http://www.ritholtz.com/blog/2012/08/stocks-versus-bonds-ver...Interesting stat:Indeed, since 1981, long-term government bonds have gained an average of 11.5% per year, handily besting equities. The S&P 500 index gained the 10.8% per year over the same period (1981-2011).Over the last 2 years, 1/3 gold, 1/3 bonds, and 1/3 stocks would have handily beaten 100% stocks. Score 1 for the Permanent Portfolio concept.
Government bonds and most bond and fixed income investments are being bid up as people fear the impact of the problems in Europe. Its a flight to quality.But the implication that bonds will continue to rise in the future seems misguided. One hopes markets will settle down once Europe comes up with some workable solutions.Meanwhile the large deficits from most major governments probably means inflation and rising interest rates as soon as economies stabilize. That should drive bond prices down.Bottom line, I think bond prices are a bubble.
But will they stay in a bubble for the next 5 years?
... 1/3 gold, 1/3 bonds, and 1/3 stocks ... Score 1 for the Permanent Portfolio concept. I thought permanent portfolio had 25% cash, 25% bonds, 25% stocks and 25% gold. In any case, find where the bull market is, and get in there. It is easy to make money on bull markets than doing bottoms up analysis and hope you have covered everything. For sometime fixed income is the bull market and I don't think we have come to an end of it. I can easily see another 2 or 3 years where the current interest rate and the policy to continue, if Obama wins the election. We still have a long way to go in decimating the savers and seniors.At least to me it is not clear what are Romney's plan, especially now that he has Ryas as his VP pick.PS: For some reason, the savers are not considered as capitol providers unlike rich and no one thinks they need to protect savers.
But the implication that bonds will continue to rise in the future seems misguided.Just for the record, I wasn't implying that. I'm relatively confident the S&P 500 will outperform 10-30 year U.S. Treasuries the next 10 years. I just thought it was an interesting stat that over basically the duration of someone's capital appreication years (30 years) bonds actually outperformed stocks.Meanwhile the large deficits from most major governments probably means inflation and rising interest rates as soon as economies stabilize. That should drive bond prices down.Should? I think Fed monetary actions the last 3-4 years juxtaposed against bond yields should cause someone to carefully reevaluate what they believe about the drivers of long-term interest rates. I think the Fed can pin long-term interest rates as low as they want for whatever length of time they think is good policy (financial repression).Bottom line, I think bond prices are a bubble.Perhaps semantics, but in my view bubbles are driven by greed and leverage. Bond prices are being driven by fears of deflation. Two completely different things, and in my mind when a "bubble" bursts you see a 60, 70, 80, 90% drop (think NASDAQ 2000-2002). You really think bond prices are going to drop that much?
You really think bond prices are going to drop that much?I dunno. My crystal ball is a bit cloudy.My point is simply that new investors in bonds and fixed incomes at these prices need to keep a close eye on them. Hold to maturity can be fine, but if forced to sell early, it could get dicey. These are not put them away for a while and ignore them items.
don't forget this run in bonds was based on falling interest rates since the early 80's. bonds rates are artificially low now due to bank concerns in Europe. Long term bonds can only fall as interest rates increase. Short term is anyone guess.
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