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let's talk a little bit about this bond bear market you call this a bear market but one that's not dangerous for bond investors what does that mean really you know I think it's more of a 35-year bear market that's just coming out of hibernation it's March you know it the bear is starting to wake up growling a little bit but not significantly it means in fundamental terms that ten-year Treasuries which are now at two point five five probably over the year we'll go to 275 or 280 for a number of fundamental reasons and that yes that's a bear market but it doesn't really significantly affect total return in a negative way for bond investors it leaves them in my opinion flat for the year of 2018 right and in fact you say annual returns should still likely be positive do you see the 10 you're getting 2/3 percent and above and thereby spilling over in hurting equities well you know that's certainly possible like I think 10 years have broken a number of technical barriers in the last few days in the last week or so and you know some of the fundamentals are working against them for instance the nominal US GDP is probably inching closer to 5% than for and typically ever since the era of financial repression in beginning in 2009 you know the spread between nominal GDP and ten-year Treasuries has been about 140 basis points so if if we got the 5% nominal GDP which i think is possible in the next few quarters then you know a 360 10 years possible I don't see a going on but for 3 percents possible yes a bill when you look at your outlook for the year of 2.7% or whatever it may be across the yield curve what would be optimal for your investments for your positioning right now because as I look at some of your returns you've been lagging some peers so I wonder what would be the best scenario for you what that would allow you to catch up a bit well my my unconstraint fund is a very low volatility fund it's more like a load duration or even close to a money market type of fund and the returns have been you know very very good relative to those benchmarks what I see as an opportunity it is not necessarily investing in Treasuries or not necessarily investing in global bonds but in some cases selling them you know German 10-year bonds yield only 50 basis points UK gilts 10 years yield only 1.4 percent and they have inflation above three you know jg B's and Japan yield only ten basis points so to my way of thinking this is the beginning of a global movement and Treasuries are certainly leading the charge with Fed increases over the past twelve months but other central banks are catching up in terms of reducing quantitative easing and as the ECB hinted last night perhaps changing their outlook on monetary policy going forward yeah that's right they acknowledge that communication on monetary policy will need to change we saw the Euro rising we saw two-year yields in Germany spiking if we get a repricing of Europe what kind of effect does that have on the Treasury market how does that change a value proposition of US debt on the short end and on the long end well I think it does for instance over the past 12 to 24 months a lot of bond investors have sold bonds to the ECB and invested in US Treasuries at a pickup of 200 basis points or more to the extent that bond yields rise that makes them more attractive to domestic investors and insurance companies and therefore lessens the buying of Treasuries so you know there's no doubt that there's a global connection in terms of yields there's a large disparity between them but they tend to move together during periods of central bank tightening and I think we're beginning to see that now almost on a global basis bill speaking of connections as scarlet alluded to you made the Oprah connection and the men connection in your global in your investment outlook that is out and you sort of make some jokes about men in general and you say I could go on and on I won't I don't dare I'm curious why you dared though to make the joy you know you you tend to have provocative posts and and sort of attention-grabbing jokes at times in these investment outlooks I'm curious why you waded into this one well because I think it's topical and relevant you know and it needs to be brought to the surface you know I did that in a rather comical way by talking about men and some of their problems but in a sort of an a joking fashion but at the same time suggesting they're women you know since the biblical eve I guess had gotten the short stick or the short rib and you know it was time for continuing change so I I think my outlooks have always been for 10 or 20 years yes controversial but hopefully you know provocative from the standpoint of social change you say you're with Oprah for president does that mean you'd support her in 2020 well I like what she said and I like how she said it and let's put it that way you know she doesn't necessarily have political experience but you know who knows I think it's time for a change it was time for a change ever since last November when Trump was elected and you know obviously Hillary Clinton is not going to be that future change so let's start looking at some potential candidates and Oprah's us a strong force in terms of opinions and in terms of voicing those opinions Oprah would certainly be a wild card right in in the political arena to bring it back to the bond market as we draw these analogies are there any wild cards this year it seems as though the landscape is pretty mapped out is there anything unexpected here is it just a matter of inflation for example that you're on the watch for this year yeah I think so you know the bond market is anticipating slightly higher inflation we see oil prices we see the possibility of higher wage gains now with with you know Walmart raising their minimum wage etc although has a small effect it's probably the beginning of a movement so unanticipated inflation you know the breakevens in the tip market 5 10 30 years out or about 2% and so you know if the CPI tomorrow gives us a sign that perhaps 2% is just a minimum target then you know bonds could suffer going forward so I'd watch the inflation outlook not just the new US but in the ECB and maybe even in Japan
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