Unfortunately this period of low
volatility and recovery is rarely used by investors as an opportunity to sell positions;
instead investors typically pour money back to the asset class in question
arguing that they are buying a favored asset class at a discount. Ironically, this was the case with gold in
2012 when holdings of the metal peaked in late December some several months
after the price had already peaked at a significantly higher level. This
allowed losses in the metal to remain fairly muted before its sudden collapse
in earlier this year, which was matched by substantial liquidation of gold holdings.
Over the next several months, it is likely the
bond market currently offers little upside and is far more dependent on the actions
of central banks than the equity market. While positions in individual bonds with short-term
maturities and reasonable yields should hold up well, the high grade corporate
bond market, bond funds, as well as the Treasury markets are likely to have significant
downside volatility at some point in the future. We will keep an
open mind about how much longer this period can last, but the likelihood of a
happy ending for those investors that take it for granted looks increasingly
remote.
