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Jens 'n' Frens
Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.
"A strong conviction that something must be done is the parent of many bad measures."
-- Daniel Webster
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Wednesday, August 28, 2002 :::
Debunking Bear-Market Myths
It really cracks me up to see how many people (and financial magazines) are rediscovering bond funds now that interest rates are at a multidecade low. This is a classic example of what the behavioral finance crowd calls "recency," which means taking recent events and assuming the same trend will continue into the future.
It also calls to mind Herb Stein's law, "If something can't go on forever, eventually it will stop." A bond bubble has to stop at some point, even more clearly than a stock bubble, since bonds have fixed coupons and maturities by the end of which one expects a better-than-mattress return.
I don't see the Fed putting on the brakes any time soon, but in a year or two, anyone too heavily into bonds is going to get whiplash.
::: posted by Steven at 8:07 AM
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