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There is NOT a Bond Bubble — at Least Not Yet

I’m going to start this month with a prediction that might surprise you. I do not think that bonds are in imminent danger of a crash.

I do agree with the growing legion of investors—including the legendary Warren Buffett himself—who believe that the bond market is in a “bubble” of sorts. And I would certainly agree that at current yields, bonds have much greater downside potential than upside, making them quite risky. Nominal bond yields can’t fall below zero, after all, but they can rise significantly from here.

That said, I think this bubble might have a little longer to run, and this is good news for us. Even though we have no exposure to bonds in the Sizemore Investment Letter, we benefit from low yields as they make our income-oriented investments more attractive by comparison. Of course, I would expect the SIL’s recommendations to do at least relatively well in almost any interest rate environment, as most pay dividends that are both high and growing. Still, all else equal, I am quite happy to see rates stay low, and I think it is highly likely that they will.

Here’s why: Bubbles practically never crash when they are widely expected to. And right now, if there is one consensus in the world of investing, it is that the bond bull market is over. Take a look at the chart below. Fully 95% of money managers interviewed by Barron’s are either bearish or neutral on Treasuries! Continue Reading →

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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