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People like Ray Dalio keep saying this, and scores of others have been talking about how fiat currency will fail, but it won't. Globally, no one that matters wants it to fail, therefore it won't. People like Paul Tudor Jones have been saying that the USD will fail for decades and people should buy gold. Even Peter Schiff has been talking about gold and hyperinflation since before the Great Recssion.

All the bears have been completely wrong, except for short periods of time. And they will continue to be wrong. Again, no one that matters wants the USD and UST to fail. Bond vigilantes can't defeat the Fed.

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> Globally, no one that matters wants it to fail, therefore it won't.

I’ve seen this argument before, and can’t help to think how naive it sounds.

Can you name one other case where the fact that we don’t want something to fail results in it being unable to fail?

Actions have consequences. No matter how much we don’t want a particular set of consequences to occur, they will if we perform the wrong actions.

Globally, no one wants a pandemic, therefore...

Globally, no one wants a housing price collapse and global recession, therefore...

Actually, the general public kept demanding a housing price collapse around 2008. It's rather tragic.

See https://www.goodreads.com/book/show/43062766-shut-out for more detail than you ever wanted to know, or check out the author's blog at https://www.idiosyncraticwhisk.com/

Housing prices that are too high are terrible too. They effectively lock people out of homeownership on reasonable terms.

I would prefer reasonable home prices, which means neither collapse nor bubble mania.

I agree with your sentiment.

But it's not house prices that are important. It's housing affordability, which is better measured by monthly mortgage payments (and rents).

However, that was not what happened in and after 2008.

Availability of credit collapsed. So owning housing got cheaper for people who could still get credit, but renting did not become cheaper. Have a look at the backlog of https://www.idiosyncraticwhisk.com/ for more than you ever wanted to know about the topic. (Or splurge on the author's book.)

It might make it sound like they are an inactive bunch. But they take action precisely because they don't want it to fail.

Precisely. And it's important to forget those actions aren't just about interest rates and issuing currency.

The US dollar will continue to be supreme so long as the United States controls the US Agency for International Development, the Office of Foreign Asset Control, and the US Marine Corps.

Naive? People on the opposite side of the argument have been wrong consistently for decades. The last time they were right was the Great Depression, almost 100 years ago. I think policy makers like the Federal Reserve have learned a lot since then.

He's not saying it's going to fail, whatever that means. He's saying it's going to lose value. Not only can that happen, but historically it happens with 100% probability. We can only argue about how much and how quickly.

At some point the US will lose reserve currency status. It's happened to every reserve currency before the USD and will happen again with probability of 1. The question is only how soon.

That's not what he's saying.

He's saying this:

1. Bond prices are inversely related to interest rates. Interest rates have been declining for 50 years. They are now near 0. They probably can't go much lower, so they can really only go up.

2. If they go up, bond prices go down.

3. Institutional asset managers with obligations (e.g. pensions, budgets) already cannot meet their obligations with the yield from bonds and the bonds are unlikely to appreciate in value.

4. Therefore, it makes no sense for institutional asset managers to be invested in bonds because thta will pretty much guarantee that they will be unable to meet their obligations.

Dalio takes a long view. His fund looks at the sort of vast structural changes that have regularly occurred over the past 500 years of financial history. It's not a great rebuttal to say he's wrong because the last few decades have been great.

And Dalio has not always been saying this. He used to advocate an "All-Weather" portfolio that was 55% US treasury bonds: https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio...

"All the bears have been completely wrong, except for short periods of time."

Unfortunately, those short periods of time are enough to bankrupt people. I don't think anybody is claiming fiat currencies will go away forever.

> Unfortunately, those short periods of time are enough to bankrupt people.

Maybe. But that just means that being a bull is tricky business, too. It doesn't mean that being a bear is good business.

And those "short periods" are sometimes not so short. The longest bull market in US history was ~5 years, I believe.[1]

[1] https://apnews.com/article/84ee301c404539d8731da34128330752

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date.

This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations.

(Comparing GLD vs SPY starting around 2005.)

This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)

Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle.

2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon.

But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.

> Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle

I guess it depends on your definition of amazing.

If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns.

Personally, I don't find that particularly amazing, but to each their own!

And in six of those years (2013-2019) it was absolutely flat:

* https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM

If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I.

I am constantly reminded of Buffett's 2011 take:

> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

> Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

* https://www.berkshirehathaway.com/letters/2011ltr.pdf

Gold has not been a very useful 'investment' over the long-term:

* https://www.pwlcapital.com/will-gold-save-the-day/

What are the expected returns of gold given that it has no earnings?

Of course, farmland might get confiscated from you. Or you might have to pay taxes on it, etc.

A small amount of gold might get lost or stolen and it's usually more annoying to sell than stocks. But otherwise, you can just keep it in a sock under your pillow and be reasonably sure it's still there in a few decades.

> Of course, farmland might get confiscated from you.

In what area of the world do you live in that these scenarios are actually keeping you up at night?

See this massive list of countries where this has occurred: https://en.m.wikipedia.org/wiki/Land_reforms_by_country

This is not even to mention the prospect of “constructive” land reform, e.g. squeezing landowners (or certain disfavored types of landowners) with policy and then increasing property or income taxes to the point where they have no choice but to sell at a loss.

That doesn't answer my question:

> In what area of the world do you live in that these scenarios are actually keeping you up at night?

Canada is on that list. I live in Canada. This is not something anyone I know is losing sleep over.

They may be buying gold for other reasons, but it is not for the possibility of losing their land.

This HN thread is about Ray Dalio and bonds, and the sub-thread is about the S&P 500 versus gold returns, and gold returns in general. Bringing in farmland is quite the curve ball.

Well, Warren Buffett brought up the farmland.

I'm not invested in gold, and I mostly agree with Buffett here. I just want to point out that the argument ain't watertight.

(I try to be especially critical of arguments that support positions I agree with. Have to be careful not to bullshit yourself too much.)

I mostly agree with the conclusions of the Dalio piece, too. But I don't agree with all the arguments.

My main takeaway was to get inspired to look into how to short US bonds.

It looks like GLD has underperformed SPY overall, with a lower Sharpe ratio (risk adjusted return). Gold did have a good run between 2010-2013 though!

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

Thanks for setting that up!

Though looking at the low correlation between gold and the rest of the market, it looks like you did make an argument there for gold as part of a diversified portfolio.

Are SPDR GLD shares the same as real gold? I read somewhere that ETFs sometimes have to use special tricks to try and match commodity prices....

Even if the ETFs are completely honest, there have been bars of fake gold in circulation in the news since 2000

https://www.reuters.com/article/us-gold-swiss-fakes-exclusiv...

https://www.celticgold.eu/en/gold-university/fake-gold-bars....

When investing the same amount every month (dollar-cost averaging), the difference becomes even larger. Using your portfolios, but adding $250/month in addition to the initial investment of $10k, you end up with $128k with gold and $207k with SPY (total investment ~$85k): https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... (with QQQ, it'd be $380k)

Comparing one-off investments is very dependent on the start date, and dollar-cost averaging more accurately models what people can actually do and which returns one may be able to expect. Who has a large lump sum laying around to invest rather than investing a portion of one's income every month/quarter?

Yes that is a good point, and is something to think about when comparing investments. Everyone's investment goals are different so make sure you understand what your goals are when reading research!

This analysis appears to have been done while only looking at prices. Since a very material portion of equity returns over time comes from dividends, if you don't count reinvested dividends over such a long period you are going to end up dramatically undercounting equity returns.

TL;DR; gold didn't beat the S&P 500 over the past 15 years.

> Globally, no one that matters wants it to fail, therefore it won't.

Currencies have failed before from eg incompetence, without anyone bearing the ill will.

(For what it's worth, I essentially agree with your conclusion. But I think this is not a good argument.)

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