Bonds and Fixed Income

[gfp927z]

Bar, With bonds, the best time to load up in our lifetime was back in the early 1980s. Not only were the rates extremely high, but with the capital gains component figured in, by the late 1990s the total return on those bonds purchased in the early/mid 1980s actually matched or exceeded the return of the stock market plus dividends. That was an anomaly though, but I remember kicking myself for not keeping those 15% bonds that my dad and I both had back in the mid 1980s. Their prices eventually went up so much I couldn't resist taking profits at some point, but actually holding them to maturity would have equaled to the total return of the stock bull market over that long period, without taking on the risks of owning stocks.

Also, I remember reading that long ago (pre WW 2), the typical dividend rate on a large cap stock was higher than what bonds were paying in interest at the time. So the reverse of today. It was reasoned that the higher stock dividend rate was necessary in order to compensate for the higher risk of owning stocks vrs bonds.

But the problem with owning too many bonds now is that the dollar reserve system is approaching the end of its run. Not imminent, but not too many years off. The 34 tril debt bomb will reach 40 tril in just a few short years, and then 50 tril won't be far off, and eventually there will be a loss of confidence in the dollar globally. Bretton Woods collapsed in 1971, but the Petrodollar arrangement arrived to save the day (Kissinger / Rockefellers), and it worked brilliantly for decades. Globally, oil could only be purchased with dollars, which maintained strong continuous demand for dollars and Treasuries. But the Petrodollar is ending, and global de-dollarization is in full swing. First countries stop using the dollar for trade, then the central banks reduce their use of dollars as a reserve currency, and down the slippery slope we go toward a dollar crisis, with our bonds eventually becoming toilet paper. It's not imminent, but I figure it could happen within 5-10 years. Anyway, something to consider when looking at the juicy bond yields. In a debt based money system like we have (where money is lent into existence, at interest), money is actually a debt instrument. The system ultimately drowns in debt.


The Money Masters -

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