These Are The Three Things That Could Trigger A Bond Avalanche

The comments above & below is an edited and abridged synopsis of an article by Bill Blaine

Three things could see the current gentle slippage in bonds become an avalanche. The first is unanticipated inflation drivers catching markets unawares; the second is overly active central banks making policy mistakes; the third is contagion as rising rates trigger weakness in stock markets and a raging tide of Zombie defaults, leading to a blowout among high yield names setting off wider spreads right the way up the credit ladder.

The next question is, where to go if the bond market is really over. Are stocks the answer?

The US tax repatriation game is likely to fuel a wave of stock buybacks. With $3.1 trillion being brought back to the US, what else would you do? However, the US market is in seriously overbought territory. Either the global economy is so changed it’s able to justify higher stock prices, or there is an immutable financial law that valuations get stretched and burst.

Bonds are set to tumble and stocks are overbought, and that’s a problem if you are looking to invest in financial assets.

Blaine proposes real assets. There are opportunities in shipping, housing, renewable energy and other asset classes (precious metals). “What’s not to like,” he says, “about not having to worry about how loud the pop in stocks and bonds will be.”