the money goes back in for the others , you can see at the end of 30 years the last person gets a whopping 30-60% return
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Re: Does it make sense to buy long bonds now?

Post by I Shrugged » Sun Nov 08, 2020 10:13 am

mathjak107 wrote:
Sun Nov 08, 2020 3:30 am
bonds to insurers will work very differently than to us .

those who die pay for those who live and their bond returns are magnified greatly .

if you or i buy a bond , all we may get is 1-2% ....

but if 30 of us bought a bond and the deal is that if one of us dies a year the money goes back in for the others , you can see at the end of 30 years the last person gets a whopping 30-60% return
But government pension plans are not closed pools. They are open ended.
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Re: Does it make sense to buy long bonds now?

Post by mathjak107 » Sun Nov 08, 2020 12:58 pm

I Shrugged wrote:
Sun Nov 08, 2020 10:13 am
mathjak107 wrote:
Sun Nov 08, 2020 3:30 am
bonds to insurers will work very differently than to us .

those who die pay for those who live and their bond returns are magnified greatly .

if you or i buy a bond , all we may get is 1-2% ....

but if 30 of us bought a bond and the deal is that if one of us dies a year the money goes back in for the others , you can see at the end of 30 years the last person gets a whopping 30-60% return
But government pension plans are not closed pools. They are open ended.
When people die their allocation goes either to a spouse until they die or back in to the pool ..those who die help pay for those who live....

It is basically your invested money in the pension whether you put it in or your company did and that money which is invested has your share going back in to the pool. Basically these are mortality credits the pension fund gets
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Re: Does it make sense to buy long bonds now?

Post by SomeDude » Tue Nov 24, 2020 1:04 am

I think i just saw somewhere in the last week that 100% of the national debt added since Covid (Aprilish) matches the growth on the Fed's balance sheet. This implies all new bond issuance essentially going to the central via newly created money.

Yeeesh. Buyer of last resort. Will be interesting how high rates have to go to entice net buying from non government institutions or foreigners. How can the piddly interest on bonds ever hope to match inflation?

As horrible as Trump has been for debt growth, if he hands the keys over to Kamala I've got to think it will get worse.
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Re: Does it make sense to buy long bonds now?

Post by mukramesh » Tue Dec 01, 2020 3:28 pm

SomeDude wrote:
Tue Nov 24, 2020 1:04 am

As horrible as Trump has been for debt growth, if he hands the keys over to Kamala I've got to think it will get worse.
Based on what? Democrats finance projects via taxes. Republicans finance projects via debt.
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Re: Does it make sense to buy long bonds now?

Post by SomeDude » Thu Dec 03, 2020 2:57 am

mukramesh wrote:
Tue Dec 01, 2020 3:28 pm
SomeDude wrote:
Tue Nov 24, 2020 1:04 am

As horrible as Trump has been for debt growth, if he hands the keys over to Kamala I've got to think it will get worse.
Based on what? Democrats finance projects via taxes. Republicans finance projects via debt.
Based on the economy going into a tailspin from the aforementioned massive tax increases promised, more regulation, entire industries targeted for destruction like energy, a nightmarish federal coronavirus lockdown, green new deal horsecrap, reparations or whatever through money printing, new wars, student loan forgiveness.

Basically everything Kamala and Sleepy Joe were promising, unless you think the Republican Senate can hold them off.
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Re: Does it make sense to buy long bonds now?

Post by SomeDude » Thu Dec 03, 2020 2:59 am

Let's not make this political. Hard to do with an investment like long bonds during an election. Let's just say i dont think the long term outlook for then is bright regardless of politics.
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Re: Does it make sense to buy long bonds now?

Post by mukramesh » Thu Dec 03, 2020 12:18 pm

SomeDude wrote:
Thu Dec 03, 2020 2:57 am
mukramesh wrote:
Tue Dec 01, 2020 3:28 pm
SomeDude wrote:
Tue Nov 24, 2020 1:04 am

As horrible as Trump has been for debt growth, if he hands the keys over to Kamala I've got to think it will get worse.
Based on what? Democrats finance projects via taxes. Republicans finance projects via debt.
Based on the economy going into a tailspin from the aforementioned massive tax increases promised, more regulation, entire industries targeted for destruction like energy, a nightmarish federal coronavirus lockdown, green new deal horsecrap, reparations or whatever through money printing, new wars, student loan forgiveness.

Basically everything Kamala and Sleepy Joe were promising, unless you think the Republican Senate can hold them off.
SomeDude wrote:
Thu Dec 03, 2020 2:59 am
Let's not make this political. Hard to do with an investment like long bonds during an election. Let's just say i dont think the long term outlook for then is bright regardless of politics.
I'm struggling to respond to this without making it political ;D
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Re: Does it make sense to buy long bonds now?

Post by SomeDude » Thu Dec 03, 2020 1:23 pm

mukramesh wrote:
Thu Dec 03, 2020 12:18 pm
I'm struggling to respond to this without making it political ;D
The struggle is real. How about this, regardless of who wins the election, i think long term bonds will have a lower return in the next 10 years compared to stocks, gold, and probably even cash.

I own the latter 3 plus silver, but no LTTs for that reason.
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Re: Does it make sense to buy long bonds now?

Post by mukramesh » Thu Dec 03, 2020 1:30 pm

I don't try to project returns at an arbitrary point in the future (your next 10 years for example). My thought is if volatility is high, having all 4 assets will give me better rebalancing opportunities along the way.

For example, although the standard PP is 14.3% YTD (etfreplay), my own portfolio did much better since I hit a rebalancing band when stocks were at -30% in March.
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Re: Does it make sense to buy long bonds now?

Post by pmward » Sat Dec 05, 2020 12:24 pm

Take a look at Tyler's article on bond convexity. Most people do not understand how this works: https://portfoliocharts.com/2019/05/27/ ... convexity/

Suffice to say, the 30 year treasury could still do much better than you think in coming years if the economy is weak. Bond yields are going up right now, but for the good reason... all economic data is currently pointing at an economic upturn in 2021. This doesn't mean the bottom is in for long bonds though. Say we get 2 more years to the economic cycle. Bonds yields will mean revert up for 2 years. This would give people in a buy & rebalance portfolio a chance to "buy the dip" before the next secular bear market in stocks begins and bond yields go back to all-time lows. If the next secular stock bear market happens at any point in the next few years the yield bottom is not in, and significant capital appreciation can be had from long bonds. Not saying this is a guaranteed thing, but I would say it is likely (and completely irregardless of who is in the White House). And if stocks go into another deflationary "lost decade"... well bonds could still become *the* asset of the 2020's.
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