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Friday, January 8, 2010

The Bond Bubble

It is without a doubt that we are in a bond bubble and most cannot see it. Even I don't think of it in terms of a "bubble" probably because I am so used to bonds being elevated for so long in a 30 year run.

I read this story and its about an old guy who lost $350K in the dot.com bust and another $350K in the drop  from 2007 - 2009.

http://finance.yahoo.com/news/Main-Street-to-Wall-Street-We-apf-3229234994.html?x=0&sec=topStories&pos=main&asset=&ccode=

He swore off stocks.

"Now the 65-year-old roofing contractor from Raleigh, N.C., says "he's getting smart for a change." Even though the Standard & Poor's 500 has climbed 68 percent since March, Shook is largely leaving the stock market "to the crooks that run" it. He's sold shares and bought bonds instead, with no regrets."


Umm, hey bud, the same crooks run the bond market too!


I noticed someone I know who was giving advice to another and said "buy bonds".  And without a doubt the "diversify" mantra drilled into people's heads make them feel savvy and "on top of things" buying bonds instead of just staying in cash under the mattress.


Is it that finally after a 30 year bull in bonds, that the know-nothing ( I mean that with respect) mom and pop retail investor is finally ready to "play it safe" and go "all in" in the very instrument that will ensure this country's destruction?


I mean Bill Gross is selling and this old guy and the person I know are buying.  I also know of another who put in half of his $500K into a bond fund.


Surely many "brokers", upon hearing people want out of the market are probably suggesting bonds.


I am convinced the bond bubble will burst. The clock is ticking.  The 30 year chart shows prices heading down on a P3 wave this year likely.


And again, the little guy will be holding the bag. People never learn. 


And this of course will cause more economic destruction than you can imagine. A few percent in interest will push the ability to service the tremendous debt load over the edge for good. And there is nothing anyone can do about it including the FED.


Also, I have a question for the "inflation is good for equities" people.


Why would massive inflation ensure high equity prices? High equity prices are a result of sentiment not economic factors. 


So you see we are heading over the edge of the zenith of asset mania.   The 30 year year bond bubble of course enabled all other bubbles.  Its popping will be the final card to be played.

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