The Truth about Bonds

The Recovering Investment Banker

00:54 - We're going to dissect a NYT article: "Buy stocks to prosper - buy bonds to sleep at night."

04:16 - Instead of taking a loan from a bank, when you buy a bond, YOU are the lender to the government, or a corporation, or locality. A bond is a guarantee to get your money back plus an agreed-upon interest rate (usually a low interest rate).

10:11 - The article begins by congratulating stock holders, and cites stocks that are primarily up because of government policies on energy and printing more money. These stocks rising are actually symptoms of a huge problem with our economy, and the good times cannot go on forever.

14:24 - The problem is that bonds have been artificially low for a very long time (<2% yield). When those bonds come due, they could be owed at higher interest rates. The amount of capital we're talking about here is massive. Entire institutions could collapse when the bills come due. Your money is only guaranteed as long as the bond issuer doesn't go bankrupt.

18:39 - Where should we put our money when the Federal Government is so reckless with spending?

23:20 - Find large-cap, established companies with low debt, and invest in those. Because they can adjust their prices to account for inflation, and they also won't get wiped out when interest rates come back up.

27:31 - Germans in 1924 used to need wheelbarrows full of money to buy groceries, because inflation was so out of control. It collapsed their economy and largely led to the Third Reich and WW2.

30:52 - Summary - Thanks for listening!

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