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Ever since the bull market in government bonds began in 1981, the Wall Street mantra has been: (1) bonds are not worthy of major consideration in an investment portfolio, (2) inflation will erode their value over time, (3) and inflation is here to stay. Everybody seems to always be influenced by their most recent experience. Those managing portfolios, and really all those born after the 1930s, have bought into “stocks for the long term” and have had no idea at all that deflation and a rerun of the 1930s could ever happen again. It is just this overwhelming opinion that has allowed us to buy government bonds at great prices, while the investment world laughed up their sleeve at us.

Please note the chart below which depicts the movement of the long bond on a yield basis for lo these many years. 

Adapted from Gluskin Sheff

Please note that the yield, if it follows its previous course, will come to somewhere around 2-3% and remain there for an extended period of time. As you analyze the chart, it becomes evident that the years from 1977 through the early/mid 1980s were probably not the norm, but an aberration. It just fits what we believe has actually taken place – Keynesian interference in the economy, which caused high inflation, then a period of disinflation, followed by a debt explosion, and now a Zoloft depression coupled with probably deflation. We have come full circle. Those who do not know the past are destined to repeat it.

Central Plains Advisors, Inc.

Information contained in these commentaries is based upon information obtained from sources both external and internal which we consider to be reliable, but the accuracy of the information and the recommendations contained herein cannot be guaranteed, nor do they constitute a solicitation for the purchase or sale of any securities mentioned herein. Information contained in this commentary may not be reproduced in any form without written permission from Central Plains Advisors, Inc.

Disclosures: As benchmarks for comparison, the indexes used represent an unmanaged, passive buy-and-hold approach. The volatility and investment characteristics of the benchmarks cited may differ materially from those of CPAI. Please be advised that the comparison to the S&P 500 is not an apples to apples comparison, as they are a different class of assets. The account performance figures reflect the reinvestment of dividends and capital gains. Past performance may not be indicative of future results and does not guarantee positive returns. The performance results for 1991 through 2009 have been independently compiled by CPAs from information provided by CPAI. The period of 1991-1999 was one of generally rising stocks and bonds. The period of 2000-2003 was one of generally lower stocks, but rising bonds. The period of 2004-2007 was one of rising stocks and bonds. The year 2008 experienced a stock market crash and average bond market. 2009 experienced a strong stock market and positive bond market.