I don’t know why, but I find myself compelled to write something positive this morning. Instead of writing another bleak prognosis for the stock market, I’ll pen this one -a positive note. Bonds -high quality bonds, not high yield bonds- are likely to have a pretty good year and well into 2014. Granted, it’s a little more complex than that. What duration, sub-asset class, geography etc.?  I want to keep this short and simple. You can do your own research and unearth more specifics.

As a broad asset class, bonds have been quietly outperforming stocks for most of the past 3 decades, and doing so with far less exposure to capital loss (thank you capital structure), lower volatility when it mattered most, a higher income stream, and lower expenses (if you own them in funds). And yet almost every January sees Wall St trot out its pundits and prognosticators to say interest rates will rise (implying bonds will suffer losses), and forecast 15%(ish) gains for stocks.  It is as predictable as it is nauseating.  Sadly, I think many heed this drivel.

Sorry. Back to being positive.

Here’s a chart showing the S&P500 and boring old US Tbonds (well, an ETF that holds long dated Tbonds) during the last melt-down.

Let me help with one more example. I’m on record suggesting 2013-2014 will very likely resemble a combination of 2011 and 2007-2009. (read this blog post to see why). So how did boring old US Tbonds do when reality was allowed to happen in 2011….

I grant that the U.S. debt crisis is going to complicate things, and interest rates are at / near all-time lows. Oh yes, and the Fed, ECB, and BoJ are all trying desperately to create inflation. They will eventually be successful. So at some point staying in high quality bonds -especially long dated bonds- will lose fairly big.

Do not buy safe haven assets when the sky is falling. The price will have been driven up already.  You want to buy them when they’re hated and ridiculed (bonds are for losers. bonds are for wimps. etc).

FYI, here’s a look at the past 3 months (or so).  This could continue a little more, based on typical seasonal strength. But it is an interesting piece of data.


And here’s a look at the past 3 months of the US 30yr Tbond from the lens of a technician….

(with many thanks to Investors Intelligence for this data)


The stock market seems to garner all the attention. Yet bonds have clearly out-classed stocks, and probably will for a while yet. Bonds have more fun, yet get less respect.  I pity the bond salesman — due deference to Bill Gross.  Maybe it’s time to start a long-short / global macro hedge fund, Bill.   Call me.

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