Yves Lamoureaux, president of Lamoureux & Co., correctly forecasted a 2.5 percent yield for 30-year bonds. Now, he tells Yahoo that the bond market has reached its top because of “crowd herding.”
The European crisis, the need for commercial banks to improve collateral and the abundance of frustration among stock investors drove these three groups to crowd into the bond market, Lamoureux explained. Treasuries were therefore one of the beneficiaries of the European debt crisis, as money flowed from Europe into the United States.
Lamoureux claims he expected “one event which is a spectacular once-in-a-lifetime rally.” But now he believes that the pressure has built and bonds will be forced down with higher European yields.
Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.
Such a call is not new by any means.
“I'm worried,” George Sauter, Vangaurd's chief investment officer, told the Associated Press last month in response to a question about the risk facing investors who are heavily weighted in the bond market.
“Unfortunately we may be seeing the bond market's version of 1999 and the run-up of tech stocks in the stock market. We're building a pretty big bubble in the bond market and bubbles don't end pleasantly,” Sauter told the AP.
Sauter does not see the disappointing end arriving until the economy strengthens and interest rates rise.
Likewise, Lamoureux is not expecting a rapid crash and burn event. He expects the market to “zigzag” downward and he claims to be buyer of Treasuries right now. His words of caution are for those who plan to stay in bonds for years to come.
“If you buy and hold your bonds for the next ten years, you'll get crushed,” he told Yahoo, adding that he expects the 30-year yield to be 6 percent in 10 years.
However, Pimco’s Bill Gross, manager of the world’s biggest bond mutual fund (Pimco Total Return) doesn’t think there is much risk in bonds.
“I don’t see a lot of risk in bonds,” he told The New York Times. “The Federal Reserve is buying, and there’s no real risk until the Fed declares the war is over.” The central bank is purchasing $85 billion of Treasurys and mortgage-backed securities a month.
Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.
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