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"Are we heading for a Bond Bubble in 2011?"

 

"Is this a Bond Bubble"
 
According to Ned Davis "There has been a lot of talk recently about bonds being a “bubble.” While I have a pretty good record of spotting bubbles, I still think they are difficult to define precisely in this case, where the evidence is very mixed. I did, however, want to feature the evidence, and let clients make up their own minds. The main evidence for a bubble goes something like this. The evidence shows that over the past three years,public inflows into bond funds have soared by $537 billion, similar to the three years before the “Bubble of 2000” in stock funds (+ $575 billion). Moreover, in the past 12 months, investors have chased low bond yields adding $327 billion to bond mutual funds, and pulling out $73 billion from stock funds." At Platinum Investment Advisors, Inc. We still feel that clients that are retired need to maintain a portion of their assets in fixed income portfolios but I have been selling long bonds, and intermediates and shortening up duration as well as taking some profit in bond portfolios. Even though we firmly believe whole heartedly in asset allocation now is probably a better time to buy stocks with new money vs. Placing it in a bond at an anemic rate and praying that you don't lose principal when the feds starts to raise interest rates. We don't have core inflation but if we get inflation in the US.... If inflation does return, bonds will feel as if they had indeed been in a bubble, particularly if foreigners dump their holdings. Almost 50% of Treasury securities are owned by foreigners. We may very well be in a stagnation period much like Japan has been for many years and we might not have high rates for two or three years down the road and we may not have to worry about inflation but it will eventually come. Call us soon if you have any questions about your investment portfolio 404-593-7707. platinuminvestmentadvisors.com


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.