Not Bond Bull, The Bull Of Bonds

In January 2018, Bill Gross was at it again. Famous for being the longtime public face of PIMCO, he’d acquired as much notoriety for being the boy who cried bear. By the way he talked and by what he predicted, you’d have to think the US Treasury had visited some horrible circumstance on a young Bill early in his life. It’s like he was possessed with unnatural hatred bonds for some reason.

In truth, he just disliked low-interest rates because as a quant trader, a pioneering one for the bond market, he presumed that the next big payday in the sector would be a rout. With interest rates so low following the 2011 crisis, Gross reasoned that with a third (and fourth) QE they really had nowhere to go but up. Surely, Bernanke wouldn’t fail a third time (and a fourth).

What is this, Japan?

A joke, sure, but there’s truth underneath. People have a very, very hard time believing that the US economy (or the world economy, for that matter) could eve be darkly diving down the path set by the Japanese a decade or so before. No freakin’ way.

It didn’t matter that the Japanese had even gone through the same hysteria. In the middle 2000s, JGB yields rose to their highest level in many years. Economists as central bankers were thrilled at how a combination of two QE’s along with continued zero interest rate policy (ZIRP) when given enough time seemed to have been effective.

Seemed.

The “bull market” in bonds was declared ended several times, the Japanese told to brace themselves for higher interest rates. And if not all the way back to nominally like they were in the eighties, then at least partial normalization much closer to that than zero.

The US is not Japan! The US is not Japan! The US is not Japan!

That’s all this really amounts to. The Japanese allowed themselves to fall into their “deflationary mindset” largely because their central bankers were ineffective. That’s exactly what ours said in June 2003. They actually laughed at how they would perform so much better, especially as the US economy had the added benefit of (assumed) structural factors going for it that the Japanese did not.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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