The End Of This Bull Market Is Creating The Greatest Losses In History

THE END OF THIS BULL MARKET IS CREATING THE GREATEST LOSSES IN HISTORY

The collapse of the bull market that has produced the greatest investment losses was not the 1929 Crash or the bursting of the Internet Bubble at the turn of the century. It is the end of July 2020 of the long bull market in fixed-income instruments that began with the peak in interest rates in the early 1980s.

The losses incurred by fixed-income investors since 2020 are larger than seen in stock market bear markets because the fixed-income market is so much larger, encompassing government and corporate debt, mortgages etc. The size of the fixed-income market was amplified by its popularity with retail investors, to whom these instruments were aggressively marketed as a means of generating income with much more safety than investment in stocks.

The bull market in fixed-income instruments lasted for almost 40 years and offered a relatively safe way to generate income until it didn’t. Ironically, many investors have been punished since 2020 by doing what they believed was a “prudent and conservative” investment approach.

Unfortunately for bondholders, the rise of interest rates in recent months suggests that the bear market in yields is not over. Stubborn global inflation levels (which remain above the 2% target of central banks) and the potential for a surge in inflationary pressures presented by the imposition of tariff wars make for a less-than-optimistic future for bond prices.

The lesson from the accompanying chart is that bear and bull markets (even those that last decades) inevitably come to an end. This axiom applies to all markets and is a powerful argument against investor complacency and for the merits of adopting an active interest in one’s investment positions.

We believe this precept is especially true in our present investment environment with its host of potential economic and geopolitical catalysts for volatility. The volatility that we believe will be a feature of markets for the balance of the decade suggests that trends will change with greater frequency in the coming years.

While this environment will prove jarring for some, we are excited at the attractive investment opportunities that market volatility typically produces.

Each month in our paid service, the Global Investment Letter, I update my investing activities and include actionable ideas, as well as comment on major global equity, fixed income, currency, and commodity markets.

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