Economist Gary Shilling has been correctly predicting deflation and a rally in long bonds. In this recent talk with Tech Ticker he updates on what he sees still coming in these trends. He also rightly underlines the ridiculous comments some make about long bonds being riskier than stocks. The key point is that neither is a “buy and hold” type of investment. Once bond yields bottom out long bonds will need to be sold to protect price gains. This goes without saying. You can't passively and perpetually hold stocks or bonds if you intend to make gains and keep them.
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According to the latest data, China, the largest foreign holder of U.S. bonds, sold into the strength of the U.S. bond rally in May and June, lowering their holdings by 6%, and I would guess probably also did so in July and August.
Economists Jeremy Siegel and Jeremy Schwartz liken what they are calling ‘The Great American Bond Bubble’ to the biggest bubble in U.S. market history, the tech bubble in the stock market in 1999.
They note the pace at which investors have been piling into bonds and bond funds, convinced they can only go higher is similar to the way they piled into tech stocks in 1999. They note that in that tech stock bubble in 1999 tech stocks were selling at 100 times earnings. They note that “The interest rate on standard non inflation-adjusted Treasury bonds due in four years has fallen to 1%, or 100 times their payout.”
I think the bond mania will end a lot sooner before stocks reach the ultimate bottom.
Also, the four most dangerous words in investing still apply:
” This time is different “