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No. The deal with bonds is that they have just been a way better risk-adjusted investment than stocks. An optimal portfolio still owns stocks but the point of a

No. The deal with bonds is that they have just been a way better risk-adjusted investment than stocks. An optimal portfolio still owns stocks but the point of all these approaches (risk-parity, much of the hedge fund industry pre-2008) was just owning levered govt bonds...that was it. Correlation is a minor part of that story (although it is very important). And this effect isn't driving the price (imo). What is driving this is risk aversion, central banks, and regulatory requirements to hold risk-free securities (most investors aren't sophisticated enough to be doing portfolio math). Also, it is no coincidence that the worst affected countries (Germany/Japan) are those with risk-averse populations, crazy central bankers, and completely dysfunctional banking sectors. The alternative is: property, commodities, private business, etc. But remember, the financial world has gone crazy...but the rest of the world is just going on as normal. This is part of the problem: central bankers believed they were geniuses and could control the real economy by fiat...well, they can't. Their world will go down in flames but everything else will likely continue as normal. Investing is not about risk-free rates or volatility/beta-adjusted portfolios, it is about providing capital to business for growth. These opportunities still exist, the financial world of central banks is (these days) unrelated to this.

samsonradu 7y ago
> Their world will go down in flames but everything else will likely continue as normal. > These opportunities still exist, the financial world of central banks is (these days) unrelated to this. It's not unrelated at all. It's the central banks policies that are pushing the economy out of balance. These policies obfuscate the real risks that come with investing, like defaults and money-losing investments. Greece, a country close to default a few years ago and with a debt-to-GDP ratio of 180% in a currency it cannot print manages to have a 10Y yield of ~2%. Not predicting any doomsday but I believe in the upcoming years EU banks will slowly push the negative interest rates down to consumers, as they have no alternative. Their business model of borrowing-short and lending-long is no longer sustainable. Also, on the long run, these policies have the effect of shrinking the middle-class, increasing inequality and polarising societies.

samsonradu 7y ago

> Their world will go down in flames but everything else will likely continue as normal. > These opportunities still exist, the financial world of central banks is (these days) unrelated to this. It's not unrelated at all. It's the central banks policies that are pushing the economy out of balance. These policies obfuscate the real risks that come with investing, like defaults and money-losing investments. Greece, a country close to default a few years ago and with a debt-to-GDP ratio of 180% in a currency it cannot print manages to have a 10Y yield of ~2%. Not predicting any doomsday but I believe in the upcoming years EU banks will slowly push the negative interest rates down to consumers, as they have no alternative. Their business model of borrowing-short and lending-long is no longer sustainable. Also, on the long run, these policies have the effect of shrinking the middle-class, increasing inequality and polarising societies.