If hindsight is 20/20, maybe current perception is more like 50/50. Loads of economists and other experts have recently declared that the bond market has swelled into an unsustainable bubble. Wharton’s Jeremy Siegel among them.
Yale Professor William Goetzmann draws a parallel between the commercial mortgage-backed securities of recent years, and a real estate bond boom in the 1920s. A boom he argues led to the stock market crash of 1929.
“By nearly every measure,” he and his co-author notes, “real estate securities were as toxic in the 1930s as they are now.”
In an interesting paper from the National Bureau of Economic Research, he and Frank Newman, a former research assistant at the Yale School of Management, dig into the bonds that financed the greatest boom in the building of skyscrapers ever. In 1925, 23% of all corporate debt were these bonds. Nine years later, the entire class of investments had nearly vanished. Continue reading
Jeremy Siegel, Wharton professor and author of well-known Stocks For The Long Run, published an article this week in the Wall St. Journal saying that we are in a bond bubble. Bubbles are periods of irrational price appreciation in an asset class, followed by a return to rationality when everyone heads for the door and sells. With yields from government bonds at multi-decade lows, this is hardly a risky call. Continue reading