I loved your reflection on US govt. bonds. I also think they are really attractive at this level but I would add that there are two and very important other factors to speculate about.
1. The value of the US dollar relative to other currencies.
2. The US inflation rate over the holding period. ->(which determines your real return).
The value of the US dollar is driven by demand/supply for the dollar. The demand/supply dynamic is largely driven by the balance of payments, which can be roughly thought of as Exports - Imports.
Inflation is much less of an exact science. But I will agree with Bob and say that the savings rate is a very important factor and that it is inversely correlated with interest rates. I will also add that the savings rate is directly correlated with avg. population age (aging population = more savings). And I will point to Japan as the archetypical case of an economy with stubbornly low inflation despite immense increases in the supply of the Yen, and argue that its high savings rate is not an insignificant factor holding rates down.
So what's my speculation about 1. and 2. for the future?
For 1. I would say that I think the US dollar will appreciate over the next 10 years. It will appreciate as the factors that led to its previous decline reverse. Notably the balance of payments will reverse as a result of US's increased energy independence, on-shoring of chip manufacturing, and stable or slightly more protectionist policies on trade. For a good chart of balance of payments: https://tradingeconomics.com/united-states/balance-of-trade . I speculate that the increase in exports relative to imports starting around 2012 was driven by the advent of fracking in the US and lower oil imports.
And for 2. I would say that inflation will return to low levels (about or less than 2%) over the long run driven in part by an aging population and thus higher savings. Having said that, I think this is my weaker argument. The fears of a long term shortage of labour, driving wages up, could be legitimate. Still, if I were to gamble, I would argue that whatever mysterious factors kept inflation low over the last 10 years, will return.
All this to conclude that, yep, I think long duration US govt. are very attractive at their current levels.
Side note: the relative value of the dollar is important when buying US govt. bonds because unlike companies that adjust prices to maintain profitability on a constant currency basis, bond prices stay un-adjusted.
Read that paper too. Money has to go somewhere. As large corporations have become more disciplined about profitability in my longish life time and as we 1% ers (or close in my case) have more and more investable capital - rates have gone down. I see nothing to suggest that this process is ongoing. More supply of investable cash drives down rates and inflates the prices of investable assets.
I loved your reflection on US govt. bonds. I also think they are really attractive at this level but I would add that there are two and very important other factors to speculate about.
1. The value of the US dollar relative to other currencies.
2. The US inflation rate over the holding period. ->(which determines your real return).
The value of the US dollar is driven by demand/supply for the dollar. The demand/supply dynamic is largely driven by the balance of payments, which can be roughly thought of as Exports - Imports.
Inflation is much less of an exact science. But I will agree with Bob and say that the savings rate is a very important factor and that it is inversely correlated with interest rates. I will also add that the savings rate is directly correlated with avg. population age (aging population = more savings). And I will point to Japan as the archetypical case of an economy with stubbornly low inflation despite immense increases in the supply of the Yen, and argue that its high savings rate is not an insignificant factor holding rates down.
So what's my speculation about 1. and 2. for the future?
For 1. I would say that I think the US dollar will appreciate over the next 10 years. It will appreciate as the factors that led to its previous decline reverse. Notably the balance of payments will reverse as a result of US's increased energy independence, on-shoring of chip manufacturing, and stable or slightly more protectionist policies on trade. For a good chart of balance of payments: https://tradingeconomics.com/united-states/balance-of-trade . I speculate that the increase in exports relative to imports starting around 2012 was driven by the advent of fracking in the US and lower oil imports.
And for 2. I would say that inflation will return to low levels (about or less than 2%) over the long run driven in part by an aging population and thus higher savings. Having said that, I think this is my weaker argument. The fears of a long term shortage of labour, driving wages up, could be legitimate. Still, if I were to gamble, I would argue that whatever mysterious factors kept inflation low over the last 10 years, will return.
All this to conclude that, yep, I think long duration US govt. are very attractive at their current levels.
Side note: the relative value of the dollar is important when buying US govt. bonds because unlike companies that adjust prices to maintain profitability on a constant currency basis, bond prices stay un-adjusted.
Read that paper too. Money has to go somewhere. As large corporations have become more disciplined about profitability in my longish life time and as we 1% ers (or close in my case) have more and more investable capital - rates have gone down. I see nothing to suggest that this process is ongoing. More supply of investable cash drives down rates and inflates the prices of investable assets.
"not ongoing". Technology hard. Eyes old.
You may enjoy reading the Promise of Blood trilogy along with the sequel. Nice post!