Date: Wed Dec 28 2005 13:06
trotsky (permabear@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
n.b., i said SECULAR bull market. looking at the trading range action of the past three years isn't particularly illuminating in this context. you need to look at a continuous 25 year chart, then it become more than obvious.
i realize it's trendy to be bearish on US govt. bonds, but it still is wrong. most people ( erroneously ) believe that once foreign CBs slow down their bond buying , bonds are doomed. this overlooks the huge potential domestic demand waiting in the wings. as a matter of fact, since Japan has ceased its forex interventions over a year ago, the US bond market has barely budged. why didn't it collapse, as the bears expected?
with insurance companies, pension funds and other institutional investors still at a stock/bond allocation that mimics the 1990's allocation models, there is enormous potential for the allocation pendulum to swing all the way back to where it came from ( 70/30 can become 30/70 again ) . in addition, with 63% of bank assets exposed to real estate lending it's easy to see that the banking system itself could become a big source of demand for bonds - it all depends on the disposition of the housing bubble. since bubbles have an innate tendency to eventually result in reversions to the other extreme ( not just the mean ) , this untapped source of bond demand will sooner or later come to the fore.
Date: Wed Dec 28 2005 12:48
trotsky (permabear@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
well, as far as i'm concerned, i think that bond yields will go a lot lower than anyone now thinks possible ( long term that is - i'm usually agnostic about short term moves, although the market structure currently also supports a short term rally ) .
look around and see what the most bullish forecast for bond prices is out there, and then halve the resulting yield-to-maturity and you'll be close to my expectations.
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