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Comment by busterarm | Hacker News Reader

"Markets can remain irrational longer than you can remain solvent."

To be completely fair, there exists a justification for (at least some of) the action we're seeing: if developed economies' bond yields are correctly pricing in future nominal gdp, i.e. we will not be back to good times for the next 30-50 years, then owning anything that can grow is tremendously valuable. But it's such a stretch to assume 30-50 years of stagnation, even if the entire bond market agrees with you. I mean do you seriously expect property relationships to not be rewritten in some revolutionary way somewhere along the way if we get 30-50 years of misery?

> If developed economies' bond yields are correctly pricing in

Bwahahahahaha....

Oh wait I fell of my chair laughing.

I feel you, but I do have some respect for the markets no matter what they say. At least enough respect to be cognizant of what is being priced in, despite my personal views.

Oh come on, soverign debt is about as far from being "a market" as possible....

I'll believe the yields mean something when the US Treasury issues a special series of bonds that are forbidden to be owned by the Fed or any entity with access to the discount window.

The benefit of a large, well-equipped military is that you get to tell people whether or not you're/they're going to pay your/their debts. For as long as your population is willing to pay for its prosperity in blood.

There's a lot of countries with lower nominal yields that are not known for their military prowess ... like Greece. Yes, greek bonds have negative yields.

Greece has the miliary power of the entire fucking European Union (and its allies) behind them, for as long as they're willing to suffer for the benefit of France and Germany.

That's really just the Disco Stu Fallacy of economics at play. Assuming that things _will_ get better and passing the buck onto your descendants is madness. Also how much growth has been stunted by the weight of ancestral spending?

Birth rates are declining and the cost of maintaining our infrastructure is at the point in most high-GDP locations (New York, California, etc) where obligations cannot be met and credit status changes were inevitable _before_ Coronavirus. Look at the insanity New Jersey has gone through with the criminal pilfering of infrastructure/development funds to pay pensions (aka, Christine Todd Whitman should have gone to jail).

We're looking at cascading failures in a complex system. Nobody can see enough of the picture to predict what's next or realize that it's already dead. To assume that we'll right the trend with growth will most likely require either war or (a technical) revolution.

The funny thing about the Disco Stu Fallacy is that Stu was right in the long run.

Disco music in various forms is immensely popular today. It dominates global streaming charts. Rock is the loser.

Stu was just an early adopter facing the through of disillusionment.

Sure, but none of that music is called Disco and his bet was still a losing one. :)

Kylie Minogue released a top-selling album last week that's literally named "Disco".

How long do you hold the losing investment from 1976?

It took decades for the industry side of Disco music to recover from Disco Demolition Night. Italo and Hi-NRG notwithstanding.

The music might have stayed four on the floor but the names and the people all changed.

Also Kylie Minogue doesn't set trends, she rides them. Most of us realized Disco was still alive 10 years ago.

Pop music, and pop culture in general, seems to operate on a cycle where fashions become vogue again 20-30 years after. Retro gets hip and nostalgia abounds.

Bell bottoms still look stupid, though.

I think almost nobody wants to believe in the picture that bond yields are painting, because that world with all its ramifications is so far outside of what we consider acceptable or even possible. Kind of like the "Minsky moment".

PS. I agree that this is not just a covid problem.

Complete layman's take here, but wouldn't a simpler explanation be that bond yields have been artificially manipulated by central banks for the last 12 years, and that they thus don't truly represent the market's expectations for the future of the larger economy?

People have always been saying that the bond market is manipulated, that it shouldn't be trusted, etc. It's up to you to interpret the data. I think it is actually remarkably accurate. Yield curve inversions work like a charm to detect slowdowns and recessions (not just in the US), and if you think for a second then a yield curve inversion is exactly what the market should price in if there's an "air pocket" ahead in nominal gdp. Then, there's the story of Japan, which was predicted early on (1995) to be in stagnation for decades. And guess what, over 2 decades later it turns out the JGBs were right!

There are times when the bond market is very explicitly manipulated, such as towards the end of WW2 in the US. The country's economy was getting seriously inflationary and rates were pegged at 2% (the rate should have been probably over 10% without the manipulation). Thankfully there was much collective sacrifice and the country managed to win the war in time before its economy imploded. Then the typical post war recession and later the baby boom solved everything.

You can detect such situations by things like: wage freezes, rationing, shelves not completely full in shops, large premium on gold bullion particularly small coins, the politicians' talk of "great effort", things like that

I'd like to learn more about how to understand all of this. Is there some resource you can point me to so I can begin the journey to have this intuition?

The tips I would give are: 1) focus on correlations in hard data, there's a lot of bullshit out there and wishful thinking, but as we know causation means correlation, 2) look at further away situations - your own country 100 years ago, 200 years ago, historic empires, other major economies, minor economies. Human behavior is similar across time and space and political arrangements.

Also, reach out to the source. Want to know if "China is hoarding dollars?" Well try to verify it yourself via Treasury data or IMF data. Want to know how does Apple actually make money? Read their statements at sec.gov

Also, if you want names:

Ray Dalio puts out a lot of good research for free as a means of building his legacy. Robert Shiller wrote a lot of good econ. As far as investing goes it's really tough to beat the common sense logic of Warren Buffett and co. and Benjamin Graham and co. The true masters of speculation include George Soros and Jesse Livermore.

So I guess Chris Christie can steal money by stretching interpretations and credulity to rebuild the Pulaski Skyway and it's all justified?

I'm not excluding him. New Jersey finance/politics used to be a success story until the 80s and it's been an unmitigated disaster ever since.

In this case, with interest rates near zero, it may be rational for markets to converge on prices that discount the transient effects of a pandemic recession.

Yup, exactly. Low yields increase the duration of equities. This also means that prices become more random (because who's to judge what will Google ads sales look like in 20 years? or what will the iDevice of the 2050 look like? with low enough yields things like these become more and more important).

I don’t know what google’s ad sales or idevice will look like in 20 years, but I am betting the US government will do whatever it can to keep broad market equity index values rising.

Just like the Chinese believe that the China government will keep their apartment prices high.

Maybe, if all of China’s political leaders are invested in apartments.

China’s political leaders are invested in avoiding their version of the French Revolution.

https://quoteinvestigator.com/2011/08/09/remain-solvent/

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