When a situation goes to extremes, it can result in either a great opportunity or the possibility of severe danger.
In 2011, as gold was concluding its decade-long bull run and closing in on $2,000 per ounce, every gold bug, mainstream media pundit, and even the average individual, were finding all sorts of reasons and rationales to buy gold — and keep buying, and buying, and buying. After all, the dollar was viewed as a useless piece of paper as the world’s central bankers continued to aggressively buy and print. According to many, this was certainly the perfect recipe for hyperinflation — which was thought to be just around the corner — thus providing even more incentive to purchase the world’s most desirable precious metal. Empty store fronts were being converted into “we buy and sell gold” businesses, and since everyone said so, gold would certainly hit $10,000 per ounce sooner rather than later. Oops, gold is currently trading at approximately $1,360. In hindsight, perhaps it should have been a short, not a long.
In 2012, Apple, Inc. (AAPL) was supposedly the stock to own. In fact, it was widely believed that Apple would be the first individual stock to achieve a $1,000 price tag; it was just a matter of time. Disregard the Samsung competition, never mind the shrinking top-end growth, and forget about the overall commoditization of Apple products, the message was “buy, get on board and don’t delay, the stock has certainly come a long way, but it definitely has much further to go on the upside.” After all, everyone said so. Oops, Apple is currently trading at approximately $465. In hindsight, it should have been a short, not a long.
There’s an old adage about bad luck occurring in threes. For example, “three on a match” and the notion that death always happens in threes. Thus, this leads us to our third situation, namely U.S. long-term treasuries. What’s the general consensus nowadays? Indeed, it’s sell, sell, sell. Yet, when the Federal Reserve ultimately tapers their most recent bond purchasing program, who will step in? Therefore, how can interest rates not go higher? Disregard the negative impact that higher interest rates will have on the housing sector, stagnant wages, and declining retail sales. Rates will go higher, thus bond prices will go lower. Consequently, the current message is loud and clear, “get out, don’t buy, and perhaps short.”
However, could this situation be just like the prior circumstances involving Apple, Inc., and gold — that the right move is actually the opposite of popular opinion? Regarding long-term treasuries, is it time to not be a seller? Rather, is it time to be an aggressive buyer?
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at firstname.lastname@example.org and on Twitter @tatroshow.