I like to get a variety of opinions and try and reach my own conclusions based on the reasoning behind those opinions. On CNBC this morning Doug Kass suggested that looming inflationary pressures are likely to end the huge rally in bonds that we have had.
It is hard to ignore the fact that a lot of money has been printed (to put it mildly) and that bond yields are at ridiculous rates. Being long bonds at the very least seems risky and could turn out to be horribly wrong.
Kass said his personal belief is that the trade of the decade will be to short bonds. I’m not really a fan of Kass as he is one of those guys like Dennis Gartman who spends far too much time talking. I would also remind myself that I heard similar messages in 2001 that Japanese Bonds were the short of the century. And that hasn’t turned it to be the case.
Kass did bring forward a couple of interesting points:
"It's interesting to note that the implied inflation rate in the 10-year TIPS has gone from 1.5 percent to 1.92 percent this week. So we're beginning to see inflationary pressures,"
“The 10-year Treasury yield is too low now considering inflation expectations. The benchmark note historically has been 3 percentage points above inflation and 3.60 percentage points above real GDP, which was 1.6 percent in the second quarter” (The 10 year note is just about 2.5% this morning)
"To me the fund flows into fixed income—$500 billion in the last two years—is eerily reminiscent of the movement into domestic stock equities in '99 and 2000, and we know the outcome" of that”
Interestingly that is quite similar to something I wrote just yesterday: http://www.gurufocus.com/news.php?id=107931
Here is the Kass video:
http://www.cnbc.com/id/15840232/?video=1598873629&play=1
