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…)

IN THE LATE 1990S, the equity culture reigned supreme. Employees wanted stock options, CEOs got ‘em by the boatload, and nothing seemed more lucrative than owning a piece of corporate America.

While the market has swooned, the public fascination with stocks as an asset class has barely budged. Even after another tough year in equities, by and large, stock ownership is still seen as the golden goose. Fund flows have slowed, but make no mistake: The herd is still in stocks.

Meanwhile, precious few have any indication of what’s been going on in the bond market, which continues an unprecedented bull run. Yes, the stock market has rallied from the lows of late July, but I would suggest the huge move we’ve seen in bond prices is the real capital-markets story since last Sept. 11.

As regular readers of this column know, I first started talking about bonds and the importance of portfolio income more than a year ago. Yet even given the dramatic outperformance of fixed-income securities since then, most investors are still apathetic at best. Even the recent introduction of bond ETFs hasn’t encouraged a more active approach to this oft-misunderstood asset class. (more…)