"I was 21 years old in 1981, so, for all of my adult life I have lived in a world of declining interest rates," writes Jim O'Shaughnessy. "It's these very long-term trends that tend to become ingrained in our brain and determine how we think about certain investments."
O'Shaughnessy likes to look at the very long-term and he goes back to 1900 for this one: Prior to December 2008, the 20-year Treasury had not even once provided an annualized real 4%-plus return over a rolling 40-year period. The financial crisis and QE changed all of that and likely reinforced the appeal of Treasurys at exactly the wrong time.
40 years too long? It's even worse for 20-year periods where - between 1900 and June 2013 - real returns on the 20-year Treasury are negative 48% of the time! And that's under normal conditions. After the outperformance of the past few years and with the long bond at less than 4%, the chances of making money over the next 20 years are about zero, and the chances of losing money - perhaps a lot of it - are quite high.