Tuesday, May 15, 2012

Richard Bernstein - "Wall of Worry” Continues in the Treasury Market

History shows well that diversifying asset classes tend to outperform. That has been happening with respect to treasuries for quite some time, yet investors refuse to embrace treasuries. Fears regarding federal finances, inflation, and the willingness of foreigners to continue to own treasuries have generally scared investors away from treasuries.
The proverbial “wall of worry” continues in the treasury market. When will investors realize that it’s not the 1990s, and that high-fee, alternative assets continue to offer inferior diversification opportunities relative to good old-fashioned stock/bond/cash asset allocation?

Read it at Richard Bernstein Advisors
An Alternative to Alternatives
By Richard Bernstein


At the beginning of the last secular bull market, long-term Treasuries reversed their correlation from negative to positive and held that position for the entire 18-year run. Since returning to a negative correlation at the turn of the millenium, stocks have experienced a secular bear market. Whether or not that relationship is merely a coincidence is anyone’s guess but it’s worth a moment of consideration. Given the opposite starting point of Treasury yields (double digits in the early 1980’s and under 3% now), it seems unlikely that the correlation would become positive in the near-term aside from both asset classes experiencing bear markets. That being said, correlations remaining significantly negative may be a reminder that the secular bear market in stocks continues.  

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