6 ms·

We are in an asset bubble. All assets. Bonds are an asset.

echelon 7y ago
Assets? Physical, material goods? Or investment vehicles like bonds and funds? What happens when the bubble bursts? What doesn't lose value? Who doesn't wind up underwater?
- 0xCMP 7y ago
  Anyone with cash and low-leverage cash producing assets.
  - paganel 7y ago
    And it will be a challenge deciding who really has cash and what cash really means when the bubble will burst. I remember that for a short but intense period of time money-market funds were in negative territory in late October 2008, which was really interesting because they were seen as basically cash (rightly or wrongly, that’s another discussion) and a run on them would have made many people very, very unhappy.
  - bra4you 7y ago
    This is a pretty good answer. With cash you are total contrarian in the current environment. But this strategy also comes with risk. "Haircut" etc.
- tempsy 7y ago
  Gold
  - aedron 7y ago
    Wow, downvotes. The hate for gold is strong, never really understood why. The fact is that gold is one of the few asset classes that are safe.
    - AstralStorm 7y ago
      I wouldn't be so sure, it is only worth much because we believe so. (Likewise platinum.) They will bubble and crash. As opposed to say steel and copper which are tied to industrial supply and demand.
      - tempsy 7y ago
        Money is shared fiction too. The difference is we can print an infinite supply of it but only have a finite supply of gold in the world.
    - ac29 7y ago
      Gold has the volatility of the stock market, with lower returns than bonds: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&asset1=Gold&allocation1_1=100&asset2=TotalStockMarket&allocation2_2=100&asset3=TotalBond&allocation3_3=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...
- bra4you 7y ago
  "Assets? Physical, material goods? Or investment vehicles like bonds and funds?" Everything. "What happens when the bubble bursts?" Good question. High inflation? Strong recession? Or decades of stagflation? Everything is possible. The future is hard to predict. "What doesn't lose value? Who doesn't wind up underwater?" "No place left to hide".
csmnpsc 7y ago
How can we protect our wealth? move everything into gold and Swiss francs?
- 01100011 7y ago
  Gold is already up. If I'm going to invest in commodities, I'm heading for less popular vehicles(i.e. platinum group metals... copper... anything but gold).
  - kortilla 7y ago
    Copper is very tied to the manufacturing activity of the economy though so inflation in the face of a slowdown can end up washing copper gains.
- DataWorker 7y ago
  Buy good Art.
meesterdude 7y ago
Not sure why you think bonds are assets because they are not. Investment 101 stuff right there.
- krit_dms 7y ago
  right... Informs us all then - what is it? a liability?
  - kgwgk 7y ago
    It is a liability for the issuer :-)
  - McTossOut 7y ago
    illiquid, there's not much of a market for low value verbal agreements.
- cyraxjoe 7y ago
  Bond -> Financial Security -> Financial Asset -> "non-physical asset whose value is derived from a contractual claim". More details at: https://en.wikipedia.org/wiki/Financial_asset https://en.wikipedia.org/wiki/Financial_asset
  - raxxorrax 7y ago
    Theoretically... If I lend you 5 bucks, I don't really see it as an asset. I believe to call it what it is becomes even more important if we talk about asset bubbles...
    - kortilla 7y ago
      It’s debt owed to you. It can be sold off. It’s definitely an asset.
      - raxxorrax 7y ago
        Maybe, but certainly there is a distinction between that and me keeping the 5 bucks?
JamesBarney 7y ago
What is an asset bubble? And why are we in one?
- swarnie_ 7y ago
  When the price of an asset doesn't match its underling worth, not strictly true since prices are high but earning are also high, PE ratio looks average in the US. I assume OP is alluding to low interest rates, lots of money being injected in to the system and a select few companies being priced silly high.
  - jariel 7y ago
    "When the price of an asset doesn't match its underling worth" There's no such thing as 'underlying worth' :) A bubble is when prices are high relative to historical or comparative measures of worth, and any degree of volatility can snap such valuations back to historical norms. The thing is - prices can be way out of historical norm ... but it may not be a 'bubble', in the sense that it may take a lot to 'prick' the bubble or change things so that there's a crash. Housing in 2008 crashed due to a bunch of things gone wrong. If any one of those things held up ... there may not have been a crash even with high valuations, even with a fair bit of shenanigans going on. As far as I am concerned, interest rates are being held 'historically low' by the Fed. In any other recovery, the'd have gone up by now. The FT reported however that the Fed is engaging in a new tactic: they are looking not just at unemployment, but those who have stopped seeking work as well. Though unemployment is low, there's still people being sucked into the labour market and they're trying to see how far that can go. So they are less worried about inflation than they are 'true unemployment' apparently.
    - badpun 7y ago
      > There's no such thing as 'underlying worth' :) The primary function of an asset is to generate income - through dividends, rent, bond interest etc. This income determines asset's underlying worth.
      - 7y ago

Assets? Physical, material goods? Or investment vehicles like bonds and funds? What happens when the bubble bursts? What doesn't lose value? Who doesn't wind up underwater?

0xCMP 7y ago
Anyone with cash and low-leverage cash producing assets.
- paganel 7y ago
  And it will be a challenge deciding who really has cash and what cash really means when the bubble will burst. I remember that for a short but intense period of time money-market funds were in negative territory in late October 2008, which was really interesting because they were seen as basically cash (rightly or wrongly, that’s another discussion) and a run on them would have made many people very, very unhappy.
- bra4you 7y ago
  This is a pretty good answer. With cash you are total contrarian in the current environment. But this strategy also comes with risk. "Haircut" etc.
tempsy 7y ago
Gold
- aedron 7y ago
  Wow, downvotes. The hate for gold is strong, never really understood why. The fact is that gold is one of the few asset classes that are safe.
  - AstralStorm 7y ago
    I wouldn't be so sure, it is only worth much because we believe so. (Likewise platinum.) They will bubble and crash. As opposed to say steel and copper which are tied to industrial supply and demand.
    - tempsy 7y ago
      Money is shared fiction too. The difference is we can print an infinite supply of it but only have a finite supply of gold in the world.
  - ac29 7y ago
    Gold has the volatility of the stock market, with lower returns than bonds: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&asset1=Gold&allocation1_1=100&asset2=TotalStockMarket&allocation2_2=100&asset3=TotalBond&allocation3_3=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...
bra4you 7y ago
"Assets? Physical, material goods? Or investment vehicles like bonds and funds?" Everything. "What happens when the bubble bursts?" Good question. High inflation? Strong recession? Or decades of stagflation? Everything is possible. The future is hard to predict. "What doesn't lose value? Who doesn't wind up underwater?" "No place left to hide".

csmnpsc 7y ago

How can we protect our wealth? move everything into gold and Swiss francs?

01100011 7y ago
Gold is already up. If I'm going to invest in commodities, I'm heading for less popular vehicles(i.e. platinum group metals... copper... anything but gold).
- kortilla 7y ago
  Copper is very tied to the manufacturing activity of the economy though so inflation in the face of a slowdown can end up washing copper gains.
DataWorker 7y ago
Buy good Art.

meesterdude 7y ago

Not sure why you think bonds are assets because they are not. Investment 101 stuff right there.

krit_dms 7y ago
right... Informs us all then - what is it? a liability?
- kgwgk 7y ago
  It is a liability for the issuer :-)
- McTossOut 7y ago
  illiquid, there's not much of a market for low value verbal agreements.
cyraxjoe 7y ago
Bond -> Financial Security -> Financial Asset -> "non-physical asset whose value is derived from a contractual claim". More details at: https://en.wikipedia.org/wiki/Financial_asset https://en.wikipedia.org/wiki/Financial_asset
- raxxorrax 7y ago
  Theoretically... If I lend you 5 bucks, I don't really see it as an asset. I believe to call it what it is becomes even more important if we talk about asset bubbles...
  - kortilla 7y ago
    It’s debt owed to you. It can be sold off. It’s definitely an asset.
    - raxxorrax 7y ago
      Maybe, but certainly there is a distinction between that and me keeping the 5 bucks?

JamesBarney 7y ago

What is an asset bubble? And why are we in one?

swarnie_ 7y ago
When the price of an asset doesn't match its underling worth, not strictly true since prices are high but earning are also high, PE ratio looks average in the US. I assume OP is alluding to low interest rates, lots of money being injected in to the system and a select few companies being priced silly high.
- jariel 7y ago
  "When the price of an asset doesn't match its underling worth" There's no such thing as 'underlying worth' :) A bubble is when prices are high relative to historical or comparative measures of worth, and any degree of volatility can snap such valuations back to historical norms. The thing is - prices can be way out of historical norm ... but it may not be a 'bubble', in the sense that it may take a lot to 'prick' the bubble or change things so that there's a crash. Housing in 2008 crashed due to a bunch of things gone wrong. If any one of those things held up ... there may not have been a crash even with high valuations, even with a fair bit of shenanigans going on. As far as I am concerned, interest rates are being held 'historically low' by the Fed. In any other recovery, the'd have gone up by now. The FT reported however that the Fed is engaging in a new tactic: they are looking not just at unemployment, but those who have stopped seeking work as well. Though unemployment is low, there's still people being sucked into the labour market and they're trying to see how far that can go. So they are less worried about inflation than they are 'true unemployment' apparently.
  - badpun 7y ago
    > There's no such thing as 'underlying worth' :) The primary function of an asset is to generate income - through dividends, rent, bond interest etc. This income determines asset's underlying worth.
    - 7y ago