To The Moon

Now, some of you might be thinking: hmm yeah, ok, but we just saw bonds crap the bed during the 2022 mini-bear-market; and both stocks AND bonds ended up falling during that episode. Then add to that the fact that bonds are still basically in a bear market, and it would not be at all surprising to see some push back on the above sentiments I espoused.

And that’s actually a big part of the story here.

Investors have been scared and scarred away from treasuries, particularly as stocks have gone from strength to strength. That’s a big reason for why sentiment is so bearish on bonds, and why allocations have been drifted by market movements and active rotation down to the lows highlighted in the chart above.

It’s all part of the process of the market cycle, but I’d also hasten to point out that back in late-2021 my indicators were showing bonds (and stocks) as expensive and inflation risk was rising… in hindsight there were clear clues that bonds would end up being a source of risk rather than a dampener of risk back then.

But now that things have reset, I maintain and reiterate my assessment that bonds have a greater chance of playing their usual diversification and risk dampening role in the portfolio — especially in event of a deflationary downturn (recession).

So a fair bit to think about here, especially given the prevailing consensus…

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