Bond Bull Market To Continue: Independent Financial Advice
Bond bull market from 1981-2011 is measured incorrectly
There have been several deflationary eras where bond bull markets have lasted about 20 years. During the Great Depression one lasted from 1930 to 1951 with rates at the lowest point about seven years after the bull market started. (Bond bull markets usually occur when there is a bear market for stocks). There were two long depressions in the 19th century. Japan has beenin a 21 year depression.
Commentators love to criticize the current bond bull market by saying that because it has lasted for 30 years that therefore it is time for the cycle to reverse. However, the 1981-1996 era was one of interest rates dropping from absurdly high levels, which is why the bond bull market occurred. That should be viewed as one type of bond bull market that was back-to-back with the current deflationary market.
Starting with the Asian crisis of 1997 Greenspan and his successor Bernanke kept lowering rates to keep the economy from crashing. The past 14 years since then has been a new type of bond bull market where investors reacted to the threat of deflationary crashes. From 1998 to present there has been no increase in ‘real” private sector GDP; since 1999 no “real” increase in personal income. Thus the idea that a bull market can’t last over 20 years is not applicable, since this a new one (that began in 1997) that simply happened to be adjacent to another one. The Volcker era Fed of 1979-1986 had very high “real” rates and when “real” rates came down to normal levels in the 1990’s the economy became normal, only to fall into a disinflationary era of bubbles and crashes and lack of developed country growth.
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The world has encountered and will encounter huge, unresolved debt-deflation crisis. The sovereign and consumer debt loads are so high that new Keynesian stimulus may not work. Inflating our way out of debt would only help pay off the 30% of debt or obligations that are not indexed to inflation or short term rates, so it is doubtful that inflation will return in the next few years.
I expect the Soft Depression to continue from roughly 2000 to 2017 at which time the bond bull market (and the stock bear market) would have run its course. This would be a 36 year bond bull market, except that I'm dividing into two smaller bull market eras.
I have written “When will interest rates return to normal?” and “Treasury Bonds to be OK”.
Investors should seek independent financial advice.