Do not buy bonds.
Posted by John Reed on
I have zero use for ANY bonds and regard them as grounds to have a conservator appointed by a court to prevent you from pissing any more of your life savings away.
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Bill Gross the Bond King was asked for a succinct comment on bonds recently. “Beware of inflation,” he said.
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Ya think? The real yield from a bond is nominal interest rate minus taxes due on the interest minus the inflation rate. That will often be NEGATIVE, almost guaranteed to be negative if inflation rises after you buy the bond.
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I just read the footnote on page 213 of the book The Missing Billionaires. “...corporate bonds simply do not warrant an allocation in the portfolio of individual taxable investors.” the late highly respected David Swensen, head of the endowment at Yale.
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Here is a plain English translation of that. “If you are an individual and you have to pay taxes on bond interest and on capital gains in bonds, never buy a corporate bond.”
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The Missing Billionaire authors says it’s okay to buy TIPS. They’re nuts. They have not read the fine print and believe in some fantasy world where the US Federal Reserve can destroy the purchasing power of all the USD on earth: trillions then somewhere get replacement trillions to compensate people for that lost purchasing power.
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US Treasurys are described as safe, that is, they cannot default. Oh, yes they can. There are three main bond raters: Fitch, S&P, and Moodys. The latter two downgraded the US Treasury credit rating—an unprecedented thing. And they should have rated them even lower. They are afraid of being punished by the US government if they are honest about the probability of default.
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When market interest rates rise, the value of existing bonds falls. Simple and financially deadly.
.
Bill Gross the Bond King was asked for a succinct comment on bonds recently. “Beware of inflation,” he said.
.
Ya think? The real yield from a bond is nominal interest rate minus taxes due on the interest minus the inflation rate. That will often be NEGATIVE, almost guaranteed to be negative if inflation rises after you buy the bond.
.
I just read the footnote on page 213 of the book The Missing Billionaires. “...corporate bonds simply do not warrant an allocation in the portfolio of individual taxable investors.” the late highly respected David Swensen, head of the endowment at Yale.
.
Here is a plain English translation of that. “If you are an individual and you have to pay taxes on bond interest and on capital gains in bonds, never buy a corporate bond.”
.
The Missing Billionaire authors says it’s okay to buy TIPS. They’re nuts. They have not read the fine print and believe in some fantasy world where the US Federal Reserve can destroy the purchasing power of all the USD on earth: trillions then somewhere get replacement trillions to compensate people for that lost purchasing power.
.
US Treasurys are described as safe, that is, they cannot default. Oh, yes they can. There are three main bond raters: Fitch, S&P, and Moodys. The latter two downgraded the US Treasury credit rating—an unprecedented thing. And they should have rated them even lower. They are afraid of being punished by the US government if they are honest about the probability of default.
.
When market interest rates rise, the value of existing bonds falls. Simple and financially deadly.
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