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The Lost Decade For Bond Holders

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http://www.madhedgefundtrader.com/

1) Get Ready for the Sack of Rome. I traded the great Japanese bull market during the eighties at Morgan Stanley, from the very bottom all the way up to the peak. The firm’s fundamental analysts railed against the tide for years, claiming that stocks were liquidity driven, overvalued, and headed for a huge fall. Every time they made that call, their offices got moved ever closer to the elevator, and eventually, the men’s bathroom. When the turn finally came, I had already taken off on an extended vacation, and the ignored analysts had moved on to hedge funds, where they proceeded to make vast fortunes. When someone at last threw the switch on Japan, it got dark amazingly fast. Tokyo went out at an all time high of ¥39,000 on the last day of 1989, and then dropped a staggering 45% in January. Yesterday’s close, 21 years later, was ¥9,489. These days, I feel like those Japanese analysts, except the market that is driving me nuts is the one for US Treasury bonds (TBT), (TMV). The more arguments I find that they should fall, the faster they go up (see charts below). I probably would have fired myself by now, if I weren’t my own boss, as nepotism is always a powerful force. Now I hear that PIMCO’s Mohamed El-Erian says that there is a 25% chance of real deflation hitting the US, after telling us it won’t for so long. Again, this reminds me of Japan, where the higher it went, the more imaginative the explanations became as to why it should continue. Ignore those 100 PE multiples, just focus on the damn Q-Ratios! I believe that we are witnessing the final blow off top in the great 30 bull market in bonds. A decade from now, it will not be stock investors complaining about a lost decade, but owners of bonds. Could it go on for another six months or a year? Sure. Like gold in 1979, technology stocks in 2000, the absolute tops of these parabolic moves are impossible to predict, both on a time and price basis. But when the turn comes, it will resemble the Sack of Rome.

Equities are nearing the end of their secular bear market.

Bonds are nearing the end of their secular bull market.

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http://www.madhedgefundtrader.com/

Equities are nearing the end of their secular bear market.

Bonds are nearing the end of their secular bull market.

...in the US. And not quite yet. Both trends have anywhere from 1-3 years of life left in them.

Edited: Maybe 4 years left.

Edited by AvidFan

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on what basis are stocks cheap?

Because they're "discounting" even larger profits next year?

Edited: Added quotes around "discounting" for added ironic clarity.

Edited by AvidFan

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on what basis are stocks cheap?

On the basis that they are trading at values equal to the low's they reach at the end of (or at least close to the end of) secular bear markets.

The quality defensives are on P/E's of 6-10 times and yields of 5-8%.

The problem is many of the posters here look at the indexes and say 'ahh too high P/E and too low yield'.

The fact is the indexes are made of 50% s***e (ie banks and consumer credit stocks) against 50% excellent defensive quality (telecoms, pharma, tobacco, oil/gas, food retailers).

There is also good value in certain insurers.

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Fair value, they say, on the S&P is 850. We'll be very lucky if it settles there.

Why don't you try and read my post.

Joepublic merely looks at the index without looking at the good and bad constituents of that index. I suggest you try the same.

Also, any move towards 850 for the S&P will be matched by massive further QE by the Fed.

They will nominally prop up the equitiy market at any cost to the dollar and value of bonds.

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On the basis that they are trading at values equal to the low's they reach at the end of (or at least close to the end of) secular bear markets.

The quality defensives are on P/E's of 6-10 times and yields of 5-8%.

The problem is many of the posters here look at the indexes and say 'ahh too high P/E and too low yield'.

The fact is the indexes are made of 50% s***e (ie banks and consumer credit stocks) against 50% excellent defensive quality (telecoms, pharma, tobacco, oil/gas, food retailers).

There is also good value in certain insurers.

Yes, I am afraid there are cheap things out there but it does require one to do the research. Index tracking is not exactly a good idea right now - as you said, too many junk in the index.

Selective financial / consumer credit stock will be a better inflation hedge compared to some oher captial intensive ones (telecom) though. Inflation means more money flows through the financials and bigger nominal profits. BT/Verizon can't exactly issue a price increase every month.

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Yes, I am afraid there are cheap things out there but it does require one to do the research. Index tracking is not exactly a good idea right now - as you said, too many junk in the index.

Selective financial / consumer credit stock will be a better inflation hedge compared to some oher captial intensive ones (telecom) though. Inflation means more money flows through the financials and bigger nominal profits. BT/Verizon can't exactly issue a price increase every month.

My current favourite FTSE100 stocks -

Glaxo, AstraZ, National Grid, Unilever, Aviva, L&G, Vodafone.

Yours?

Cheers.

Edited by ringledman

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My current favourite FTSE100 stocks -

Glaxo, AstraZ, National Grid, Unilever, Aviva, L&G, Vodafone.

Yours?

Cheers.

Like half the list except Unilever, Aviva, L&G, but I won't buy GSK, AZN, NGG, VOD at today price.

Edited by easybetman

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  • 141 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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