Monday, April 25, 2016

Baffling Headline of the Day

April 24, 2016
Most Dangerous Bond Market in History Divides BlackRock, Allianz

Bond investors are taking bigger risks than ever before.

I read the headline but could not figure out how BlackRock and Allianz could be divided over Weimar Germany's bond market. Investors bought bonds, hyperinflation occurred from 1921 to 1924, and investors lost pretty much everything. That's what history says. It was pretty much the most dangerous bond market ever.

I started thinking some more. Maybe they are talking about the hyperinflation in Zimbabwe? No, that can't be it. Why would BlackRock and Allianz be divided? Doesn't take a German V-1 rocket scientist to understand that hyperinflation is bad for bond investors whenever and/or wherever it happens.

Then I started thinking even harder. Maybe we're hyperinflating right now? Are gasoline prices several hundred trillion dollars per gallon? No, that's just me being silly.

I put on my super thinking cap and opted to maximize the strain of my brain. Could it be that the headline has been sensationalized to maximize the fear factor and/or the click bait? No, I find that impossible to believe.

I'm stumped. Can't make sense of the headline at all. Afraid to read further lest my mind explode.

Guess I'll just continue to hold my long-term inflation protected treasuries to maturity and give a rat's @$$ over the opinions of those who feel differently. It's not like I'm ever looking to sell my bonds to them, so what should I really care what they think?

If I got a dollar every time I was told how dangerous my bonds were, I'd be retired now. As a side note, I'm retired now. Go figure.

Further, if this truly is the most dangerous bond market in all of recorded history, then my sympathies to the stock market investors. We bond investors will be taking you with us when we implode. In case you hadn't heard, the Fed had been buying bonds in the hopes of boosting risk assets. You know, wealth effect, supporting markets, and what not.

And lastly, it has been my long-term theory that long-term real yields have been dying over the long-term for good reason. Our long-term economy is/was deteriorating. I put my money where my mouth was by locking in real yields before they fell even further. The days of making easy money off of easy money are ending. It's just a theory. Your theory may differ. Feeling lucky? You know, in the most dangerous markets in history? Pick your poison.


Who Struck John said...

The only sense in which this bond market is a danger is if one intends to sell bonds before maturity, in which case a rise in interest rates would cause a drastic fall in the market value of the bond. So really, it's a dangerous market for bond FUNDS.

Unless the next president intends to double the debt over their term(s) in office like the current president and his predecessor did. At some point it might become a bill To Big To Pay. Then you might have a default risk, LOL.

Stagflationary Mark said...

Who Struck John,

The trick is to die before hyperinflation or default. Been investing in long-term bonds since I was 35 in 2000. So far, so good, lol. Sigh.

Granted, if the economy continues to deteriorate over the long-term but at an ever-increasing pace, might need to take up smoking, crab fishing, skydiving, and/or licking radium to balance the scales a bit. ;)