The Last Stage of a Bubble is Acceptance

Tulip bulbs, the Dutch East India Trading Company, Japanese real estate, tech stocks, US housing—what these disparate assets have in common is a history of bubbles. Sovereign bonds are set to join that list soon as their bubble nears its end.

A year ago, the 10-year US Treasury yielded 3.2% and essentially only Japanese bonds yielded less than zero. Today, negative-yielding bonds total over $16 trillion globally, with issuers ranging from Austria to Slovenia. Despite negative interest rates, massive inflows continue.  Think about that.  Sovereign governments are CHARGING investors interest to buy their bonds and yet people are still buying them!  At negative yields, assets perceived to be the safest in the world may actually be among the riskiest.

Denial ain’t just a river in Egypt – In 1999, tech stocks defied all logic and valuations. Champions of the frenzy denied fundamental measures of value, calling it a “new paradigm.” In 2007, housing bulls pushed home prices sky-high, arguing that “housing prices never go down.” And at the height of the 17th-century Tulip Mania, one scholar claims that a single tulip bulb would have fetched enough to “purchase one of the grandest homes on the most fashionable canal in Amsterdam. Today, justification for this sovereign debt bubble includes arguments like “negative rates are normal.” If there was any doubt, one sure sign of a bubble is when people stop questioning whether it’s a bubble.

The contagion effect is real –  When tech stocks deflated, a recession soon followed in 2001. The popping of the housing bubble in 2008 caused the deepest recession since the Great Depression. We can’t say for certain what will cause today’s conditions in government bonds to change, but when it does the outcome is not going to be pretty.

Source: Blackstone Joe Zidle Chief Investment Strategist


Given our concern about this bubble, we are using alternative solutions for protection – staying mostly in shorter-term bonds, non-traditional bonds and investments that have the ability to adjust to rising interest rates.

Stay tuned – this could get interesting!




Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s