U.S. Treasurys are among the most overvalued assets and investors buying them are poised to lose money, said James Montier, a strategist at Grantham Mayo Van Otterloo & Co. known for his often bearish views on markets.
The strategist said U.S. “high quality” stocks, emerging-market shares and timber are among the best investment options.
“The most obvious example of where markets are acting without margins of safety is bonds,” Montier told more than 700 investors and clients at a conference organized by Societe Generale SA in London yesterday. “You are not compensated for the long-term risk of holding bonds.”
Treasury 10-year yields have fallen to 3.32 percent from 5.22 percent in June 2006 as investors sought the relative safety of government-backed notes after the Standard & Poor’s 500 Index plunged 57 percent between 2007 and March 2009. Investors holding shares in the American benchmark now get 6.23 percent of their investment back in earnings.
“Dating the ugly sister of bonds instead of equities makes no sense,” Montier said. “I’d rather wait for Cinderella. Bonds suck, equities are overvalued, cash yields zero. There isn’t much opportunity.”
Yields have rebounded since reaching 2.38 percent in October as U.S. economic data signals a recovery is accelerating. Economists, consumers and companies such as General Electric Co. have become more confident about this year’s outlook after President Barack Obama struck a tax-cut deal with Republicans last month.
Real yields in the U.S. remain below the 2.66 percent average of the past 20 years even while the country’s budget deficit has grown to 8.8 percent of the economy from 1 percent in 2007.
Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross said this month that while he anticipates the end of a 30-year bull market in bonds, it’s not the beginning of a significant bear market as economic growth and government stimulus fail to translate into broader employment gains.
Montier was joined by his hosts and ex-colleagues at Societe Generale, France’s second-largest bank, in saying Federal Reserve Chairman Ben S. Bernanke’s policy of lowering the cost of money to stimulate economic growth is ill-fated.
“I don’t think Bernanke has learned at all,” Albert Edwards, a London-based global strategist at Societe Generale, said at the event. The central bank chief is pursuing “exactly the same policies the Fed has been chasing for a decade. Pushing up asset prices, trying to build prosperity on the back of that. There is payback.”
Montier and Edwards, who used to write research together, have been voted top strategists in Europe’s Thomson Extel surveys. Montier left the French bank in 2009.
London-based Montier, Societe Generale’s former global strategist, studies the effect of emotional decisions in investment approaches and has advocated buying so-called value stocks that he believes have been mispriced by investors. Grantham Mayo is based in Boston and manages $104 billion for clients, according to its Web site.
© Copyright 2023 Bloomberg News. All rights reserved.