No Matter What

No matter what happens in the world, or here at home, buy bonds. This is the predominant view being spouted as Europe comes to terms with its haircuts and we do what we were always going to do, roll over our debt. Eat your peas and buy those bonds. I don"t subscribe to the view.

There is an event that needs to occur to solidify the end of the Great Bond Bull Market. After 30 years of denial, everyone finally has to like them. The all time low yields were tagged during the crisis so never fit the bill for a blow out "love affair." That classic mistake is transpiring right now. When I got out of college in 1983, 10 year yields were 11% down from a whopping 14% in 1981. The unemployment rate was 10.2%. Over the next year, notes fell back to a 12.4% marker. The "certificates of confiscation" issued by the US government decided to give everyone a last flyover. They were universally hated.

Today, a preponderance of pundits will tell you to own the paper at sub-3 interest. This is where the ride ends. A long time to experience but a blip in a history book from the all time low. In a world where the long term is a trading session and a flip is 400 milliseconds, secular cycles are hard to fathom. I'll make a little prediction: They'll change their minds before I will.

3 thoughts on “No Matter What

  1. lwmaus

    Gud points and agreed. More anecdotes: 1985 bot house 25% down and 12% 25yr (felt fortunate); First house 1967, 5.5% 25 yr (period of vy lo inflation)

    In 2009 saw 30 yr TFut at 142 later selling batches at 135-137 and riding dwn to 116-118. Fed caused huge bubble.The prices now at 127 look pretty gud for some selling IMO. If they bubble up agn will be selling the dickens out of it. Once in lifetime opportunity IMO If I remember correctly 30 yr TFut prices 88 in 1985-1986 (?)

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  2. MBS

    In an event, where does money flow? Does it flow to shorter end maturities, high yielding equities, PM’s? This is really is the question that baffles me. I have my guesses of course.

    Thanks

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