Year

2020

Bond Bear Market Begins!

DYI:  Given that Congress will not address the deficit, doesn’t even care about the deficit, and if anything, keeps talking about making the deficit worse through additional spending (the war in Iran) and additional tax cuts, along with the Fed’s digital money printing, well then, higher inflation and higher nominal economic growth may be the only solution in sight for Bessent and Warsh.

Bond vigilantes

The bond market, however, is not enamored with these policies. Bond prices continue to sell off thus pushes rates up higher in a saw tooth manner.  Expect during periods of economic growth eventual higher highs interest rates and during recessions higher lows! 

Be as that may be, these higher rates are giving the stock market competition especially the S&P 500 (1.00%) or Total Market index funds (1.03%) where their respective dividend yields are sub atomically low.  These buyers believe they are investors when in fact are now speculators not just expecting higher prices but outright demanding.  The market measured by the S&P 500 Shiller PE is at nose bleed level of 42.17 very close to the all time high of 44.19 set back in the year 2000 a quick glance at a stock chart back then and you’ll see what you’re in for!  

IMO bonds over the next 10 and very possibly 15 years will outperform stocks.  Simply put most long term investment grade corporate bond funds yield is around 5.75% the compounding effect (especially for those who are dollar cost averaging such as a 401k) will overwhelm the dismal 1.00% (or lower depends on the funds expense ratio) dividend yield for stocks.

Also IMO stocks are being set for one hell of a multi-year decline sweeping away years of returns for the stock purchaser as equities revert back and over shoot their long term mean.  Buying bonds – along with a bit of gold and silver (see model portfolio) – will help keep your money intact waiting for much lower stock market valuation putting the individual back in the driver seat as an investor as opposed to today’s speculator. 

Till Next Time