Robin Griffiths' World Investment Strategy
Comment of the Day

March 04 2011

Commentary by David Fuller

Robin Griffiths' World Investment Strategy

My thanks to the author for permission to post this authoritative report, published by Investment Research of Cambridge. Here is an interesting section on Bonds, posted without further comment:
It is over now

If this is not the end, it is the beginning of the end. The great bond bull market of the past 20 odd years is over.

If it appears to be still showing signs of life from now on, it is the final death tremor. A chicken with its neck broken can still run round a farmyard for a while.

The yield on the 30-year US Treasury bond has backed up ever since the Fed embarked on QE2.

Mr Bernanke says that this will not cause inflation, but nobody outside the US believes him as they are already seeing it take a hold.

There are two capital flows going on right now that were not seen last year. One is a temporary retreat out of emerging markets and the other is a more permanent exodus out of bonds.

Governments are not trusted. Governments print money and trash the currency. Governments effectively steal money from their hard working and prudent savers and give it away to Wall Street predators. This is no way to win an election.

Unlike the leopard, if the incumbent President wants to stay on, he will have to change his spots. He now has to stand for small government that will cut its spending and get out of the way of the animal spirits that can save the economy. He will have to say he will cut some of the big four spending agencies: medicaid, medicare, social security and defence.

When the yield on the 30-year US Treasury bond backed up to 4.7%, it broke the 10-year moving average or primary downtrend in the bond market. If this move overshoots to 5% the signal will be crystal clear.

The Fed may worry about high unemployment and falling house prices, but everybody else has already got inflation on their radar screens.

In this environment we do not want bonds, we need real assets. That is why so much money is going into equities even though most of them are not that cheap. They are the least bad option. Bonds are worst.

Unless the Fed intervenes aggressively to drive long rates right down again, the bond king is dead and the equity king will be crowned.
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