Don't even bother. That was not the point of this thread. I'm asking 'is the return in gov bonds, negative?'. You said you don't disagree but decided to nitpick something else instead of coming out and saying that was likely to be correct (which is typical). If anyone else got any facts relating to that, I would love to see it
Is the long-term return in government bonds, negative or close to 0%?
- Thread starter Daal
- Start date
Very well...
I urge you to consider that, apart from the claim you made in the title of the thread, you also have said a variety of other things. I felt compelled to respond to some of those statements. I am sorry that this resulted in the discussion developing in a way that you disliked.
If you care, my response to the question in the title is "sometimes it is, sometimes it isn't". Generalizations, such as the one you're after, are inappropriate, as demonstrated by your own recent comments.
On that note, as always, I wish you the best of luck.
For the record, here is why I believe stocks and real estate are more resilient than bonds:
If you consider that the risk premium of an asset is a form a compensation against bad events (as it enables one to accumulate profits over the good years as a buffer against future losses) and that the main problems around the world tend to be of inflation (and not deflation). Its pretty clear that stocks and real estate are more resilient than bonds given that:
-Gov bonds offer the lowest risk premium (in fact, people are taught to think of them as 'risk free')
-Gov bonds are extremely vulnerable to inflation (historically a bigger problem than deflation)
-Stocks and real estate have an 'inflation hedge' component in them that 'bails out' investors, especially if you look at their real returns for a number of years AFTER the inflation burst (as it happened in Germany in the 20s and many other countries)
These factors require long-term data to be measured (otherwise one will miss the 'insurance buffer' accumulated OVER LONG PERIODS as excess returns in stocks and real estate and overplay the 'stability' that gov bonds offer, an stability that is pure illusion. That stability is connected to the fact that the investor is selling a put against a big inflation problem, but there will be no 'bail out' like happens in stocks and real estate. The loss will take perhaps even a century to make it back. This put needs time to blow up and that requires long-term data).
And the long-term data does support that bonds are more vulnerable than stocks and real estate. Its very hard to have stocks produce a negative return over a long period, with bonds, its not hard AT ALL.
(Clarifying note: the positive return in the bonds is not high single digits as it looks but rather, its the size of the blue bar compared to the 'Percent' size, its a bit confusing. The bond returns of the best markets are around 3% or less)
That is, the size of the gov bond risk premium is too small relative to the risks of the world (this leaves the asset class fragile and vulnerable relative to other asset classes). Stocks had plenty of surprises in that period (and a lot of stock markets IMPLODED during WW2, yet they came back), returns stayed positive for equities
All it took was one event (WW2) and several countries bond markets had returns that weren't reversed after 60-70 years. Bond investors didn't expect that and got clobbered, stock investors didn't expect EITHER but they were 'bailed' out by the resilience of the asset class (plus the all the accumulated 'insurance buffer')
When an asset considered low risk has lots of huge losses in the historical record (across many countries, losses that need a century to recover from) that is a sign of fragility. When an risky asset has those losses (and they reverse), its another day in the office. Resiliency is about going down and getting back up, stocks do that pretty well, bonds are AWFUL at that
So yes, stocks and real estate are more resilient than bonds, one has to be blind not to see it
If you consider that the risk premium of an asset is a form a compensation against bad events (as it enables one to accumulate profits over the good years as a buffer against future losses) and that the main problems around the world tend to be of inflation (and not deflation). Its pretty clear that stocks and real estate are more resilient than bonds given that:
-Gov bonds offer the lowest risk premium (in fact, people are taught to think of them as 'risk free')
-Gov bonds are extremely vulnerable to inflation (historically a bigger problem than deflation)
-Stocks and real estate have an 'inflation hedge' component in them that 'bails out' investors, especially if you look at their real returns for a number of years AFTER the inflation burst (as it happened in Germany in the 20s and many other countries)
These factors require long-term data to be measured (otherwise one will miss the 'insurance buffer' accumulated OVER LONG PERIODS as excess returns in stocks and real estate and overplay the 'stability' that gov bonds offer, an stability that is pure illusion. That stability is connected to the fact that the investor is selling a put against a big inflation problem, but there will be no 'bail out' like happens in stocks and real estate. The loss will take perhaps even a century to make it back. This put needs time to blow up and that requires long-term data).
And the long-term data does support that bonds are more vulnerable than stocks and real estate. Its very hard to have stocks produce a negative return over a long period, with bonds, its not hard AT ALL.
(Clarifying note: the positive return in the bonds is not high single digits as it looks but rather, its the size of the blue bar compared to the 'Percent' size, its a bit confusing. The bond returns of the best markets are around 3% or less)
That is, the size of the gov bond risk premium is too small relative to the risks of the world (this leaves the asset class fragile and vulnerable relative to other asset classes). Stocks had plenty of surprises in that period (and a lot of stock markets IMPLODED during WW2, yet they came back), returns stayed positive for equities
All it took was one event (WW2) and several countries bond markets had returns that weren't reversed after 60-70 years. Bond investors didn't expect that and got clobbered, stock investors didn't expect EITHER but they were 'bailed' out by the resilience of the asset class (plus the all the accumulated 'insurance buffer')
When an asset considered low risk has lots of huge losses in the historical record (across many countries, losses that need a century to recover from) that is a sign of fragility. When an risky asset has those losses (and they reverse), its another day in the office. Resiliency is about going down and getting back up, stocks do that pretty well, bonds are AWFUL at that
So yes, stocks and real estate are more resilient than bonds, one has to be blind not to see it
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- Not true. Why do you think the yield curve is upward sloping? That's your risk premium. If you want riskless, you better keep your money in cash consistent with your pricing basis.
True to both. If you are a typical conspiracy theorist, you could/should say the same about inflation-adjusted bonds. However, holding stocks and real estate only means that deflation would really hurt and in a developed economy deflationary risks are very real (Japan, Germany). Aging population produces "demand-side" deflation, while technology and productivity gains produce "supply-side" deflation.
Yes being all-in stocks and real estate has its problems. I was simply pointing out in most instances (at least on planet Earth), its more resilient than bonds given governments preference for inflating. I'm all for a balanced portfolio, but the more bond data I look at, the more I see that it's a giant 'turkey' problem where the 'stability' is a mere illusion. So I own bonds, but I have a stop/exit, if shit hits the fan, I'm out
Does not mean that preference actually works out. Japan has been trying to jump-start inflation for years without much luck.
Am I allowed to say something here? Or should I remain quiet?
Stay! Sit! Play Dead!
