Forgive me if this comes across a little jumbled, but I'm working my way through another objection that I have to certain economic talk. Essentially, I'm putting myself in the middle of another pissing contest between various heavyweights of the field from the perspective of a non-economist. So, caveat emptor.
One of the constant points of contention between these guys is who made the most prescient calls on the economy, bond rates, CPI, commodities, yadda yadda yadda. To a certain group who I will call the IS/LM Keynesians (it shouldn't be too hard to figure out who I'm referring to), they like to scold their ideological counterparts for predicting hyperinflation and high bond rates in the midst of a liquidity trap. But, it goes further, to the extent that certain well-known investors made the same call bearish call on bonds and interest rates, these Keynesian jokers like to say you'd have made more money following their advice than that of the paid professionals. And, if this was a sprint rather than a marathon, they could comfortably do their victory dance and go home.
But, think through the implications of that last bit. If you followed their lead, and got long treasuries in the past year or two, yes, you would have a capital gain on your investment. But, you'd also be losing purchasing power simultaneously on your coupon (just by comparing the yield on the 10-year against CPI, regardless of whether you think that is a meaningful measurement or not). Lest we forget, the virtue of fixed income is supposed to be the income piece, not the price appreciation on principal. When you then factor in the prescription that these Keynesians are offering -- tons of stimulus to jack up inflation and growth expectations -- they are ultimately giving terrible financial advice. To wit, those bonds will continue to pay the same lousy yield, but the principal component will get beaten down, so there is no longer any trade-off between capital appreciation on the one hand and lost purchasing power on the other. And these guys are not doling out advice through their blogs to professional investors who will know what to do and when to do it. Their readers will buy bonds, thinking they are the safest place to be, and a few years out, they will learn a very hard lesson.
So, caveat emptor indeed.
