Jeremy Siegel is a genius!
WSJ: The Great American Bond Bubble
If 10-year interest rates, which are now 2.8%, rise to 4% as they did last spring, bondholders will suffer a capital loss more than three times the current yield.
The investment could potentially lose as much as the S&P 500 has lost since May 1st and then potentially recoup those losses in the following months as higher interest rates once again freak out the weakened housing and stock markets? OMG! Bubble!! Sell! Sell all bonds!
We believe what is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic.
The rush into bonds has been so strong that last week the yield on 10-year Treasury Inflation-Protected Securities (TIPS) fell below 1%, where it remains today. This means that this bond, like its tech counterparts a decade ago, is currently selling at more than 100 times its projected payout.
Why didn't I think to compare my TIPS to the tech stocks of 2000?
If we buy the 10-Year TIPS this very minute and hold it the full 10 years then...
1. We are GUARANTEED to get ALL of our money back, even if deflation strikes.
2. We are GUARANTEED to get an additional amount to compensate us for 10 years of inflation.
3. We are GUARANTEED to get an additional 0.96% per year in interest.
Yes sir. That's exactly like Jim Cramer's Winners of the New World, well, once you strip out all the guarantees anyway.
I wish you could see my eyes rolling now. They've never moved this sarcastically before. I can't even keep them in the sockets. It's making me so dizzy that I'm tempted to vomit.
Do You Believe There is Food Price Deflation? Mish vs. Consensus - Here’s the question of the day: Do you believe there is food price deflation? The reason I ask is the … Continue reading →
2 hours ago