From James O’Shaugnessy, author of What Works on Wall Street, Best-Performing Investment Strategies:

 

Category: Books, Fixed Income/Interest Rates, Think Tank

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.

5 Responses to “A Generational Selling Opportunity for the U.S. Long Bond”

  1. maynardGkeynes says:

    This article really doesn’t answer the basic question of why today’s market prices don’t already reflect the dire prognostication the author makes about future bond prices. QE is cited, but even here, the impact of Fed policy on long term rates is modest, if at all. What the author is actually saying is that he is a better predictor of future interest rates than the entire bond market, which seems quite unlikely;

  2. jmccas says:

    Everything in this article sounds valid and makes sense with what we know of bonds, interest rates and the markets. The only problem I have with that, is that every time we are sure something is going to happen as a result of something, it does not. You hear it all the time now (I say it too)…interest rates are climbing and they are going to continue to climb and bonds will suffer. But maybe bonds hold up. Maybe bonds hold their value over the next five to ten years. You never know.

  3. TLH says:

    What happens to earnings if the cost of funds goes up for businesses?

    • You are engaging in a single variable analysis –which we know that is an especially poor way to figure out what happens next.

      Perhaps a more fruitful way to address this issue is to understand why the cost of funds are going higher: Is it demand for capital, reflecting economic growth and likely gains for earnings? Alternatively, has inflation driven credit costs higher?

  4. Berkeley Maven says:

    Eventually, we’ll likely see rates rise again, which won’t be so hot for long term bonds, but I have a number of issues with this article.

    1. Is he talking about buying a 20-year Treasury and holding to maturity, selling or buying another as needed for the 10, 20, and 40 year measurement periods? I bet not. I suspect he’s talking about keeping a constant 20-year maturity in Treasuries. Who does that? Maybe insurance companies with liabilities continually averaging 20 years?

    2. Makes no sense to compare the S&P500, a reasonably broad measure covering about 70% of US market cap, to 20-year Treasuries, which must be a small fraction of all US gov’t, agency, and corporate bonds. I suspect that if you compared, say, S&P500 to Barclays Agg, results would be notably different.

    3. The underlying premise seems to be stocks vs. long bonds, as opposed to complementary uses. Most agree that short-to-intermediate maturity bonds are a better complement to a stock dominant portfolio, i.e. pair short duration with long duration assets for diversification. In a rising rate environment, you’ll get your principal back quicker with a shorter bond, so you’ll be able to reinvest at higher rates.