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As every schoolgirl knows, 1981 was the culmination of the post-World War II bear bond market. Long-dated Treasury yields peaked at 15%, up from the long-forgotten 1946 low of slightly over 2%....“The 1979-80 bond debacle,” Hall wrote near the summit of the yield mountain, “appears to have represented a final cataclysmic adjustment, as 15 years of traditional hopes about future lower inflation were demolished and replaced by present untraditional fears about future higher inflation. For the first time in our history, bond investors have given up.”...Hall died in 2011, but....his contrarian turn of mind might lead him to observe that the central bankers might yet succeed in their quest to stoke inflation, that the politicians are promising the voters the sun, the moon, and the stars, that bond yields tend to rise and fall over multidecade intervals and that $14.7 trillion of bonds nowadays yield less than nothing. “Shouldn’t you own fewer long bonds” he might ask, this time really meaning it.
Here is another piece of advise....
How to invest for this endgame? “As is probably evident,” the BlackRock chief investment officer for global fixed income leads off, “any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value—an asset that cannot be printed. We would include stocks (dividend yields are set on payout ratios, companies have some degree of pricing power, and shares outstanding are limited in number), real estate (it is difficult and expensive to expand the stock of real estate), and even commodity currencies like gold (again, limited supply and expensive to extract). The worst asset to hold in this hypothetical bonfire of the currencies? A “sovereign bond with a negative yield, closely followed by paper money at zero yield, both with a theoretically infinite supply.”...So says the man near the top of a firm that, at the end of the second quarter, held $2.19 trillion of fixed-income securities.”
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