Euthanasia of the Bond Market

For sensible investors, the Federal Reserve and other Central Banks have ruined the bond market.

Only losers would buy U.S. Government bonds. WYSWYG.

10-year TIPS are priced at -0.0077% - meaning that $100 will be worth $92.50 ten years from now in 2020 dollars.

  • The Fed has increased the broad money supply (MZM) by 21% since February
  • Much of this new money has been used to finance the U.S. deficit - what we used to call "debasing the currency."
  • Capital markets are choking on the deluge, such that the velocity of broad money has plunged to historic lows
  • Runaway inflation is an accident waiting to happen. As in Germany of the 1920's, severe damage would fall upon pensioners and holders of long term, fixed rate bonds.

Sensible investors might want to look elsewhere until this storm passes by.

As shown in the Efficient Frontier graph to the right, a Prudent Investor might consider 50% equities, 30% gold and 20% single family homes.

Posted July 2020

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