The End Of The Bond Bull A Pre-Condition To Hyperinflation!

Yves Lamoureux's picture

I was a super bull of long-term bonds. I stated my case over 3 years ago with a yield target on 30-year maturities of 2.5%. Back then, the timing and structure looked right for another run to new highs. Discussions about hyperinflation were premature.

The pre-condition I had been waiting for has now arrived. In my opinion, we have seen the end of the bull market in bonds.

There is a delicate balance in time, where mega trends and short term trends meet. Price has now shaped reasoning and convinced investors of future stability, and such conviction could not come at a worse time. You see, we are heading toward the D.I.I.G. Can you dig it?

The Demographically Influenced Investment Gap is one giant mismatch of assets to liabilities. The growing future needs of financing in equities and bonds cannot be matched with future available disposable savings.

This will create great opportunities for long term patient investors as assets compete for your dollars.

Hyperinflation in the sense that people understand it today will not surface as expected as it is not straightforward.

The roadmap that we had been following involved removing investment choices one after another. We had the big boom of equities back in the 1990’s, when boomers converted their term deposit gradually to stock funds. It represented the first bubble and as one can see, we are at similar levels of that decade.

Following that first stock crash, we had an exodus of investors moving to real estate and there we created our second bubble. Essentially, both stocks and real estate have been written off as principal choices of investment, and what remains and is now the prime focus of investing, are bonds.

As a pre-condition to hyperinflation this choice must be removed as well and it will be.

In the end, the herd will move to whatever play has not hurt them already.

Lost choices remain the key driver of the herd crowding into hard assets.

My own view of the coming loss of confidence or of a crystallizing moment is not based on high inflation but its substitute, i.e., credit risk. It might be a philosophical difference to other views, but in the end, the result is the same. Bonds have tended to act as expected as risk preference shifted. However, bonds now have neither a credit risk premium and nor an inflation risk premium. Our proprietary model is clear: treasury paper of 30 years has the correct valuation of 3.50% and above. That is the level we would feel confident as buyers.

There will be short-term long opportunities in bond market, but they will be within the context of a very long term bear market. The coming volatility in rates will be huge an unnerving for the regular investor who opted for the stability of his capital. In my opinion, being both long and short would be an interesting proposition.

I had forecasted one year ahead the behavior of the Fed to buy bonds.It seems too obvious to forecast that they will have to sell. I had been frontrunning demand and it is time in my opinion to be frontrunning supply !

Yves Lamoureux

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Diogenes's picture

The herd is going to move what money? How is the average investor supposed to have any money left after a series of bubbles has cost him half his account, again and again over the last 10 years? And after he has lost his job, his house, and had to cash out the last of his investments to feed his family?

I suspect anyone savvy enough to move to hard assets has already done so. When the herd finally gets wise it won't make much difference to the price.

KingTut's picture

The implicit idea here is that the boomers destroy (bubblize) everything they pile into.  The sheer scale of the boomer demographic creates bubbles eveywhere it goes.  Stocks, real estate and now bonds. Bonds have gone up in price, but down in yield.  As their portfolios roll over bonds are becoming unattractive to boomers: no income, and no appreciation.

They (we) are getting old and scared.  We're going to live to 100, but only have enough savings to last a couple of years, maybe.   Once you retire you DO NOT want to loose your savings, because you can't earn them back. Old farts  get very conservative with their money.  With shadow stats putting inflation at 8%, that means inflation protection is mandatory.

The next obvious target is hard assets, esp PMs.  That's the one thing we haven't been burned with (yet).  Get 'em now and be prepared to exchnage it for other tangilbles once the blow off top comes courtesy of the boomers.

nofluer's picture

We're going to live to 100, but only have enough savings to last a couple of years, maybe.


Nope. Obamacare + Liverpool Care Path will change that.

Atlantis Consigliore's picture

"Pop" Goes the Bubble;  Weasels and Regulators for lunch?  Twinkies desert.

Bond PUts anyone?  

duckhook's picture

What would happen if the headlines read 'the Fed is going to be  selling 85 billion of treasuries/month for the next threee years."remember the Fed's average maturity is around 10 years.Anyone think that interest rates will only go to %3.5

spooz's picture

So, "Yves", not a very original monikor, with Yves Smith from Naked Capitalism having one of the top financial and economics blogs. 

Didn't read your whole post, full stop when I read the first paragraph:

"I was a super bull of long-term bonds. I stated my case over 3 years ago with a yield target on 30-year maturities of 2.5%. Back then, the timing and structure looked right for another run to new highs. Discussions about hyperinflation were premature."

So, first things first "Yves", point me to your analysis from 3 years ago.

The other Yves actually has a wiki:

bart.naf's picture

If you look at the bottom of the article, he identifies himself as: Yves Lamoureux


You can look at his prior posts both here and elsewhere for his predictions and record over the years.





spooz's picture

Okay, I finally figured out who he is. I clicked on Yves, then the "blog comments" link, and got nothing. His website is under construction, but when I google his name, I can see he is a gold bug who has posted on Business Insider.  Had to do some digging to get there, though.

I still think he should include his last name on his posts to avoid confusion. When I think of economics and Yves, I think of Naked Capitalism.

The only post I can find for this guy is from September 2010 on Business Insider.  Nothing before this on Zerohedge either.  What am I missing?

He said to dump equities and gold and go long US$ back in September 2010.  I can't find anything else he published since then.

disabledvet's picture

First off I did read the whole post. Second Yves Smith's Naked Capitalsim blog is one of the best there is. Third I think Pinky and the Brain here is right to ask for a reference to the claim of being bullish. And fourth "the blow has already happened in Europe so Imexpect a continuation of that over there." We'll see about Japan which clearly has been in its own world for some time. Something about that "guy who has a billion nickels stored in a wharehouse" comes to mind. (as a note besides saying you should long land three years running I've also said be long lumber...which has had a big move up this year. I think that move will hold this time. I'm getting close to making a long call on trucking as well.)

malek's picture

Naked Capitalism is a good blog, but that Yves has a few invisible lines where she has "that is inconceivable" blocks - but those are never explicitly mentioned, reasoned on, or openly discussed in her blog.

ZH is much better, no punches are pulled.

edifice's picture

Na, long hard drive manufacturers. Going to need lots of space to store the zeros.

malek's picture

Nah, standard number format in databases is already decimal(38,10) today

r3phl0x's picture

The counterargument is that the Fed will continue to print enough to prevent defaults in nominal terms, suppressing credit risk, and buy enough government paper to suppress interest rate risk. Perhaps that will fail, but, it's "working" (in their view) so far, and the Fed may stay irrational longer than you can stay alive.

kito's picture

poor yves.........actually believes there is a bond "market"..............

Bananamerican's picture

i lolled a bit at this: "Our proprietary model is clear: treasury paper of 30 years has the correct valuation of 3.50% and above."

My proprietary model has 30yr at 15%....

Imminent Crucible's picture

Well, he did say "the Fed will have to stop buying and start selling."

Lost Wages's picture

I believe a bond market crash is more likely than a stock market crash. After all, there's no one left in the stock market to hurt. All the muppets are in bonds.

economics9698's picture

The Fed is leveraged 52-1 loaded up with low interest long term bonds and sub prime mortgages.  If the Fed raises the Fed funds rate 44 basis points they are insolvent.  WTF do you think they will do?

The bond market crash will be that much more explosive because of the Feds actions.  Watch the fuck out and dump your paper now while you can.

The herd is in the corral and the butcher is warming up in the slaughter house.

Tell this guy to write in English next time Tyler.