When Dave Rosenberg and Jim Grant squared off for a debate — dubbed “Bonds are for Losers” — in late March, the 10-year was sitting at about 3.90 and the 30-year at about 4.75.  The room was overwhelmingly on Grant’s side (yields have nowhere to go but up), although Rosie did sway some opinions during the debate.

Fast forward to today (or at least yesterday’s close):  10-year at a 3.40, 30-year at a 4.17.

Rosie ahead on points.

As a client of mine recently put it regarding flight to safety:  The U.S. is the best looking horse…at the glue factory.

Category: Analysts, Fixed Income/Interest Rates, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to ““Bonds are for Losers” Revisited”

  1. Mannwich says:

    Well, my “loser” TLT holding is doing just fine lately, thank you very much. A return OF my capital keeps me sleeping soundly.

  2. wally says:

    ‘The U.S. is the best looking horse…at the glue factory.”

    Yet, big funds are compelled to do something…the smart thing might be to return the money to their investors but somehow that just isn’t likely.

  3. Ny Stock Guy says:

    When the shit hits the fan, your back is to the wall, and you are hanging over the cliff by your fingertips, the whole world still runs to the U.S. bond market.

  4. “Bond Investors” should glean some insight from:
    contrabandista13 Says:

    May 6th, 2010 at 4:35 pm
    …. let’s just all give a big hand to NNT (Taleb)….. Bet the pennies to make the dollars and not the other way around….

    Best regards,


  5. RW says:

    “The U.S. is the best looking horse…at the glue factory.”

    … with the Yen to show and gold to place.

  6. ACS says:

    The bond bears point at all the money that governments and their agents are creating or are committing to create but for now the private sector seems to be destroying money at an equivalent pace. When that destruction stops then watch out below in bonds.

  7. dss says:

    I was on the side of Rosie after watching the video, and it seems that he was right.

  8. dss says:

    Here is the money quote:

    After his presentation, which was sort of uber-macro level, Grant asked him what do you like/not like long and short term. Pellegrini said, “long term, I don’t want to own USD-denominated debt, or US equities.” In a throw away line, he said “Short term, I think the market crashes.” It was almost an aside.

  9. flow5 says:

    I predicted this. Forecasts are mathematically infallable. Contrary to economic theory, & Nobel laureate, Dr. Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, & (2) inflation indices, are historically, always, fixed in length. However, the FED’s target, nominal gdp?, varies widely.

    Grant, by admission, has his eye on the long term anyway. I will let Dr. Leland Prithcard, Chicago Economics 1933, explain this:

    Long-term interest rates are determined not only by the various supply and demand factors that affect short-term rates but also by a unique factor; namely, inflation expectations. The expectation that price levels will chronically increase injects an “inflation premium” into long-term rates. Under these assumptions, the present supply of loan funds would decrease (in both a quantitative and schedule sense). That is to say, lenders as a group, reduce the volume of loan funds offered in the markets, and refuse to loan any particular volume of funds (except at higher rates that will compensate for the expected rates of inflation).
    I.e., higher inflation expectations generate higher inflation premiums. The higher the expected rate of inflation, the higher long-term rates will climb (this yield-response prevents federal deficits from being “inflated away”.
    Conversely, borrowers expecting to be able to pay off loans with depreciated dollars will increase their demand for loan-funds. Higher interest rates will choke off the economy long before inflationary forces reduces the burden of debt. I.e., of the two effects, the supply side is the more important, since it literally establishes the minimum for long-term rates.
    Interest rates may respond to influences other than inflation rates, either current or expected (there is a demand side factor (government deficit financing) operating in the loan funds market as well as a supply side factor).
    At the same time supply is decreasing, the demand for loan funds is expected to rise as a consequence of the expected massive increases in federal deficits (for savings), (the larger the deficit, the greater the demand). The deficit financing impacts on the supply side (as well as the demand side) are pushing interest rates up or retarding their fall. With supply decreasing and demand increasing (in the schedule sense), there is only one way for interest rates to go – up.

    Interest rates will fall when there is an increase in the supply of, and a decrease in the demand for, loan funds. If inflation expectations diminish, supply (in the schedule sense) will increase. Lenders will be willing to lend the same amount at lower rates, etc. The demand for loan funds will be reduced by bringing under control the new voracious appetite of the federal government for (savings).

  10. jz says:

    “The U.S. is the best looking horse…at the glue factory.”
    That is better than mine. I said the U.S. sucks but Europe and Japan suck more.

  11. jz says:

    All my U.S. bonds didn’t move an inch in the market turmoil. The one that did were my Venezulean bonds. Ven, for all its faults, has $90 billion in debt, which amounts to 50% of so of GDP, and has $30 trillion in oil. Their debt is currently yielding 13%. What kills me is that the “safe” PIIGS nation of Europe were yielding 1 to 3% just a short time ago. If anyone knows how to go long Ven bonds and short Spanish ones, let me know.

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