From Pragmatic Capitalism:
In the continuing series of reports from the 10th annual Strategic Investment Conference, presented Altegris Investments and John Mauldin, the question of why you should own bonds was answered by Jeff Gundlach who is the CEO and CIO of Double Line.
Why own bonds?
I have been presented with the question twice in my career. The first time was in the 90’s when bonds and stocks were highly correlated. If stocks rose, bond prices fell, and vice versa. Therefore, investment managers decided that they should only own stocks as there was no advantage in being diversified. Unfortunately, we all know how well this turned out.
Today, investment managers are making the same decision but for a different reason. With the Fed’s artificial suppression of interest rates to historic lows; the return from owning bonds has become painful particularly for underfunded pension funds. That pain, combined with the inflation of asset prices via continuing QE programs, has forced managers into overweighting stocks.
The other reason that managers are jumping into stocks is due to the belief that interest rates are going to start rising on “Tuesday.”
“Let me be clear. This is absolutely wrong. Yields are NOT going to rise any time soon.
There is one thing about being an asset manager. Timing is everything. The synonym for“early” in the investment business – is “wrong.” If you had bought the Nikkei two years ago you would now be right – after losing about 20%. Now is the right time.......MORE
