Paul Singer Thinks Bonds Are the 'Biggest Bubble in the World'

Another legendary investor calls on investors to sell bonds, urging them to buy this asset class instead

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Sep 13, 2016
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This month, analysts at Deutsche Bank (DB, Financial) declared that bonds are dead. “We argue that we’re about to see a reshaping of the world order that has dictated economics, politics, policy and asset prices from around 1980 to the present day,” their report said.

The new world it envisions will force the 30-year-plus period of impressive bond returns to a close. Trends like globalization and demographics — big factors driving world growth since the 1980s — are starting to deteriorate, or even reverse.

This week, Paul Singer (Trades, Portfolio), founder of the $27 billion Elliott Management, joined Deutsche Bank in calling the bond market “the biggest bubble in the world.”

Singer strongly believes that investors should look away from fixed income. “I think owning medium to long-term G-7 fixed income is a really bad idea...Sell your 30-year bonds.”

While it doesn't always get as much attention, the bond market (at $60 trillion) is many times bigger than the global equity market. Roughly $10 trillion of that is negative yielding. At these prices, bonds contain a “tremendous, never-before seen asymmetry between potential further reward and risk,” said Singer.

Deutsche Bank's report included a table outlining just how odd the previous four decades plus have been. Since 1980, every single global bond market has seen positive annualized returns. The four preceding decades, however, were rife with measly or even negative returns.

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So what does legendary investor Paul Singer (Trades, Portfolio) think you should own?

He thinks that gold is “underrepresented in many portfolios as the only money and store of value that has stood the test of time.” Singer believes current prices to be “undervalued," adding that owning gold is “opposite confidence in central banks.”

Sean Boyd, CEO of Agnico Eagle Mines (AEM, Financial), agrees with Singer. Even if you missed gold’s climb to a two-year high in early July, Boyd recently said that the rally in gold miners is just getting started.

“I think in this cycle, they will ultimately set an all-time high,” Boyd said. “There’s still a tremendous amount of debt in the system. There’s an inability to create conditions for growth. You’ve got a negative-interest-rate environment, which is a great environment for gold from an opportunity-cost standpoint. And you’ve still got very strong demand coming out of China and India. So all the factors are there that can steadily move gold up.”

Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.

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