While Googling "what will happen when the bond bubble bursts," I came across a 2010 post on Zerohedge that claimed the bond implosion was imminent. It breathlessly talked about how the Fed was blowing another bubble by purchasing all available Treasuries. That drives bond investors further afield, bringing down rates of all grades of bonds, including junk. Rates being a measure of risk, there are now gobs of money invested in bonds that are mispriced for their risk, thanks to the Fed printing money. That was 2010.
And the beat has gone on.
For me, financial sites have two purposes: general education and investment advice. Zerohedge has reached the end of its lifespan for me as a source of general education and, like Mish, it's never been a good place for near-term investment advice. Doom-mongers rarely are.
I'll still read it from time to time because it posts news articles (almost always bad) that are hard to find elsewhere. In the meantime, I'm wandering around trying to find the answer to my original question: what happens when a bond bubble bursts? My best hit so far is this piece in Forbes from which I recommend these tidbits.
To be flexible and tactical means to temporarily accept the mundane results that are available in a portfolio that has a low risk of capital loss, and that is liquid (“liquid” meaning you can convert any part of it to cash quickly and cheaply). At present, that means to turn the 65/35 portfolio on its head and have less stocks and more bonds. Importantly, the bonds cannot be long-term bonds; short and medium-term only since they have lower risk and greater liquidity.That's useful information. I still firmly believe things are highly unstable and the size of the correction grows as the central banks print money, but instead of just being panic talk, it's useful and actionable.
The objective of this approach is to wait for one or another asset type to become cheap...
The caveat in all these suggestions is that investors must be caution about taking too much risk to in order to eek out a little extra return. The old parable about trying to squeeze blood from a stone comes to mind. In the case, the only blood you’ll find coming out may be your own.
|A 1-year chart of the S&P 500. Not quite the apocalypse Zerohedge and Mish have predicted.|