Bill Fleckenstein thinks bonds more overvalued than stocks.
A Rant on Runty Rates
Returning to bonds, I gave this market a fair amount of thought over the weekend, and it occurs to me that the bond market is in some ways more absurdly valued than the stock market. With the 10-year yielding a little over 4.10% (about 100 basis points lower than the Fleckenstein-observed, non-government-sanctioned rate of inflation), with oil at $60 plus or minus, and with the housing market in a full-blown mania (of course, the bond market is one reason for that), why any investor would willingly accept this ludicrous coupon is beyond my comprehension.
Usually, folks make the argument that the bond market is where it is because it's forecasting deflation -- a concept I find nearly impossible to believe. Maybe we're going to have deflation somewhere down the road. But if that's going to occur, as I've stated often, the path required to get us there lies too far in the future, with too many complications, to be discounted currently by the bond market.
The Stuff That Manias Are Made Of
Pricing in the bond market seems to me to be a function of various factors (as I've discussed in the past), none of which has anything to do with value. But the absurdity of bond yields is part of what powers the real-estate market and, tangentially, part of what powers the stock market. Said differently, if the bond market ever starts to decline in earnest, that for sure will be curtains for both these other markets (although they could decline on their own for other reasons).
I haven't commented on the bond market for the longest time, simply because I could not understand (and still can't, really) how it was where it was. However, the more I think about it, the more I believe that the bond market, as well as the real-estate market, are far more ludicrously valued than the stock market. That's not to say that stocks look attractive, but just that they seem a bit less outlandish, compared to those two markets." |
