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Bonds: No Place to Hide

     Now that stocks have finally cracked enough technical indicators to get even some of the CNBC crew concerned, we are bombarded with recommendations for bonds. Especially long ones. 
    BAD idea. 
    It looks reasonable enough - now that equities are, to a first approximation, flat over 10 Years, Any predictable return for that period starts to look pretty darn sweet. The trouble is, twenty-twenty hindsight tends to yield perfect strategies for dealing with The Past. In military circles, it's called "Fighting the Last War" (the French are particularly good at this). 
    This time, that Past is telling advisors that, in deflations, demand for credit vanishes, leading to interest rates declining to severely low levels. So buying a Treasury bond now locks in a what will be a net higher rate, and/or capital appreciation you can reap by selling for a capital gain, if so inclined. 
    The problem is, This Time It's Different
    Yes, those are the 4 most expensive words in investing. And they are expensive. Even when they're True
     First, what's Not different: Then, as Now, bonds whose bases for repayment was the least bit questionable plummeted in value, for bonds only go up in recessions until there is perceived to be a risk of default. In the 30's, a handful of relatively pristine bonds managed to stay above this fate, but precious few. And US Treasury notes were among them. 
     This time, at the very outset of the crisis, the balance sheet of the very government of the land is in tatters, and its capacity to repay in question. Make no mistake, there is simply No Way the totality of government obligations can be met. The only options now are default, or inflation (probably a bit of both). And Both will savage bond holders, especially on the long end. 
    So heed not the siren song of the long end of the debt markets. They have their own kind of hell waiting for them. Hold Nothing with a maturity over 7 years (preferably shorter), and wait. This is nowhere Near over. 
   



Disclosure: Long IEI