In the last few months in this blog, we have been calling bonds a major bubble. However, it now seems that many are starting to join us in this call.
The great fund manager Doug Kass recently has been purchasing TBT (the bond short fund), according to his tweets on Twitter.
There is no doubt in my mind we are in the midst of a bond bubble.
Remember, bubbles ignore reality and just see mass stupidity of buying.
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There was no reason to buy pets.com at $100 and there is no reason to buy a 10-year bond at 2.70 percent yield, especially with the U.S. government basically insolvent and about to issue trillions of dollars of more debt in the coming years.
Simple rules of supply and demand. Tell that to investors who want to buy this debt — we are going to have to entice them with higher rates for it.
Right now, investors are obsessed with the slowing economy and think that bonds cannot go down because they have not for the past 28 years. However, when the tide turns it will be huge.
If you look at the chart below, you will see that we are at the polar opposite of 1984.
Story Continues Below.
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In 1984, there was a huge drop in the price of the bond on fears that inflation would come back.
This took the bond almost back to its 1981 low.
However, the low held and the great bond bill market continued.
This rally has taken us almost back to the 2008 high. However, like the 1984 decline failed to take out the 1981 low, I think this rally will fail to take out the 2008 high. Bonds will head significantly lower and rates will head significantly higher.
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