Toward the end of his letter today, in which he makes an impassioned case for lower Treasury rates over time, David Rosenberg mentions that he has heard that bulls on Treasuries are now at the 98% level; there were said to be 99% bulls in December 2008, at the peak of that buying panic/short-covering rally in Treasuries. Of course, that was followed by a massive bear market in Treasuries, with yields nearly doubling on the 10-year and rising over 200 basis points on the 30-year.
It took over a month after the Lehman/AIG mess for yields on the 30-year bond to get unstuck from the 4-4.5% trading range. By then, it was obvious that a global credit collapse and severe economic downturn in the U. S. were underway. Now, while there is lots of anxiety, and a new recession or significant intensification of an ongoing depression are certainly possible, but it is also possible that economic activity will strengthen or at least that leading indicators will turn up.
Certainly the price of silver and platinum are treading water rather than collapsing, and gold is becalmed on a multi-month basis; and there is no general price deflation that anyone can see.
So, both on fundamental (inflation and governmental supply-demand), technical and sentiment bases, Treasuries look risky to me here on a trading basis. And, pricing of munis has followed that of Treasuries upward. I suspect that people and institutions have been capitulating from cash and ever-disappointing equities into bonds, and that this has almost all the characteristics of an intermediate top in the bond bull market. Is it the final hurrah? Time will tell; I suspect not.
More and more the financial landscape is beginning to look as though Treasuries are turning into trading vehicles, with the Japan scenario held out to justify aggressive price targets for the bonds (i.e., yet lower yields). However, in U. S. history, if one thinks back to the 1930s and 1940s, when Treasuries got to very low yields, high quality dividend-paying stocks did better on a multi-year basis, and bonds generally provided zero or negative returns after inflation. People forget how fast consumer prices rose even in a number of years after 1933 in the rest of the Great Depression years and especially in the post-Depression 1940s, which was a high-inflation decade.
While both the charts and the short-term economic trends don't look too promising for stocks, I am getting interested in financially very strong U. S.-based companies with large to very large international sales, such as McDonald's (mentioned yesterday), ExxonMobil, Intel and others, on a total return basis for portfolios with a longer-term horizon.
I also continue to believe that gold's technicals and "fundamentals" make it a very sensible approach to wealth preservation, both through direct physical ownership and through share ownership in ETFs such as GTU and PHYS that own allocated bullion in vaults in Canada.
Family commitments will limit posting over the next several days.