Love/Hate Syndrome

Well, first of all some good hating, from a well-respected source, for that most hated of asset classes.

“long-term government debt of the U.S., U.K., Europe and Japan probably will be the worst-performing asset class over the next ten to twenty years. We make this recommendation to our friends: if you own such debt, sell it now. You’ve had a great ride, don’t press your luck. From here it is basically all risk, with very little reward.”

It is part of a long rant, admittedly, most of which I agree with. But for counterpoint, read some actual historical analysis from Hoisington Management.

Based upon the historical record of effects of excessive and low quality indebtedness, along with the academic research, the 30-year Treasury bond, with a recent yield of less than 3%, still holds value for patient long-term investors. Even when this bond drops to a 2% yield, it may still have value in relation to other assets. If high indebtedness is indeed the main determinant of future economic growth and further government “stimulus” is counterproductive, then a prolonged state of debt induced coma may so limit returns on other riskier assets that a 30-year Treasury bond with a 2% yield would be a highly desirable asset to hold.

It is well worth noting that David Rosenberg is now forecasting 0% GDP growth in the fourth quarter of this year.

I think that there may be a time, before too long, when we will walk into the office to find that the US prints a negative GDP reading on the back of a negative export trade shock that does not appear to be in any forecast – let alone consensus.

The stock market continues to levitate as the Obama team on Wall Street does its thing. Personally I thnk we’re going to have a major market decline before the election that will put paid to this particular strategy.

Yes, I know, too many links to zero hedge but these were worth recording.

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