This article describes the awkward corner into which the stock market has backed big US pension funds. They are over-weighted in stocks and their 10-year return is negative. They are hoping to quietly bail out of the stock market and accumulate safer, higher yielding long term treasury bonds. These giants like to move slowly and steadily from one asset class to another. They don’t want to rock the boat.
But today the US government announced that THEY would be buying long term US treasury bonds too. Ouch! Apparently the US Federal reserve board doesn’t mind rocking the boat when they are trying to save their economy. Now what will those pension managers do?
Here’s one possibility: they will accelerate their selling of their giant stock portfolios and accelerate their buying of long term US treasury bonds.
Remember how sharply the US stock market dropped in Sept-Oct-Nov 2008? Remember how sharply US treasury bonds went up in Nov-Dec 2008? 2009 could turn out to be a good year to own bonds and another not-so-good year to own stocks.
Here is the source.
"Don't fight the Fed" is a truism that applies today. It may not apply a few months from now if (most likely when) it turns out that the Fed's action to save both the U.S., and effectively the global economy, fails.
Investors need to work on what we know today, and to re-evaluate the validity of our investment plan. In my case, TLT (long TBT) is no longer a short sale, since the demand for long-term US bonds now exists. The perception that inflation will rise will also change the short-term view of the market, too.
This is a must read: Bernanke Inserts Gun In Mouth