Cart (0)
VIDEOBonds Are Safe -- Until They Aren't
By
Peter Atwater
Aug 03, 2010 8:15 am
Having been led astray by stocks and bonds, many people will huddle in cash for far longer than anyone believes.
 |
|
Last week, with the stock market essentially flat to where it was when Mr. Warsh offered his words of warning, St. Louis Fed Governor Bullard warned that the real risk to worry about was not inflation, but rather deflation, suggesting that the Fed prepare to aggressively purchase Treasuries just in case.
At the time of Mr. Warsh’s comments, though, I asked the question whether the general public would follow along the Federal Reserve’s “forced march into risk” -- out of cash and bonds and into stocks.
The general presumption at the time was “of course they will." Since then, though, we’ve seen bond funds flooded with more than a trillion dollars in new cash as investors have exited 0%-yielding deposits and money market funds and put their money into “safe” bonds.
And needless to say Mr. Bullard’s comments have only fueled the bond fire even further, as investors appear to now be buying anything with yield left on broker shelves. IBM (IBM) at Treasuries plus 30 -- ship in it. High yield -- whatever you’ve got. Preferred stocks -- absolutely.
Corporations, especially those with strong retail names like IBM and McDonald’s (MCD), are being begged to issue, because Mom and Pop want something that yields more than nothing.
It feels to me like Credit Bubble 2.0 thanks to the psychological consequences of 0% interest rates.
Now I know many will point to the improving credit markets as a bullish indicator for the stock market. But I wouldn’t be so certain. Judging from the behaviors exhibited over the past five years, my guess is that US investors are going to ride this credit bubble up and back down -- because they've been led to believe that bonds are safe.
Until they aren’t.
Right now the bond fire is ablazin’ and everyone around it wants s'mores.
But when this fire goes out -- for a second time -- watch out. Having been led astray by stocks and bonds, Mom and Pop will huddle in cash for far longer than anyone believes.
Position SPY, SH and JPM.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
