"You Can't Make Money in Bonds at These Levels. My Broker Tells me I Shouldn't Own Any Because They Don't Yield Enough"
If I had a $ for every time a prospective client, friend, family member, BNN host or BNN viewer told me that...I wouldn't need to own any.
I read a good piece from a former colleague of mine at Bank of America Merrill Lynch (BAML) today. I thought I would reflect some of it here as it laid out more succinctly our macro views on the state of the world today and our reasoning for owning long gov't bonds. We have been writing on this topic a fair bit lately, but it is laid out well here.
Michael Hartnett (not that we were friends while I was at Merrill but I was at a few conferences both in Toronto and NYC that we had him speaking at) describes the "war against deflation" being lost by global central bankers. We have been saying for some time that there is a risk that the world is in a deflationary state and that central bankers efforts with monetary stimulus have now become far-less effective than they were the past 8 yrs.
Hartnett claims that all of the central bank qualitative easing has failed to "lift the animal spirits depressed by the 4 D's: Excess Debt, Deleveraging, aging Demographics and technological Disruption". Well put by Hartnett. Our thoughts exactly...fiscal and monetary policy have failed to perform as originally hoped.
And look at the fact pattern...deflation and negative rates started in Japan, now have moved through Europe. But surely it can't happen in North America?
Well as I have written over the past week or so, gov't bonds are rallying like crazy the world over, because of Hartnett's reasons above
And now onto the title of this blog..."you can't make money in bonds". Really? And for Pete's sake, they can keep going and go negative, as they have in Japan and Europe...follow the fact pattern...it seems to be moving East to West, doesn't it?
Look at the global gov't bond returns on an annualized basis over the past 30yrs:
Fairly impressive, isn't it? And if we did regress all of those 30yrs of annual returns back and plot them against their annualized volatility, I bet we would find volatility to be very low.