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Band-Aid or Bondage~ Bull Trap in Bonds?
Hindsight and contrary opinion may be most clear when it comes to money.
In 1981, A Gary Shilling, Chief Economist for Merrill Lynch, recommended Treasury Bonds yielding 14.7%.
He took a zero coupon compounded ride that outperformed most other asset allocations, 20.1% a year for 28 years.
This compared to the 11.8% S&P500 with dividends reinvested.
Gold over the same period went from $300 to $1200 for a CAGR Compound Annual Growth Rate of 5.08%.
Lately gold has done better, 17.22% CAGR the past decade, still no match for Bonds.
And we think the bloom may be off the Gold rose because defaults happen quicker and longer than neoKeynesian economists and politicians can prop up an ersatz economy. Zero Federal Fund rates can do strange things to once free markets.
To quote Dr Shilling:
Long-term Insight readers know we started recommending long Treasury bonds back in 1981, when we forecast secular and huge declines in inflation and interest rates.
So we declared back then that “we’re entering the bond rally of a lifetime.”
The yield on 30-year Treasuries was 14.7% and our eventual target was 3%.
Last year, yields blew through 3% to reach 2.6% at year’s end, so in our Jan. 2009 Insight we declared “mission accomplished” and removed Treasury bonds from our recommended list.
Then in 2010, Dr Shilling again recommended 30-Year US Treasury Bonds yielding 4.7% with the same target of 3%.
