Peter Boockvar and Jared Bernstein Debate the Notion of a Bond Bubble

By on May 1, 2012

Peter Boockvar - Miller TabakOne of the most anticipated events in the world of investing has been the nearly universal opinion that bonds will collapse in price as yields move up. Peter Boockvar, strategist at Miller Tabak, and Jared Bernstein, Senior Fellow, Center on Budget and Policy Priorities, recently debated the notion of a bond bubble.

Bernstein said the economy is giving “glass half empty” indications with a bad durable goods orders number, unemployment claims ticking up a bit, while we’ve had strong retail sales.

Jared Bernstein - Center on Budget and Policy PrioritiesBernstein believes the Fed has been emphasizing downside risks. If Bernanke doesn’t like what he sees the scheduled rate increase in 2014 might be pushed out further, according to Bernstein.

Boockvar found it interesting that over the next couple of years we’ll have the bond market versus the central market planners at the Fed. Boockvar pointed out the Fed spends its time trying to suppress interest rates while the long end of the bond market will reveal what it really thinks about growth and inflation.

The problem Boockvar has with the Fed is that they think the economy is going to get better, and when it does they are somehow going to pull back the accomodation. Boockvar stated the Fed has created a tremendous bond bubble, following the stock market bubble they created in the early part of the decade, and the credit bubble they created in the middle part of the decade.

Boockvar said he didn’t know when the bubble would burst; whether it would be the bond market or the Fed who initiates the collapse. It will be a complete mess according to Boockvar who doesn’t believe it can be done in an orderly manner.

The debate continued with a discussion on what could trigger the bubble popping, how the Fed is hurting the standard of living of the average American, why corporations are sitting on over a trillion dollars in cash reserves, and whether there really are inflationary pressures.

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