I recently came across an article on Seeking Alpha entitled "U.S. Dollar and Long Bonds: Gotta Own Them". The author, eloquently I might add, renders the same talking points that we hear about a lot these days -- deflation is the trend. Debt destruction will continue on, rendering the Fed's attempts at generating inflation moot (at least for a while), and the U.S. is turning into Japan.
Let's cut through it and get to the point. While I could agree that the day of reckoning for bonds may not be imminent, and the game could go on for a while, why bother trying to time it so right? For 3% dividends? I am hard-pressed to see how the cost of living in the United States has gone down. And certainly not enough to suggest that the coupon you're getting with Treasuries (unless it's off of a whole lot of money) will foot the bill. At the same time, there is competitive devaluation going on globally right now, allowing you to look at an increasing U.S. Dollar Index and to draw the totally wrong conclusion about what it means with respect to the actual value of dollars in your pocket.
In the U.S., Europe, and Japan, growth is stagnating. But I also believe that there are countries in this world that played the game much smarter than we did, that have banking systems and economies that were not totally built on paper promises since proven worthless. They will grow, their currencies will prove more reliable, and they will end up pricing out their counterparts in the more "staid" and "mature" regions of the world. It won't be an easy process, but it will happen.
So, when I look at the investment universe right now, I think you own bonds for the capital appreciation component more than for the yield. And, that's why I think the bubble is forming. And even if it doesn't burst tomorrow, I don't want to be left holding the bag when it does.
