{"id":17264,"date":"2010-12-23T12:19:52","date_gmt":"2010-12-23T17:19:52","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=17264"},"modified":"2010-12-23T12:19:52","modified_gmt":"2010-12-23T17:19:52","slug":"long-term-bonds-the-best-possible-investment-think-again","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2010\/12\/23\/long-term-bonds-the-best-possible-investment-think-again\/","title":{"rendered":"Long-Term Bonds: The Best Possible Investment? Think Again"},"content":{"rendered":"<h3><span style=\"font-size: small;\">A free Club EWI report reveals why bonds do not provide shelter from the storm <\/span><br \/>\n<span style=\"font-size: small;\"> <\/span><\/h3>\n<h3><span style=\"font-size: small;\">By Elliott Wave International<\/span><\/h3>\n<p>TREASURIES &#8212; the very name conveys a thing that is secure,                 protected, and will appreciate over time. Otherwise, it&#8217;d be                 called something like &#8220;<em>TRASH<\/em>eries&#8221;  or &#8220;Mattress                 Stuffers.&#8221; Then, there&#8217;s the official seal of the US Department                 of Treasury: its image of a scale and a key symbolize  &#8220;balance&#8221; and &#8220;trust.&#8221;<\/p>\n<p>And, finally, there&#8217;s the mainstream economic experts who have                 it on good authority that long-term bonds increase in value during                 financial instability and uncertainty.<\/p>\n<p>On this, the following news items from November-December 2010                 reflect the enduring faith in fixed-income assets as the ultimate                 safe-havens:<\/p>\n<ul type=\"disc\">\n<li><em>&#8220;Bonds Tumble On Signs of Economic Recovery&#8221; <\/em>(Reuters)<\/li>\n<li><em>&#8220;US Treasury Prices Rise as traders positioned for                     negative headlines&#8230;.&#8221; <\/em>(Associated Press)<\/li>\n<li><em>&#8220;Treasury&#8217;s rise as investors sought shelter in                     safe haven assets amid rising fears about sovereign debt                     woes in the eurozone. The slow motion train wreck is likely                     to play out over year end as each country plays musical chairs                     with solvency. The market&#8217;s concern here is &#8216;What is next?&#8217;                     The 10-year Treasury yield will fall if the problems get                     worse from here.&#8221; <\/em>(Wall Street Journal)<\/li>\n<\/ul>\n<p>There&#8217;s just one problem with this notion: namely, bonds (of                 any denomination) do NOT have a built-in disaster premium. This                 is the myth-busting revelation of the latest, free report from Elliott                 Wave International. The resource titled <span style=\"text-decoration: underline;\"><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa156&amp;dy=aa122310&amp;url=http:\/\/www.elliottwave.com\/club\/next-major-disaster\/default.aspx?code=45532%26articleid=1930\"><em>&#8220;The                 Next Major Disaster Developing For Bond Holders&#8221;<\/em><\/a> <\/span>includes                 a thoughtful selection of various EWI publications that expose                 the very real vulnerability of bond markets to economic downturns.<\/p>\n<p>The premier study on the subject comes from Chapter 15 of EWI                 President Robert Prechter&#8217;s book <em>Conquer The Crash <\/em>by                 way of this memorable excerpt:<\/p>\n<blockquote><p>&#8220;If there is one bit of conventional wisdom that we hear                   repeatedly with respect to investing, it is that long-term                   bonds are the best possible investment [in downturns]. This                   assertion is wrong. Any bond issued b a borrower who can&#8217;t                   pay goes to zero in a depression. Understand that in a [major                   contraction], no one knows its depth and almost everyone becomes                   afraid. That makes investors sell bonds of any issuers that                   they fear could default. Even when people trust the bonds they                   own, they are sometimes forced to sell them to raise cash to                   live on. For this reason, even the safest bonds can go down,                   at least temporarily, as AAA bonds did in 1931 and 1932.<\/p>\n<p>The <strong><span style=\"text-decoration: underline;\">first chart<\/span><\/strong> (see below) shows what                   happened to bonds of various grades in the deflationary crash.                   And the <strong><span style=\"text-decoration: underline;\">second chart <\/span><\/strong>(see below) shows                   what happened to the Dow Jones 40-bond average, which lost                   30% of its value in four years. Observe that the collapse of                   the early 1930s brought these bonds&#8217; prices below &#8212; and their                   interest rates above &#8212; where they were in 1920 near the peak                   in the intense inflation of the &#8216;Teens.&#8221;<\/p><\/blockquote>\n<p><img decoding=\"async\" src=\"http:\/\/www.elliottwave.com\/images\/freeupdates\/bondyieldsdepression.GIF\" border=\"0\" alt=\"\" \/><\/p>\n<p><img decoding=\"async\" src=\"http:\/\/www.elliottwave.com\/images\/freeupdates\/bonddepression.GIF\" border=\"0\" alt=\"\" \/><br \/>\nThat&#8217;s just the tip of this myth-busting report. <span style=\"text-decoration: underline;\"><em><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa156&amp;dy=aa122310&amp;url=http:\/\/www.elliottwave.com\/club\/next-major-disaster\/default.aspx?code=45532%26articleid=1930\">&#8220;The                 Next Major Disaster&#8221;<\/a><\/em> <\/span>uncovers flaws in other widely-accepted                 bond lore, including these two assumptions:<\/p>\n<ul type=\"disc\">\n<li>High -yield bonds rise during economic expansions<\/li>\n<li>AND &#8212; municipal bonds provide a steady refuge in times of                   economic stress.<\/li>\n<\/ul>\n<p>Read more about Robert Prechter&#8217;s warnings for holders of municipals                 and other bonds in his free report: The Next Major Disaster Developing                 for Bond Holders. <strong><span style=\"text-decoration: underline;\"><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa156&amp;dy=aa122310&amp;url=http:\/\/www.elliottwave.com\/club\/next-major-disaster\/default.aspx?code=45532%26articleid=1930\">Access                 your free 10-page report now.<\/a><\/span><\/strong><\/p>\n<div>\n<p><em>This                     article was syndicated by Elliott Wave International and                     was originally published under the headline <a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa156&amp;dy=aa122310&amp;url=http:\/\/www.elliottwave.com\/freeupdates\/archives\/2010\/12\/21\/Long-Term-Bonds-The-Best-Possible-Investment-Think-Again.aspx%26articleid=1930\"><strong>Long-Term Bonds: The Best Possible Investment? Think Again<\/strong><\/a>.                     EWI is the world&#8217;s largest market forecasting firm. Its staff                     of full-time analysts led by Chartered Market Technician                     Robert Prechter provides 24-hour-a-day market analysis to                 institutional and private investors around the world.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>TREASURIES &#8212; the very name conveys a thing that is secure, protected, and will appreciate over time. Otherwise, it&#8217;d be called something like &#8220;TRASHeries&#8221; or &#8220;Mattress Stuffers.&#8221;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-17264","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/17264","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=17264"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/17264\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=17264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=17264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=17264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}