BTW, here's my latest prediction. Everyone is worried about the bond bubble worldwide with $13 trillion of negative yielding bonds out there. This is a mess. Here's what I think will happen. Bonds will not implode right away like everyone thinks. Instead, the Fed is going to start a rate decreasing regime here shortly to combat impending recessionary forces and to pump liquidity into worldwide markets to help avoid contagion from things like DB going under. China's CB will do the same. So will Europe's. The recessionary forces will have their way, because a recession is already baked into the cards. That will happen in the next year or so, maybe before the election. That will hammer stocks. Prior to that, people will keep rotating into bonds and away from stocks, which will drive yields further towards zero in the US over the next 1-3 years. Interest rates on bonds will come down, but bondholders will benefit from an increase in bond value on existing holdings. After stocks crash, then bonds will decline maybe 5-10%, leaving no safe place, except cash, which will also have pitiful yields. Then we may get more QE from the Fed and CBs worldwide.
So my bets for the next 1-3 years are as follows:
* for now, I'm holding tight to short dates (2-3 years duration) Treasury holdings and avoiding corporate bonds, except for the safest of the safe corporates...this will provide a decent return, while limiting downside due to low term risk
* when the Fed start lowering rates this year, I'll start easing out of my bond positions and raise cash
* when stocks crash sometime between Sept this year or next year, I'll start easing back into stocks again. I'm expecting a 50% crash over the termination of the business cycle and that could take 2 years to play out, as the tsunami of lowering rates and QE will work mightily to try to counteract that asset deflation
In conclusion, something wicked this way comes and CBs worldwide will have to resort to a lot of QE to keep the party going and I don't think they can stop a stock market crash, even when they do. |
