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Posts Tagged ‘greater fool theory’

First Bonds, Now Stocks

August 8th, 2016 by Kurt L. Smith

The bond market has performed well of late and municipal bonds added to their top ranked performance last year. Yields seem to move in only one direction, down, making prices appear to only go up.

Around the world bond prices have gone up so much, yields on trillions of dollars of bonds are now negative. The trend in bond prices has continued for so long (thirty-plus years) and has produced seemingly consistent returns for so long, investors seem loath to do anything except buy more.

Whatever the reason, whatever the narrative, almost all pundits are on the same side of the boat: low yields and high prices will continue. Money managers may be buying high priced negative yielding bonds now because they are judged on their current performance, not the negative performance calculated if they hold the bonds to maturity in five, ten or more years. Good performance seems to beget good performance, so enjoy the ride!

If you liked the bond market rally this year then I think you will really enjoy the stock market rally which appears to be gathering steam. Stocks rebounded from their early season low in February and new all-time highs are being set regularly of late. Like bonds, as the rally continues to gather momentum, expect stocks to generate excitement, the excitement previously held for bonds. (more…)

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