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Is Selling Bonds the Taste of Things to Come? - Mish - Global Economic Analysis

All in all, this was actually a pretty good article by Mish. What made it so is that it speaks of a developing trend in where money is not staying. As you know, i am a big proponent of following the money. i believe that what we are witnessing is the beginning of what will be a great rotation of money out of government paper as folks begin to realize that Bernanke cannot control the interest rate curve.

The question that must be answered is where will the money go? To be sure, it will not all go to the same place. But i think it a very safe bet to assume that most of it will not get parked in banks. Not only do they not pay enough in interest to offset inflation, but it is now an open secret that should a bank get into trouble, the government will not bail them out. It will be the depositors who will be forced to save the banks. And that makes them an extremely poor choice for anyone with a still functioning pre-frontal cortex. Municipal bonds are also not likely to benefit from the rotation out of Treasuries as it is pretty obvious that they are in big trouble (Detroit) and that the Fed will not be coming to their rescue.

Some of it will go to corporate bonds. There are still a number of good, solid companies out there that will not be going away any time soon and things such as pension funds will look to them for both their relative safety and predictable yields. Another area where it will be going--this one not mentioned by Mish--will be into real estate. It is still under valued and so we can expect the formation of capital pools to start buying apartment buildings.... To be sure, we will see some of the money being directed into commodities as more folks become antsy about the ability of government to meet their obligations. Both the actual commodities as well as their producers will benefit. But as i see it, the largest beneficiary of this rotation will be the stock market over the next 2 or so years. Stocks have outperformed every other asset class since 2000 and many also pay dividends. That they pay dividends should not be overlooked, for that is a very attractive feature, especially to seniors living on fixed incomes. i realize that my call on the stock market runs contrary to what most analysts are expecting and may seem foolhardy given that these markets have taken quite a beating of late. But there will be far too much money coming out of government paper looking for a place to land. So let me go way out on a limb here and predict that the Dow will go up to 22,500 within the next 2 years. It is not a call that i feel as confident in as i did with my prediction at the end of March for gold to drop $400, but i do believe that money is going to continue to rotate out of government debt and i know that it has to go somewhere.

Where do you see it going?

Commented 4051 days ago

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Beginning of the headline :Treasury yields are on the rise as I have noted on numerous occasions recently. The action has prompted the world’s largest hedge-fund manager, to throw in the towel on treasuries and inflation-linked TIPS. Please consider Dalio Patched All Weather’s Rate Risk as U.S. Bonds Fell As the bond market plunged in late June, Ray Dalio convened the clients of Bridgewater Associates LP, the world’s largest hedge-fund manager, to tell them that a fund designed to withstand a broad range of market scen... Read More

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