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Guest Post: A Question On Risk: Part One Of Three

Tyler Durden's picture




 

Submitted by JM

A Question on Risk: Part one of three

The common belief is that long bond holders are suckers that always lose money.  But there is no denying their raw total return generating power.

Question 1:  Total Return, various asset classes: How can the long bond outperform the other, more risky competitors here?


Source:  Distressed Debt Investing

Possible answers: 

  • Inflation risk is overpriced… that doesn’t really explain the BarCap Aggregate underperforming SPOO and treasuries.
  • Risk in general is underpriced, and the long bond is the best way to derisk.  This is actually somewhat bogus, because you are taking massive term risk in the long bond.
  • You actually get compensated for taking term risk, more than any other risk.  Perhaps returns on other risks like credit risk, liquidity risk are distorted/subsidized/suppressed.  This is because governments must honor their obligations in order to keep rolling their debt.
  • Perhaps it is because they are almost uniformly hated as a long term investment, so those long are of the buy and hold persuasion, taking unlevered exposures.  They also act as hedges that are a small portion of their total portfolio decisions. 
  • Other, better answers?

 

 

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Tue, 07/05/2011 - 21:53 | 1428394 buzzsaw99
buzzsaw99's picture

Why is a 2% dividend on the S&P 500 considered a good deal while 3%+ on the 10y is considered crap? Perhaps because the stock market only goes up? I LMAO at equity buyers, they are the fools at the table.

Tue, 07/05/2011 - 21:57 | 1428400 baby_BLYTHE
baby_BLYTHE's picture

the FED owners worry little about 'risk' as they are guaranteed their juicy 6% dividend payment off the backs of every man, woman and child in this nation.

nearly 100 years of non-voluntary usury 

Tue, 07/05/2011 - 22:12 | 1428452 disabledvet
disabledvet's picture

did you say 100 years?

Tue, 07/05/2011 - 22:51 | 1428534 Maniac Researcher
Maniac Researcher's picture

...since the Federal Reserve act in December, 1913. Of course, using a medieval term like "usury" is problematic in 2011.

To be fair, most of the ZH commenters imagine themselves in various other time periods other than their own...constantly pining for some unrealized "golden age" - suspiciously avoiding such pesky historical realities such as civil rights struggles, slavery, pervasive poverty, imperialism, red baiting, and pastoral economies that are nothing like modern ones, etc etc etc.

Why the pining for other periods? Because the whiny white guy armchair enthusiasts would rather pretend or hope for an apocalypse or time travel rather than take responsibility for the period they are in. It takes actual effort to pick up a shovel, build a house, learn how to grow food, educate the young, and take care of the helpless. Contrary to popular belief, not everyone has bootstraps - and certainly no one starts out self sufficient. In fact, self-sufficiency itself in our current era is a hotly contested subject and by no means a foregone reality. No amount of reading and reblogging of the Austrian school of economics is going to change that. But of course, they can try. Hence, the continued usage of outmoded terminology.

No - instead they'd rather talk shop about a parasitic financial system. They complain endlessly about it - but then still contribute to it by engaging in the meaningless trade of security instruments* they know are designed to reward wealth rather than labor. It's pure hypocrisy. Add a sprinkle of bigotry, a generous helping of misogyny, and a pinch of anti-semitism and you have ZH.

Tyler, when I explained ZH to Matt Taibbi, you know what he said? "Ah well, the wannabes need their sandbox, too."

Some people look at those with privilege who take advantage of others and react with horror and disgust. Others say, "how can I get in on that?" Ask yourselves: which group are you in?

[*What, you think hoarding PMs doesn't count? Ask a homeless person how much they care about your semi-affluent investment strategy]

Tue, 07/05/2011 - 23:09 | 1428567 Janice
Janice's picture

So then, what are you? The hypocrite, bigot or the Jew/woman-hater?  Not all of us here are traders, and some quite happy with the time period in which we have been born.  Tis a very narrow minded brush with which you paint the ZH masses.  

Tue, 07/05/2011 - 23:21 | 1428608 Maniac Researcher
Maniac Researcher's picture

Your denial is only meaningful to this crowd.  Also, your attempt to deflect criticism of observable and frequent instances of bigotry is transparent. Of course, to a narrow individual, many brushes will seem skewed and unfamiliar.

Wed, 07/06/2011 - 00:19 | 1428704 Aristarchan
Aristarchan's picture

I have never invested in anything, and will never invest in anything. I am probably narrow, but am not a bigot. There are many flavors here, and whether they are good or bad is only an opinion, not a truth.

Wed, 07/06/2011 - 00:24 | 1428712 agrotera
agrotera's picture

Bravo, HEAR HEAR Aristarchan!!!

Wed, 07/06/2011 - 12:02 | 1429947 Maniac Researcher
Maniac Researcher's picture

Feel free to continue deluding yourself about the nature of which opions are acceptable here and which are not. This is an observable phenomenon right here on this thread.

Wed, 07/06/2011 - 00:39 | 1428731 eureka
eureka's picture

Bla bla bla - listen carefully: It is perfectly OK to whine and complain and to be angry - I say LET IT ALL OUT - and then, yes, DO SOMETHING ABOUT IT. All this prevailing political correctness about "not complaining, criticizing, being negative" etc - is, guess what, an invention of corporate managers on behalf on their owners.

I say whine and bitch and take the axe to Wall Street, metaphorically and or directly. Nothing is meaningful to anybody except their own actions; the fact is no one, absolutely no one in pursuit of wealth and power cares about anyone else - THAT, is the nature of the beast. SO yes, there is hypocrisy all around, in a rotten system of rotten motives - and for that reason alone, I welcome any and all discontent expressed here or anywhere. My God, LET IT OUT, FOLKS.

Wed, 07/06/2011 - 01:34 | 1428790 delacroix
delacroix's picture

so, you explained zerohedge, to matt taibbi. I just lost a lot of respect, for matt taibbi.

Tue, 07/05/2011 - 23:29 | 1428627 jeff montanye
jeff montanye's picture

and the chart above starts with the longest and most massive bond bull market in history which on a long treasury yield basis began at 16% in the fall of '81 and reached its low yield (high price) to date in december '08 at 2.5%.  had the time frame been, say, '48 (again about 2.5%) to '81, the longest and most massive bond bear market, the lessons would seem different.

Wed, 07/06/2011 - 01:32 | 1428787 zhandax
zhandax's picture

I think I get the drift...something about 'never confuse brilliance with a bull market'?

Tue, 07/05/2011 - 23:46 | 1428656 Maniac Researcher
Maniac Researcher's picture

Hey Janice, read JW in FL's post below. We have our first Holocaust denier. Narrow brush, eh?

Wed, 07/06/2011 - 00:23 | 1428696 JW n FL
JW n FL's picture

I sourced and sited a group that says the Gas Chambers were not heavily used.. so how do you get that I am a Holocaust Denier?

 

Do you just make shit up as you go along.. or do you really believe this make believe shit you spew all over everyone?

Wed, 07/06/2011 - 01:07 | 1428761 Maniac Researcher
Maniac Researcher's picture

The only thing here that smells here is your disingenuous jew-baiting. Save your poorly constructed historical notions for the wingnut crowd.

Now kindly go fuck yourself.

Tue, 07/05/2011 - 23:39 | 1428644 ATrillionSavedI...
ATrillionSavedIsATrillionEarned's picture

I have a simple question in mind:

Why is it so hard to find a decent way to save or invest in this world of sophisticated financial instruments?

Even cash is suspect.

I find that Zerohedge answers that question better then any other website I know.

 

Tue, 07/05/2011 - 23:49 | 1428658 Maniac Researcher
Maniac Researcher's picture

Yes, only ZH can give you what you need because the internet is *such* tiny place.

"..but I need my bigoted advice column! Think of my precious cash!"

Wed, 07/06/2011 - 01:37 | 1428793 Taku
Taku's picture

Err, could someone explain how or why the baltic dry index has flatlined in the last month or so...fact or humor (preferably together). Thx

Wed, 07/06/2011 - 07:10 | 1428950 tennisdude
tennisdude's picture

Honest question, is that index still useful at all? It seems like the past year would indicate otherwise?

Wed, 07/06/2011 - 07:34 | 1428980 snowball777
snowball777's picture

But can't you just feel the austerity washing over you?

Wed, 07/06/2011 - 08:56 | 1429183 finance_t
finance_t's picture

its because of the excess supply of ships built in 06-07.

 

Oversupply, not weak demand.

Wed, 07/06/2011 - 04:11 | 1428873 Marco
Marco's picture

Everyone is looking for supranormal profits ... the only way to get them is engineering abnormal events, bubbles, stag/hyperinflation, collapses. Everyone is looking for the economy to get destabilized one way or the other, so they can make higher profits ... and unfortunately some people have the political influence to see to it that economies get fucked that way.

 

Ultimately investments yields should be driven by real economic growth (which in present peak everything, Malthus was right, circumstances can't continue like in the past). All other money should be earned by the fruits of your labour ... but everyone wants money for nothing, investors as much as wellfare louses.

Wed, 07/06/2011 - 06:52 | 1428934 Ricky Bobby
Ricky Bobby's picture

+1 Well thought Sir!

Wed, 07/06/2011 - 11:59 | 1429934 Maniac Researcher
Maniac Researcher's picture

Marco, you sounded reasonable enough in your first paragraph; however by the second you have meandered into dubious territory.

1. Applying Malthus' late eighteenth and early nineteenth century predictions onto the twenty first century is highly problematic, at best. But don't take it from me; here's a quote from Mark Pingle in the Journal of Economic Education back in 2003:

"Malthus believed the Principle of Population was the main cause of poverty...preindustrial societies faced diminishing returns to labor and did not experience rapid technological improvement, conditions that made it reasonable to apply the Malthusian model...Industrialization has indeed led many economies to experience sustained improvement in labor productivity. It is not reasonable to apply a traditional Malthusian model to these economies, for diminishing returns need not constrain population growth if technology improves quickly enough."

To translate this quote simply: Malthus lived hundreds of years ago and could not have predicted the dynamics of the current economy. Thank you Marco, for adding credence to my point that ZHers tend to literally apply economic theories from centuries past literally in order to support their arguments.

2. Welfare louses? Yes. Everyone on welfare is a parasite. That's not an intellectually dishonest generalization at all...Something tells me your tendency toward generalization would make it difficult for you to understand economic theory.

Tue, 07/05/2011 - 23:40 | 1428646 W T Effington
W T Effington's picture

Please provide details on who here would:

like to live in other time periods

ignores civil rights struggle, slavery, pervasive poverty, imperialism etc.

does not produce anything (grow food, build a house, educate the young)

You are intellectually dishonest by taking singular quotes and applying them to all who may visit this site. I think most people here are simply trying to educate themselves. During the process we may spout off half baked ideas that we would later agree were incorrect. That in no way makes people here pathetic or unintelligent. Perhaps juvenile at times.

I guess we were not born perfectly wise and omniscient like you, bigot free, no indoctrinated racism, no learned misogyny. It must be nice to have made it already. What else is there to look forward to in your omniscient, elucidated, awakened, enlightened state. The journey of learning is the interesting part. Perhaps we should simply feel sorry for you.

 

Tue, 07/05/2011 - 23:49 | 1428663 Maniac Researcher
Maniac Researcher's picture

Were you apologizing for the Holocaust denial below?

apologizing for bigotry..blah blah blah. 

don't type - read, dummy.

http://www.derailingfordummies.com/

Tue, 07/05/2011 - 23:54 | 1428668 W T Effington
W T Effington's picture

I just expected to a "Maniac Researcher" to support his opinions with some facts. The bar was too high I suppose.

Wed, 07/06/2011 - 12:10 | 1429979 Maniac Researcher
Maniac Researcher's picture

Yeah, I'm not falling for your "I'm going to create your framework for you and then create a test that will waste your time that you cannot possibly pass." Other ZHer's frequently use this transparently trollish rhetorical device. Your [failed] attempt to derail my argument is obvious.

My point continues to be simple and straightforward: In a community that condones hateful bias, how can much of the information they present be credible? My answer: It cannot.

This argument has a logical premise and observable data. This is why it annoys ZH fans - because it can only be countered with name calling, fallacy arguments, and censorship.

Wed, 07/06/2011 - 00:06 | 1428683 W T Effington
W T Effington's picture

Your application of a monolithic persona to all zero hedgers is prejudiced in and of itself. You simply are defining a people group(community) by an online website they may frequent. That is no different than what you are condemning. I guess you can join the mythical Bigot club.

Wed, 07/06/2011 - 11:11 | 1429703 Maniac Researcher
Maniac Researcher's picture

If you think pointing out hypocrisy is equatable with bigotry, then you are truly deluded. You want to test this [flawed] logical framework? Try talking to people offline.

Your strategy of reversal may work on those who are not used to confronting fallacy arguments and discriminatory attitudes, but your simplistic "I know you are but what am I?" response rings hollow.

Keep on denying. Other ZHers were more than happy to back up my argument with their bigoted comments and junks right here on this thread. The more you deny, the more foolish you look.

Wed, 07/06/2011 - 00:22 | 1428701 JW n FL
JW n FL's picture
by Maniac Researcher
on Tue, 07/05/2011 - 23:49
#1428663

 

Were you apologizing for the Holocaust denial below?

apologizing for bigotry..blah blah blah. 

don't type - read, dummy.

http://www.derailingfordummies.com/

************************************************************

I sourced and sited a group that says the Gas Chambers were not heavily used.. so how do you get that I am a Holocaust Denier?

 

Do you just make shit up as you go along.. or do you really believe this make believe shit you spew all over everyone?

Wed, 07/06/2011 - 02:13 | 1428811 zKeyserSoze
zKeyserSoze's picture

very good for my niece who knows everything, vegan that loathes humankind 

http://www.derailingfordummies.com/

no differential equation math problems, please

Wed, 07/06/2011 - 07:28 | 1428974 6_7_42
6_7_42's picture

nanny-state wankery

Wed, 07/06/2011 - 12:13 | 1429985 Maniac Researcher
Maniac Researcher's picture

That was deep. Did you come up with that one all by yourself?

Surely, you are representative of the high caliber of intellectual rigor that comes with understanding the confluence of macroeconomics, politics, and culture - all the things ZH purportedly presents for discussion and meaningful analysis.

Tue, 07/05/2011 - 23:41 | 1428647 JW n FL
JW n FL's picture

as much as I appreciate Matt bringing his message of truth to the people.. I can say that I have not seen an article from Matt on the 400% more in lobby monies that Washington Lobby Whores collect than "We the People" pay those same Lobby Whores (on average with significant sourcing provided by opensecrets.com).

 

as for the Bigotry here.. I am no fan of anyone who does not like another person for their skin color.. but if you are in any way trying to dis-creditTyler for his staunch stance with regard to freedom of speech.. I can with clear conscience say from myself and I know a great many others here.. Fuck Off!

 

as for the peace love and lets talk it  out with the Bankers approach.. Fuck That! the Bankers and Washington DC are Guilty of Treason and as such should be dispatched to hell!

 

Get off your wanna be high horse and post some useful information that has been sourced and sited or shut the fuck up.

 

http://www.youtube.com/watch?v=9aFNEog9CDI

 

Netanyahu Got 29 "Bipartisan" Standing Ovations From Congress

 

 

 

Jewish Israel Lobby Dollars

 

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There are just as many, if not more, documentaries exposing the gas chamber hoax.

You mention Auschwitz, Even the Auschwitz museum director speaks out against the lie

In a dramatic and unprecedented videotaped interview, Dr. Franciszek Piper, senior curator and director of archives of the Auschwitz State Museum admitted on camera that 'Krema 1,' the alleged 'homicidal gas chamber' shown off to hundreds of thousands of tourists every year at the Auschwitz main camp, was, in fact, fabricated after the war by the Soviet Union -apparently on the direct orders of Josef Stalin.

 

What Piper said - in effect and on camera - was that the explosive 1988 Leuchter Report was correct: no homicidal gassings took place in the buildings designated as 'homicidal gas chambers' at Auschwitz.

http://www.rense.com/general53/aauz.htm

 

Besides "eye witness" testimony, there is no evidence that gas chambers were ever used to execute prisoners.

 

Tue, 07/05/2011 - 23:51 | 1428664 Maniac Researcher
Maniac Researcher's picture

Too bad "Hide All" doesn't work for your post.

Don't worry though, I'm sure your Holocaust denial post will be around here long after my minor pokes at the obvious hypocrisy of ZH is junked out of existence. You're right at home, Nazi troll.

Tue, 07/05/2011 - 23:59 | 1428673 Yen Cross
Yen Cross's picture

 +1 Maniac. I guess this guy doesn't  know how to look @ a Polariod, or roll some cellulose.

Wed, 07/06/2011 - 00:21 | 1428707 JW n FL
JW n FL's picture

How is my post a Holocaust Denial?

I believe the sourced and sited information provided.. describes how the gas chambers were not used as often as I had been taught they had been used.

 

but once again my sharing sourced and sited information means???

 

you are full of shit, you dont research because you wont read.. so your name is a lie or more likely you would like to see yourself that way.. 

 

good luck and God Bless!

Wed, 07/06/2011 - 00:41 | 1428738 Yen Cross
Yen Cross's picture

 So they starved, tortured,and shot them to Death. Happy now? P.S. I never junked you.

 

          I respect your thoughts. Yen.

Wed, 07/06/2011 - 00:53 | 1428749 agrotera
agrotera's picture

JW n FL, I never junked you either, and i have seen your opensource posts before. The idea that ANYONE was ever subject to a gas chamber, is a horror to never forget....even thought the actual number of murders may be inaccurate.  Millions of people from other cultures were also killed by the Nazis, and although thatpoint might be left out of alot of textbooks, that poor reporting doesn't take away the unspeakable crimes that were committed against any one of the victims. 

 

Wed, 07/06/2011 - 01:18 | 1428771 Yen Cross
Yen Cross's picture

  +~...   Good post. I'm not jewish, but I can spot a spade.

Wed, 07/06/2011 - 12:33 | 1430071 JW n FL
JW n FL's picture

I had never before reading what I stole from someone else's post.. any counter weight to the claims that the Jews were all gassed or worse.. I am in my late 30's and what I was taught in school does not align its self with the facts presented. I post things that I did NOT! know before and that I think bare some scrutiny by all. I dont like what happened to the Jews and I have Family buried in Europe, 2 Great uncles that come to mind.. so my Families contributions are in blood and my personal thirst for knowledge over rides political correctness or feel good only regurgitation.

 

I post thought provoking information.. that is my goal sometimes.. or to stir the pot.. I like that as well.. something to get the people involved and feeling.. instead of sitting on the side lines not caring one way or the other!

 

Taking sides is a good thing! If you dont Stand for Something you will fall for anything! ok corny stuff dun!

 

I could as well mention this is "Fight Club" NOT! Politically Correct Land of the Pussies!

Sat, 07/09/2011 - 15:07 | 1440007 Maniac Researcher
Maniac Researcher's picture

Keep backtracking.

Wed, 07/06/2011 - 01:12 | 1428768 Sockethead
Sockethead's picture

I seek investments that I believe will enable me to both protect and grow wealth.  I also believe the finanical system is corrupt and parasitic.  I fail to grasp how this makes me a hypocrite.

 

The financial system is based on fiat currency which I believe has run it's course.  So purchasing PM's provides an investment that I believe will protect (what little) weath I have accumulated while also serving as a great way to protest/fight against a corrupt monetary system.

Wed, 07/06/2011 - 04:17 | 1428878 pesamystik
pesamystik's picture


Maniac Researcher, you have been outed as a Jew. Your goal on this board is to basically subvert any organizing and criticism of a Jewish led government. Your pointing at "White guys" as the problem on ZeroHedge shows your outright hostility towards White people, who Jews have typically viewed as a threat. 

Furthermore, even if a lot of posters on here may be misguided about the past, that does not mean that there is not a financial system that is greedy and fucked. Just because people choose to play in that system while at the same time disliking the system also does not discount that the system has objective problems. You, like all Jews, love to cloud the issues on the table. You are constantly screeching and hollering in multiple threads that Tyler has to censor the boards here. Guess what, its his website. Keep your Jew moaning to yourself.

Wed, 07/06/2011 - 11:31 | 1429796 Maniac Researcher
Maniac Researcher's picture

Thank you, pesamystik, for demonstrating exactly the point I was trying to make. Any reader not in denial about the nature of ZH should pay attention to the number of junks this comment has vs. mine and others assenting. For the new and uninitiated, if a comment receives enough junks, it is removed. I'd call that a "community action." Because such action exists here, it is reasonable enough to make observations based on the community's comments and activities.

Again, to be clear - the point I am making is simple: If this community tolerates open and extreme bigotry, then the information presented here is suspect.

 

Wed, 07/06/2011 - 05:52 | 1428907 Agent 440
Agent 440's picture

 

Wow. He's met Matt Taibbi. golf clap.

Wed, 07/06/2011 - 12:18 | 1430009 Maniac Researcher
Maniac Researcher's picture

...and you avoid addressing Taibbi's comment about your community, for good reason -- because you look foolish and hypocritical. I look forward to the next time Tyler reposts another one of his articles.

Wed, 07/06/2011 - 06:09 | 1428910 DrunkenMonkey
DrunkenMonkey's picture

Guilty, as charged. The thing that really scared me about ZH though, was the amount of traction that Glenn Beck seems to have amongst some of the posters.And yet information may be interpreted in a number of ways depending on the reader's viewpoints and the information itself should not be blamed for the reader's perception.

Wed, 07/06/2011 - 06:04 | 1428913 ISEEIT
ISEEIT's picture

Hello Maniac,

Thanks for your input. I forgo sleep in order to instead study politics, culture, zeitgeist basically. I recognized long ago that if one can even hope to get a handle on what is 'really going on', it is required that you challenge your own confirmation bias. With that point in mind I suggest that you head on over to such kind, loving, and thoughtful sites as firedoglake, TPM, media matters................Blah, blah, blah. Perhaps you would feel more at home among the kind, thoughtful, non judgemental enlightened types who gather at those and other places of the modern left intelligentsia?

Why does ZH get under your skin?

My guess is that deep down the left is terrified of being exposed for the shallow bunch of whiners/crooks/crack dealing (metaphorically) pimps that they really are.

But then thats just IMHO.

Wed, 07/06/2011 - 06:59 | 1428940 Ricky Bobby
Ricky Bobby's picture

+1

Wed, 07/06/2011 - 07:36 | 1428984 konputa
konputa's picture

That's it, blame the left because everyone on the right are a clean nosed bunch of whiners/crooks/crack dealing (metaphorically) pimps, right?

 

How I loathe the team sports mentality. Redirect that nonsense somewhere else - like to the ones that are stealing our grandchildren's future. We aren't where we are thanks to the left or the right but rather because of the criminals that have been elected to "serve".

 

Has anyone else noticed the increasing usage of the term "leaders" in place of "representatives"? I half expect to start hearing kommissar and chairman being used in the media in the near future.

Wed, 07/06/2011 - 11:21 | 1429757 Maniac Researcher
Maniac Researcher's picture

Now let's deconstruct ISEEIT's comment:

"challenging confirmation bias" = "I'm still in denial about the basic premise of the argument being presented ie. ZH is fully tolerant of bigotry and totally intolerant of attempts to confront it - thus, its merit as a source of credible information is fundamentally flawed."

"wouldn't you be more at home..[elsewhere]" = "go away..I know you are making a valid point, but I don't have anything to counter it with - so I wish you'd just stop talking."

"why does ZH get under your skin?" = "I'm going to project weakness on you to make myself feel better, because a point has been made that I cannot argue effectively against."

"my guess is the left is more terrified..." = "I'm going to create a strawman group and make you a member of it so that I can tear it down because I don't have anything left to say.."

Thu, 07/07/2011 - 17:02 | 1434103 smiler03
smiler03's picture

It's a free world. (no you'll destroy that statement)

You can say what you like. (no you'll destroy that statement)

Aren't you just arguing for the sake of an argument? ( ditto)

I'm an atheist, in my tiny little mind I disagree with every religious person alive. I don't however make a practise of going onto God Squad websites and tell them they're all hypocrites, which I think they are, I ignore them. If I did tell 'em what I think they would call me a troll. So please pardon my tiny little zero assets benefits person for stating it how I see it.... You're a a troll (lower case t).

Sat, 07/09/2011 - 15:09 | 1440010 Maniac Researcher
Maniac Researcher's picture

Aww. Are you turning yourself into a strawman? Stay away from the fire or you'll get burned, scarecrow.

Wed, 07/06/2011 - 10:44 | 1429614 Commander Cody
Commander Cody's picture

Did you not notice this is essentially a financial blog?

Wed, 07/06/2011 - 07:39 | 1428990 CoolClo
CoolClo's picture

Remember these "dividends" are free from Federal, State and Local income taxes.

Tue, 07/05/2011 - 22:04 | 1428422 Shineola
Shineola's picture

And then there is the expectation that bond issuers never default.  I recently read that Greek Gvt bonds were paying around 17%.   I think those buyers understand the default risk.   US Gvt bonds, on the other hand, are priced as if there is no risk of default.  When buyers, regardless of education, or experience, cannot recognize risk, prices reflect their assumptions.

 

A good education is always expensive.

Tue, 07/05/2011 - 22:05 | 1428428 Seize Mars
Seize Mars's picture

I think the trick here is to understand the P&L curve of any arbitrary trading scheme. Instead of seeing "bonds, stock, gold, et cetera," call them "trading model 1, model 2, et cetera."

Then, when you are trying to attribute each model's P&L, try to find the hidden - and unaccounted for - variable or regime. In other words, you may discover that volatilities have been on a multi-year slide and that accounted for the return of model X.

Clearly, the bond trade here has had a hidden regime: a decades-long pressure on interest rates. If rates weren't centrally planned by sociopaths, the risk-adjusted returns of some other model might prove to be much better.

So the punchline is, what happens when the regime shifts?

 

Tue, 07/05/2011 - 22:29 | 1428494 jm
jm's picture

I think the regime shifts of these long cycle views are contingent on more than Bernanke and co. Like population growth, external debt %, blah, blah that may not turn on a dime.  More like the titanic.

I don't know.  I'm asking too.

Tue, 07/05/2011 - 22:08 | 1428437 JW n FL
JW n FL's picture

those returns were not for equal amounts of money.

 

bonds 50%

s & p 25%

bar cap 20%

gold 5%

 

or some thing like above.. those returns are bias.

 

Tue, 07/05/2011 - 22:09 | 1428439 GtownSLV
GtownSLV's picture

Best answer, that chart is crap. You can compound the interest using the chart below for the long treasury and see it only comes out to about 600, not 1554. Plus gold was $400 an ounce in 1982 and now its 1500, or more like 375 not 269.

Tue, 07/05/2011 - 22:24 | 1428479 jm
jm's picture

The chart is normalized so that all assets start at the same point.  Like an index.

Wed, 07/06/2011 - 01:28 | 1428780 malek
malek's picture

Yes, I believe so too.

However might the result coincide with the chosen starting point being at or near the best time for buying long treasuries?
Let's see normalized charts for comparison, starting in 1970, 1960, and so on.

Tue, 07/05/2011 - 22:25 | 1428481 disabledvet
disabledvet's picture

exactly.  what we need to look at when discussing "total return" is "what did the currency do in that time frame" as well.  we truly went off the gold standard in the 20's and "it was off to the races in equities" and "straight into the Great Depression" once that party ended.  Of course in our "oh so civilized age" we have "learned from this" and "proceed right to mass murdering the innocent." That in and of itself should be worth a new record in the Dow.  And if we truly understood who the serial killers were in actuality the Dow should be at 40,000.  (It's not the government in case your wondering.)  But such is not the case and even by our lowest of the low standards of our age we must STILL resort to a:  stock picking and b:  industry analysis.  In short "bad is still bad" (as in incompetent.)  And so "of course the long bond hangs in there."  It's the last refuge of the incompetent, aka "the bailout tycoons."  The irony of our age may very well be "the government itself has no use for those people."  No one less than The Bernank himself has acted as such, yes, yes?  I'm not arguing with gold or silver as an asset class to be bought by any stretch--but Cramer's numbers and the numbers i see personally speak for themselves.

Tue, 07/05/2011 - 22:13 | 1428453 LowProfile
LowProfile's picture

"inflation risk is overpriced…"

...Buy gas or food lately?

Tue, 07/05/2011 - 22:15 | 1428458 throughthewire
throughthewire's picture

Or, could it simply be that worldwide there is so much dollar denominated debt that there is no way possible to pay it all off, no matter how long the printing press runs, ultimately causing a severe shortage of dollars. This is what is keeping the treasuries in demand. Suggest you buy now before the rush.

Tue, 07/05/2011 - 22:30 | 1428495 Bobbyrib
Bobbyrib's picture

I suggest you buy crack before the junkies smoke it all on you.

Tue, 07/05/2011 - 22:19 | 1428465 Shineola
Shineola's picture

We've also got the Bernank playing the game with the equivalent of Monopoly money. 

These are incredible times!  We really are like frogs in boiling water.   Even the dapper Dr. Bernanke, scholar of the Great Depression can't see the problem.   He reasons in terms of more currency vs. less currency to try and arrive at a proper course of action.   Since August 15, 1971 the reasoning has been based upon the totally intangible concept of fiat. 

Dr. Bernanke.....Ben....for the love of god.... Listen to me, man!   You cannot make chicken salad out of chicken $#!t!!

 

Tue, 07/05/2011 - 22:23 | 1428473 Buckaroo Banzai
Buckaroo Banzai's picture

This shit only works as long as interest rates keep heading down. The correct question to ask is not, why are t-bonds such a good investment; but rather, how much longer can they compress interest rates?

Tue, 07/05/2011 - 22:26 | 1428482 jm
jm's picture

This is so right.  I wonder if this question is related to not only policy, but also demographic trends that influence say, demand for capital.

Tue, 07/05/2011 - 22:31 | 1428497 Bobbyrib
Bobbyrib's picture

Do you think once interest rates rise, the price of long term bonds will drop? /sarcasm

Tue, 07/05/2011 - 22:28 | 1428489 Superslam
Superslam's picture

Personally, I've always had a problem with investments that have a negative real rate of return. Then again, I'm not an economist.

Tue, 07/05/2011 - 22:38 | 1428515 idoubtit
idoubtit's picture

Simple.  In a credit based fiat system, the only way the system continues is if borrowing costs are progressively lower in order to support and pay off the existing debt.  It's laughable when people talk about rising interest rates.  It's structural.  Look at the debt chart.  There have been blips where interest rates have risen substancially (Volker), but withe outstanding debt on the world there is ZERO chance of any sustained interest rate increase.

Tue, 07/05/2011 - 22:44 | 1428519 Shineola
Shineola's picture

There may indeed be a dollar shortage some day.  If the dollar ever gets backed by anything tangible.  (It's pretty hard to go on a gold standard if the nation has lost it's gold reserves.)  And what's to keep congress from raising the debt ceiling ad infinitum?   A few years ago any of us would have probably thought the current levels of debt totally un-imaginable! 

At any rate, there are many unused debt numbers past our current $14 Trillion in debt.

Somewhere before google-illion, we will surely arrive at the SHTF-illion.  And that's where the dollar dies.  Any amount of them, will pay-off any amount of debt denominated in them.   History is filled with examples.

People just have to understand the very simple concept of the "ass whuppin'".  If one has never experienced a real, down home, have mercy on me Jesus, ASS WHUPPIN, there is really no intellectual frame of reference to serve as a guide.

You know, just WFIW. 

Billion has 9 zeros
Trillion has 12 zeros
Quadrillion has 15 zeros
Quintillion has 18 zeros
Sextillion has 21 zeros
Septillion has 24 zeros
Octillion has 27 zeros
Nonillion has 30 zeros
Decillion has 33 zeros
Undecillion has 36 zeros
Duodecillion has 39 zeros
Tredecillion has 42 zeros
Quattuordecillion has 45 zeros
Quindecillion has 48 zeros
Sexdecillion has 51 zeros
Septendecillion has 54 zeros
Octodecillion has 57 zeros
Novemdecillion has 60 zeros
Vigintillion has 63 zeros
Googol has 100 zeros.
Centillion has 303 zeros (except in Britain, where it has 600 zeros)
Googolplex has a googol of zeros

Tue, 07/05/2011 - 23:00 | 1428554 Pez
Pez's picture

Derivatives have no value.

Wed, 07/06/2011 - 08:01 | 1429047 snowball777
snowball777's picture

Tell it to AIG.

Tue, 07/05/2011 - 22:50 | 1428520 WiseBoy
WiseBoy's picture

Easy answer: 28 years (1983-2011) is not a complete 37/74 generational/seculum/Kondradieff cycle. Long bonds will get killed in the next 5-9 years just like it was from 1973-1981, when inflation went from 3% to 15%, and interest rate from 6% to 20%.

Even in this chart, the different "time in the sun" for the different classes of assets is quite clear: SPOO out performed long bond in the mid-80's and late 90's, while gold under-performed them both for nearly two decades; then gold out performed them both in the past decade.

BTW, people were talking about long bonds being the best investment back in the late 60's and early 70's too . . . just before the asset class was massacred . . . just like the giddiness with Nasdaq in 1999 and real estate in 2005-7.

Tue, 07/05/2011 - 22:51 | 1428531 agrotera
agrotera's picture

Municipal and treasury long bonds are the work horse cash cow of any portfolio--they will get slaughtered of course, with 1980 style interest rate spikes, but in the meantime, like a TIMEX keeps on ticking, the long bond keeps on pumping out the cash .

Tue, 07/05/2011 - 22:56 | 1428547 shinyindallas
shinyindallas's picture

Some people have limited 401(k) options. Long bond, sp500, money market, small cap fund. Some times the long bond looks good. It depends on what you have acess to. If your employer is matching funds, how bad is the long bond?

Tue, 07/05/2011 - 23:39 | 1428614 agrotera
agrotera's picture

 http://finance.yahoo.com/    : use this site to look at what happened to asset prices from July 19, 2007- March 6, 2009, then look at long bond prices at different periods of stock market advances and decide how much you are willing to risk and carefully consider any part of anything you put into your portfolio!!!

Consider the following:

All historic business cycles of change are reflected in the returns of the asset classes that comprise the market indices used to create commonly used asset allocation models.  Is it wise to devise your investment strategy with the expectation that the results from the past will be anything like the results you may see with the same allocation? 

Financial service literature always ends with the warning “PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS” but has this warning stopped anyone from using asset allocation models?  Do financial service disclaimers really help us think about what we are doing when we choose to allocate our portfolios by “the model”?  When we are told we are an “aggressive” or “conservative” investor (or our risk tolerance is somewhere in between ) is it wise to close our eyes and jump right into whatever the computer model “says” we “should” do?

 

Let’s consider a few sample models: 

1)    An aggressive model: 100% equities (  for example, an investor with a high tolerance for risk, and a long time horizon ) 

 

2)    A moderate model: 60% equities / 40% bonds (  investor with moderate capacity for risk, and a long time horizon )

 

3)    Conservative model: 25% equities/ 75% bonds( investor with low capacity for risk and/or possibly a shorter time horizon )

 

For simplicity sake, let’s take a look at the results of each of these models for a person who had invested using these given guidelines starting  December 31, 1999 through the end of 2009: (bond portfolios will reflect ½ t-bills and ½ t-bonds)

 

1)    “Aggressive” model : total return=11.51% or average annual=1.15%

2)    “Moderate” model: total return =25.64%  or average annual=2.6% 

3)    “Conservative” model:  total return=38.00% or averaged annual return= 3.8%.

 

Now, let’s look at the difference in numbers for the decade of the 90’s with an initial investment starting in December 31, 1989 through the end of 1999:

1)    Aggressive model: total return= 188.07% or average annual= 18.07% 

2)    Moderate model: total return =138.17% or average annual= 13.82%

3)    Conservative model: total return= 94.52% or average annual= 9.45%

  

We could run numbers like this endlessly, but the reality is that within each period of time in history, there are reasons why some asset classes will perform better than others.

 

Preserving wealth in a zero interest rate environment can be difficult when lured by the hopes for stock returns that have been seen over the last 100 years. But, as John Maynard Keynes said, “In the long run, we are all dead.” None of us live in a long term time horizon, we live now, and what we do now will have an effect on the results we see when that long run turns into today.

 

Wed, 07/06/2011 - 01:41 | 1428795 Yen Cross
Yen Cross's picture

  Thank you. Well done.  A true analyst you are. 

Wed, 07/06/2011 - 02:02 | 1428805 agrotera
agrotera's picture

Thank you Yen Cross!

Sun, 07/10/2011 - 00:58 | 1440954 janus
janus's picture

Delta Dawn, what's that flower you have on?

or, as they say on Birmingham's West Side

what it is, sweet thang?

Wed, 07/06/2011 - 08:04 | 1429053 snowball777
snowball777's picture

To sum up: bond investors miss equity bubbles.

Tue, 07/05/2011 - 22:51 | 1428533 Raymond_K_Hessel
Raymond_K_Hessel's picture

Why did the author pick this time period? We have data for all of these asset classes going back much longer. My guess is the author found what they were looking for, rather than something of use. Let's start the chart in 1960 and end it in 1982. I'd say this post is misleading at best. Be ware of charts that have oddly specific start dates.

Tue, 07/05/2011 - 23:42 | 1428650 bigwavedave
bigwavedave's picture

its called 'curve fitting'. they all do it.

Wed, 07/06/2011 - 06:11 | 1428918 jm
jm's picture

It's not cherry picking it's just an interesting chart.

There is nothing misleading about the post at all.  It asks a question.

 

Tue, 07/05/2011 - 23:15 | 1428596 Caviar Emptor
Caviar Emptor's picture

There's the risk of a higher interest rate, low liquidity environment ahead. That's Biflation's handiwork. 

Tue, 07/05/2011 - 23:26 | 1428618 chunkylover42
chunkylover42's picture

it's math.  The long bond outperformed because of the secular decline in interest rates following the onset of disinflation in the early 80's.  The duration of long treasuries is greater than that of the other asset classes except stocks.  However, equities are too diverisified to outperform, as a factor like slowing inflation is great for discretionary stocks but murder on energy companies, for example.

Tue, 07/05/2011 - 23:45 | 1428654 Quixote2
Quixote2's picture

Cherry picking,  the long bond (30 year) portfolio was purchased in 1983 at 13-15% interest.  No one said the portfolio was churned.

Tue, 07/05/2011 - 23:45 | 1428655 XRAYD
XRAYD's picture

Wed, 07/06/2011 - 00:07 | 1428684 Rama V
Rama V's picture

I have an email address dedicated to zerohedge.  Hence, any spam that I receive at this address is sponsered by zerohedge.  I have blocked the offending domain, but the jutiagroup (newsletter.jutiagroup.com) keeps sending penetrating mail.  They are persistent, even if unread.  Anybody else getting spammed from zerohedge?

Wed, 07/06/2011 - 00:09 | 1428687 Real Estate Geek
Real Estate Geek's picture

OT alert.

AEP is back.

Wed, 07/06/2011 - 01:31 | 1428785 malek
malek's picture

Hooray! Thanks for noting.

Wed, 07/06/2011 - 01:50 | 1428800 SilverIsKing
SilverIsKing's picture

Sorry for going way OT here but this is ridiculous.

http://news.yahoo.com/california-lawmakers-pass-bill-teach-gay-history-0...

I've got nothing against gays but this is a clear sign that we should settle our entire debt with China by just giving them the state of California.

Wed, 07/06/2011 - 03:11 | 1428841 Ponzi Unit
Ponzi Unit's picture

Wise boy is wise

Wed, 07/06/2011 - 03:11 | 1428842 Ponzi Unit
Ponzi Unit's picture

Wise boy is wise

Wed, 07/06/2011 - 03:15 | 1428843 Ponzi Unit
Ponzi Unit's picture

Sorry, that's an iPad mistake --- this refers to the kondratieff reference, the idea that vehicles come and go in long cycles. Minsky was all over this, too.

Wed, 07/06/2011 - 03:38 | 1428857 John Wilmot
John Wilmot's picture

Regarding the holocaust discussion above, I think it's a shame that the primary lesson that most people seem to have gleaned from that tragedy concerns racism; the problem was not racism (there was always, is, will always be racism), the problem was a totalitarian state. As we saw in the following decades in Russia, such a state will find reasons to murder tens of millions that have nothing to do with race.

Wed, 07/06/2011 - 03:41 | 1428859 BorisSDT
BorisSDT's picture

What goes up must come down.  They can only rise just a tiny bit more.  Now seems like a good time short and hang on for the bumpy ride.  I think we all know those things are headed for zero t-minus 5-10 years.  During that time period there should be a drop in price very similar to a mirror opposite of the rise if not much more violent.

Wed, 07/06/2011 - 04:42 | 1428876 pesamystik
pesamystik's picture

Edit

Wed, 07/06/2011 - 06:09 | 1428916 jm
jm's picture

I asked a question as to why risk-taking wasn't rewarded over time.

Term risk was rewarded more than any other factor, and you aren't selling the other risk factors at all to any meaningful extent.  In the aggregate bond portfolio, you are selling currency risk, term risk and credit risk, and to some extent interest rate risk.  In stocks you are selling all risk factors, some with a non-linear payout.

Don't get me wrong, there were some good comments.

I don't doubt the sincerity of people at all.  But kindly leave the superfluous, nonfinancial, and downright offensive stuff on some other post.  

 

Wed, 07/06/2011 - 07:22 | 1428963 Sathington Willougby
Sathington Willougby's picture

You're on the wrong side with your gun to the head solutions, and we're going to take you down.

 

http://www.youtube.com/watch?v=dYZtAVMR-B4

 

You stealing banker fucklives.

Wed, 07/06/2011 - 08:22 | 1429101 EB
EB's picture

  • Guaranteed demand by virtue of the trade deficit and use of USD as the global reserve currency, particularly with respect to crude pricing.  The more the US has imported, the more those exported dollars have been recycled into Treasurys.  Of course, that will come to an end soon.

Wed, 07/06/2011 - 10:29 | 1429532 Manzilla
Manzilla's picture

 

To be fair, most of the ZH commenters imagine themselves in various other time periods other than their own...constantly pining for some unrealized "golden age" - suspiciously avoiding such pesky historical realities such as civil rights struggles, slavery, pervasive poverty, imperialism, red baiting, and pastoral economies that are nothing like modern ones, etc etc etc.

 

Hmmmm, I doubt that. I don't waste my doing that. I focus on what's going on at the moment. A great quote from the Buddha sums up my current state of mind: "Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment."

Why the pining for other periods? Because the whiny white guy armchair enthusiasts would rather pretend or hope for an apocalypse or time travel rather than take responsibility for the period they are in. It takes actual effort to pick up a shovel, build a house, learn how to grow food, educate the young, and take care of the helpless. Contrary to popular belief, not everyone has bootstraps - and certainly no one starts out self sufficient. In fact, self-sufficiency itself in our current era is a hotly contested subject and by no means a foregone reality. No amount of reading and reblogging of the Austrian school of economics is going to change that. But of course, they can try. Hence, the continued usage of outmoded terminology.

Wrong again. I do not hope for nor pretend there will be an apocalypse. Never have never will. But I'm not ignorant enough to believe that this current system will remain in place. It may not be next week or even for 200yrs plus but it will inevitably occur. I understand it takes effort to be self-sustainable and I do not believe myself to be one that could easily survive if said apocalypse occured. That said I have gold, silver, farm land, water and a hell of a lot of guns and ammo so at least I'd have a fighting chance. Again, I do not believe the system will collapse next week or even possibly in my lifetime but it nevers hurts to have the things I've listed. Lastly I myself am not of the Austrian School. I do not belong to any school.

 

No - instead they'd rather talk shop about a parasitic financial system. They complain endlessly about it - but then still contribute to it by engaging in the meaningless trade of security instruments* they know are designed to reward wealth rather than labor. It's pure hypocrisy. Add a sprinkle of bigotry, a generous helping of misogyny, and a pinch of anti-semitism and you have ZH.

Are you doubting the claim that the system isn't parasitic? I don't really complain about it that much. There's no point. The system will tumble but trying to figure out when is kinda like searching for a date to the end of the world. Waste of time. Yes I contribute to it. That's may job, my passion and I love the challenge. I don't think this system is necessarily set up to reward wealth rather than labor. The markets don't give a s&^t if you are rich or poor, an aristocrat or a laborer. If you are a fool it will take you regardless of how rich or how poor you may be. Even the one's that are masters of the universe at a given time eventually come crashing down. Why? Because of hubris more or less, the only other things it could be is fear and greed. But pride usually comes before the fall. You may look down on people that participate in the markets but hey I like what I do and it fascinates me. I'm not in it to make money. For me it's about sustainability. How long can I do what I enjoy? Well the only way that is possible is if I accumulate capital. The only way to do that is participate. So shoot me if I do what I love and the only way to do that is participate in this game. Well I got news for you. We all are part of this game! Unfortunately the markets make the world go round, regardless of whether it's a giant ponzi or not.

Tyler, when I explained ZH to Matt Taibbi, you know what he said? "Ah well, the wannabes need their sandbox, too.

 

Awesome. You can talk to Matt Taibbi. I'm jealous. Seriously who cares what Matt says. If it's for wannabes why the hell isn't he here? But if my litterbox was Rolling Stone I guess I wouldn't associate myself with the little people at ZH either.

Some people look at those with privilege who take advantage of others and react with horror and disgust. Others say, "how can I get in on that?" Ask yourselves: which group are you in?

I'm in neither group. Never once have I said "hey, how can I get me some of that". I play this game because I enjoy it, it challenges me and if I get lucky I can do it for a long time. And hell if I make a pile of money I plan to give most of it away. Why? Well it sure as hell isn't because I want to take advantage of others. People like that disgust me as well. Matter of fact I'd be all for publicly hanging people that are found guilty of maliciously taking advantage of others.(Unfortunately most of the times governments refuse to even go after these crooks) The reason I one day would like to give a crap load of money away is because I know this system screws a lot of people and if I can make it through I have to give back. Shit you can't take it with you when you die and you sure as hell don't need to blow it when you are alive. Doesn't leave much else besides giving it away. And if you can do it in a way that helps people, why not? This world would be a better place if more people did this. That's just the way I was raised, others may feel differently. Christ the markets may eventually take me as well but that doesn't mean I'm not gonna try.

[*What, you think hoarding PMs doesn't count? Ask a homeless person how much they care about your semi-affluent investment strategy]

Ummm you can't really call what I own "hoarding". Considering the size of the market what I have doesn't amount to crap. And why would I talk to a homeless person about the PMs I own. That just seems like a cruel thing to do. Should I burn money in front of him as well? Better then me discussing it with him why don't you go discuss your contempt for ZH readers. I'm sure he would enjoy that a lot more.

 

Ahhhh ignorance is bliss, ain't it?

Thu, 07/07/2011 - 21:37 | 1434738 mrsmugee
mrsmugee's picture

Maniac Researcher,

I don't get why you dislike it here or why you must prove a point but I hope you can find your peace. I'm a single mother with the no clue about almost everything ZH post. I don't trade and I am not wealthy. I give to the less fortunate when I can and I put God and family first. This website is just something to read for me. I pray that you may find your true happiness because it's the best thing this world has to offer.

God bless.

Do NOT follow this link or you will be banned from the site!