PLP Advisors, LLC

Dennis Tubbergen: Is a Bond Market Exodus Underway

 
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Grand Rapids, MI -- (SBWIRE) -- 07/18/2013 -- The current economy in the U.S. can be hard to follow. Dennis Tubbergen is a financial advisor, author, radio show host and CEO of PLP Advisors, LLC and can be turned to when you need a little help understanding the latest economic happenings in the U.S.

Whether people enjoy his monthly newsletter at www.moving-markets.com or his blog at www.dennistubbergen.com, Tubbergen is devoted to breaking down current financial events so everyone can understand them. On July 17, his blog was titled Bonds? May Pay to be Careful.

"I recently wrote about what I believe will be the beginning of an exodus from bond funds," began Tubbergen. "During the month of June, nearly $80 billion left bond funds and based on my research, much of it has been deposited into cash accounts."

Tubbergen goes on to say that the interesting thing about stocks and bonds during a winter economic cycle is that the assumption that stocks and bonds move inversely is proven wrong from an historical perspective.

"In a winter economic season, BOTH stocks and bonds can decline which is a likely outcome over the near term - a couple of years or less - in my view.

The inverse relationship between stocks and bonds exists in an economic autumn or spring season but not in a summer or winter season. During summer and winter economic seasons, historically speaking, both stocks and bonds decline."

Below he quotes from a July 8, 2013 Market Watch.

Casually scan any financial news website and you'll read some variation of this story: Sell your bonds, now. They can only go down.

Let's call that one "sort of true." The bond market is clearly in the final throes of a decade long bull run. Interest rates have been falling steadily (and thus bond prices rising) for decades. After the 2008 financial panic, the world's central banks saw fit to drive rates even lower, in a bid to stave off total economic collapse.

It's bond-market basics but important to explain: As demand rises for "safe" investments, bond prices go up. If you are a bond issuer, such as a government or a corporation, heavy demand means you can get away with paying a lower yield. Borrowing gets cheaper.

The current bond market is an anomaly, however. Bond prices are very high (and yields very low) to a great degree because central banks are soaking up massive amounts of government debt. Without them, demand surely would fall and issuers would be forced to pay higher rates. Yields would rise, perhaps quickly.

That's the bond market dilemma. There's little room for bond prices to rise and a very deep valley into which they could fall. Yet current yields are, in some cases, negative after inflation, a sure loser of an investment. For bond market experts, these are rough waters. For retirement investors, it's a nightmare. Gone are the days of buying a 30-year Treasury bond paying 5% and simply forgetting about it.

Of course, the central banks' strategy can't go on forever. Yet it can go on for a while longer. The only certainty is that nobody really knows what will happen next — or when.

"The ‘what’ is always easier to predict than the ‘when,’" explains Tubbergen. "While the next major move in interest rates will have to be up in my opinion, which will be bearish for bonds, the timing of such a move is extremely difficult to predict. As the old joke goes, that’s why forecasters have two arms: so they can hedge their forecast by stating 'on the one hand we expect interest rates to rise and bonds to decline, but on the other hand central bank activity could hold yields down for a while longer.'"

Tubbergen goes on to say that while statements like that are not all that helpful to an investor, statements structured that way ensure success for the forecaster.

"While I won’t be so bold as to forecast the ‘when’, in my mind the ‘what’ is clear." Tubbergen concludes. "Both stocks and bonds will likely decline at the same time as deflation sets in and debt is purged from the system. Historically speaking, that’s what happens during a winter economic season."

To read the blog in its entirety go to http://www.dennistubbergen.com and select his July 17, 2013 entry.

About Dennis Tubbergen
Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM. To listen to his shows as podcasts go to www.everythingfinancialradio.com

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.