How Dumb are T-Bond Investors?

[IluvVol]

Quote from aeliodon:

The bottom line is that you are a complete idiot for 'investing' in an asset with a negative net yield. You're better off spending that money or trading it with leverage to earn a much higher return (assuming you know how to trade).

Its no surprise hedge funds, the derivatives, LBOs, etc. have been so hot recently - this is the smart money trying desperately to avoid the negative returns that the benchmark T-Bonds offer by taking on more risk.

You forget the price appreciation when yields drop to the bottom of the barrel (and when trading them before maturity).

On the other side they are safe instruments when holding to maturity (some assumptions hold of course).

Bottom line is, bonds make good sense in a diversified portfolio of, for example, weathly people. There is no negative yield, your computation is simply incorrect (look only at your double counting and also a US person is not exposed to currency fructuations when investing in US bonds (at least not directly). And foreign investors often hedge the currency risk or hold a view on its direction.

A lot of other flaws in your way of arguing as well....)

 

[IluvVol]

Quote from The Kin2:

Good article. The stupid T-Bond investors are allowing America to live beyond its means at their expense. Might as well continue until foregin central banks get the message.

What a bullshit. So bond investors are responsible for the mess in the US? I can only laugh. US Bond investors are probably the last conservative animals out there. Let me give you some reasons for the problems the US is exhibiting right now:

1) Americans are living beyond their means. They buy stuff they cannot afford with their salaries. THis includes houses, cars, and many other items
2) Americans are in debt. Pretty much every other American has credit card debt, loans, mortgages. This relates to 1 but also can stand on its own
3) Foreigners finance this debt by holding US debt. This is now changing with China and other banks switching into other assets and this causes a lot of headache to the Fed and US government to think how to work with this issue going into the future. BUT, debt holders are not responsible for this fuckup its the person who takes on debt not the person who finances the debt holder.

So, tell me again, how do bond investors end up being the victims? Bill Gross of Pimco is one of the top US bond investors and let me tell you something, he made more for his investors than you can ever dream of. Maybe you should think your non-sense over once more.

 

[IluvVol]

Quote from aeliodon:

So basically the SMART MONEY doesn't lend at 4-5% - they BORROW at 4-5%. Then the LEVERAGE it on assets that are growing faster that 4-5%.

US T-Bond investors are probably the DUMBEST MONEY out there. I exclude the Arabs, Chinese, and Japanese from this statement because they are getting fat trade surpluses in exchange for investing in T-Bonds.

the IQ of your posts is dropping more by each new one. Unbelievable.

Why do you exclude foreign bond holders from holding dumb money (which you claimed not me)? They generated surplus and then use it to invest in US bonds right?So why would the way they fund make a difference? I dont get your logic. And by the way, the reason why they invested in US bonds, at least one reason, is because US bonds provide a POSITIVE RETURN NOT A NEGATIVE. The op's math and double counting is hilarious but astill WRONG.

 

[thisisbabak]

Quote from aeliodon:

US T-Bond investors are probably the DUMBEST MONEY out there. I exclude the Arabs, Chinese, and Japanese from this statement because they are getting fat trade surpluses in exchange for investing in T-Bonds.

I hope you're joking. Excluding foreign central banks and US state/local governments the largest holders of US debt include dealer brokers, pension funds, banks, and insurance companies. Many would disagree that they are "dumb money".

With that being said, I would agree that an investor in his 30s holding 100% of his wealth in Treasuries is an idiot - but to conclude that "US T-Bond investors are probably the DUMBEST MONEY out there" is simply ignorant.

 

[blackjack007]

Quote from crgarcia:

Actually 4.40%
http://finance.yahoo.com/q?s=^TNX

a t-bond is a 30-year treasury, so the return is even higher. ten-years are called t-notes.

Nobody pays taxes on interests earned on Treasury Bonds, nobody; much less foreign investors.

say what??
treasuries are subject to federal taxes. fire your tax accountant before you get sent to the slammer.