Investing to beat the coming blow up in the bond markets and you are not going to get a warning first!Posted on 01 December 2012 with 2 comments from readers
It’s instructive to read that legendary bond investor Jeffrey Gundlach is predicting a blow up in global bond markets in a lengthy interview on Bloomberg this weekend (click here). It is also surely interesting to hear that the Norwegian sovereign wealth fund is going into US commercial property next (click here).
You don’t need to be a genius to spot the greatest boom of several centuries in bonds. Interest rates paid on bonds are at an all-time low, so that means the value of the bonds that pay them is at an all-time high.
We’ve warned of this before on ArabianMoney, only to have interest rates fall even lower and bonds to move up again. But there is always an end to any party and the bigger the bubble, the bigger the fall to come. It’s the subprime crisis part two or three, depending on how you assess these things.
Jeffery Gundlach, who naturally got the subprime crisis right too, is well known as a consistent bond fund manager successfully managing his $35 billion DoubleLine Total Return Bond Fund. He warns that the end of the bond bubble will come out-of-the-blue with few alarm bells and that now is the time to start switching out.
He recommends hard assets like gemstones, art and commercial real estate as well as Chinese companies, US natural gas producers and gold-miners because he considers them to be bargains. ArabianMoney investment newsletter subscribers (subscribe here) will know that we take a similar line with a basket of hard assets we think have even better prospects.
We still have the benefit of being a small, niche investor able to target the very highest returns rather than being weighed down with the baggage and scale of Wall Street. Our top local equity pick over the last year delivered 47 per cent, bond market investors swoon at Mr. Gundlach’s 13.2 per cent over the past two years.
‘I’m waiting for something to go kaboom,’ he told Bloomberg. ‘If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.’
True you do need to take a long term view on this. It’s a bit like investing in gold and silver which are also ideal hard assets to own to counter the upsurge in inflation that is coming. That does not mean precious metals always go up, and they have moved sideways this year but on a five year view you have doubled your money already.
Assembling a long-term portfolio takes courage and perserverance, not qualities we have always found in Arabian investors who like the quick profit most. But this is the way to succeed best as an investor, just so long as you get the big picture right of course.