Memo to all contrarians: The chorus of U.S. Treasury bond (NYSEArca: TLT) haters is (again) reaching a fever pitch. In other words, the more things change, the more they stay the same.
The latest person to voice their utter disdain for U.S. Treasuries is Leon Cooperman, Chairman and CEO extraordinaire of Omega Advisors. “Bonds will be the worst place for investors to put their money for the next three years,” said Cooperman in a Bloomberg TV interview. He added that “U.S. Treasuries is the least attractive investment in a world of ‘financial repression.’”* I image other vile things were said about repugnant Treasuries off camera by Cooperman, but we can’t repeat them because of PG-13 restrictions.
The bearish view of Treasuries can be readily found elsewhere.
“Right now bond should come with a warning label,” said Warren Buffett, Chairman of Berkshire Hathaway (NYSE: BRK-A) in an interview with Fortune magazine.
Interestingly, Buffett via Berkshire, still holds quite a few Treasuries, albeit short-term debt. Buffett wrote in his shareholder letter, “We primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions.”
Laurence D. Fink, the chief executive officer of BlackRock (NYSE: BLK) also has a dim view of bonds. “Investors should have 100% of their holdings in equities.”
Someone else who hates bonds is perma-equity bull Jeremy Siegel, a Professor of Finance at the Wharton School of the University of Pennsylvania.
Siegel wrote a stark piece for the Wall Street Journal titled, “The Great American Bond Bubble” – two years ago. Meanwhile, long-term Treasuries registered a 43.02% combined gain for 2010 and 2011, which is 26.18% more than his beloved stocks (NYSEArca: SPY) for the same period. Siegel now sees the Dow Jones Industrial Average (NYSEArca: DIA) topping at 15,000.
Interestingly, some former Treasury haters have seemingly changed their views.
Bill Gross’ Pimco Total Return Fund (Nasdaq: PTTRX) has been increasing its exposure to U.S. government debt with 5-7 year maturities (NYSEArca: IEI) along with Treasury Inflation Protected Securities (NYSEArca: TIP). The fund increased its exposure to U.S. debt from 30% in December 2011 to 38% in January 2012.
Gross shorted Treasuries last year and it wrecked his performance. In 2011, the Pimco Total Return Fund failed to beat the total U.S. bond market (NYSEArca: AGG) by gaining just 4.2% while bond indexes gained 7.70%.
Before the U.S. government lost its triple A-credit rating last year, shorting U.S. Treasuries was viewed as the “smart trade,” but it didn’t work. ETFguide warned its subscribers “not to bet against history” and that staying long Treasuries was unpopular but profitable.
Dr. Ben Bernanke and his motley crew at the Federal Reserve Bank clearly disagree with the disgruntled chorus of bond haters. The Fed has amassed a $1.66 trillion in Treasury securities and by not listening to Buffett and the other Treasury bond naysayers they’ve made, at least on paper, handsome profits.
Ultimately, somebody’s grossly wrong about the direction of the U.S. Treasury market. And it’s either the Fed or the consensus of mavens. The ETF Profit Strategy Newsletter gives a clear picture of what lies ahead for Treasuries.
*Footnote: The idea of “financial repression,” (not depression or recession) first appeared in 1973. The term was coined by a pair of Stanford economists to describe a series of steps used by the government to transfer funds to themselves in order to liquidate debt. In a deregulated market, this capital would typically flood elsewhere.