Tags: Axel | Merk | Bonds | Bubble

Axel Merk: Bonds are a Bubble

By    |   Thursday, 16 Sep 2010 01:22 PM

Investors’ rabid rush into bonds has created a bubble in that market, says Axel Merk, president of Merk Funds.

“People like to chase trends,” he told Morningstar.com Video. “It’s good for cocktail talk, but may not be very profitable in the medium term.”

Investors aren’t taking the risks of bond investing into account, Merk says.

If Treasuries plunge thanks to unexpected growth in the economy or foreigners selling the dollar, that could have a huge negative impact on bonds.

“In any bubble scenario, people are discounting those kinds of risk,” Merk said.

“The supply of bonds has increased vastly, especially of government bonds, at the same time that yields are going down. That’s a clear indication that people are chasing performance. And that should give people a moment of pause.”

Stocks don’t look so rosy now either, he says. “Investors need to look for ways to diversify. We try to do it on the currency side.”

The advantages of investing in currencies are liquidity and a low correlation to stocks and bonds, Merk says.

Others are bearish on bonds too.

"In the long run, we don't think you'll make a good return" in government bonds, Mark Phelps, CEO of money manager W.P. Stewart, told The Associated Press. "To put all in Treasuries, looks like a mistake to us."

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Investors rabid rush into bonds has created a bubble in that market, says Axel Merk, president of Merk Funds. People like to chase trends, he told Morningstar.com Video. It s good for cocktail talk, but may not be very profitable in the medium term. Investors aren t...
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Thursday, 16 Sep 2010 01:22 PM
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