ZF Capital

THE HARDEST THING ABOUT having money is knowing what to do with it. But in my experience, the best trades feel mandatory, like an act of self-preservation. There’s no time for thinking, considering, waffling. There’s no decision to be made.

That’s why, while bonds might seem risky given their strong run during the last few years, I’m compelled to be a bull right now, no matter what happens in Iraq.

First, and most important, the trend in bond prices is still up (with bond yields heading down). Regardless of the news cycle, the market moves in trends, which tend to persist longer than most people tend to believe. Indeed, more than any other reason, the best argument to be a bond bull is that the bond market itself is strong.

Second, as we pointed out last week, the prevailing attitude toward bonds these days is doubt. Talk to most pundits, and it’s just a matter of time before cash “on the sidelines” goes rushing back into stocks. Recent rallies have been just “safe haven” buying — nothing substantial, just a temporary “flight to quality.” Given the long bull market in bonds, buying them these days (and thus betting on lower interest rates) seems, well, a bit stupid. From a contrarian’s perspective, this is bullish for bonds. (more…)