I just came across this short piece that quotes six well-known investment gurus who have been exceptionally wrong about US Treasuries (Julian Robertson – hedge fund guru, Nassim Taleb – author of The Black Swan, Marc Faber – investment newsletter writer and pundit, Jim Grant – well-known credit/bond expert, Bill Gross – founder and CIO of Pimco, and Paulo Pelligrini – the analyst for John Paulson who came up with the idea to short mortgages). They each advised investors within the last year to immediately sell Treasuries before huge but certain losses occur.
Well, so far Treasuries have held up well, although who knows what will happen going forward. But, that’s exactly the point. Instead of using an objective analysis of how Treasuries have performed over their long history (which would have informed them that Treasuries have so far never been a disaster, no matter the time period), these six investment “geniuses” decided to advise investors to basically speculate on a short-term directional play. Had one heeded their advice and taken a leveraged short seller’s bet against intermediate-term Treasuries using the exchange traded fund PST, that investor would be down over 24% so far this year and down over 30% if he went longer out on the Treasury yield curve with the leveraged long-term Treasury exchange traded fund TBT.
Since 1987 (the inception date of the Barclays Treasury index series), intermediate term Treasuries have performed no worse over a 12-month period than -1.77%. Their long-term brethren, always more volatile, returned -12.94% at their worst 12-month period but still no disaster.
So, while we don’t know what will happen with US Treasuries going forward, I do think it is safe to say that investment “geniuses” are only as smart as their most recent pronouncement. It’s best to remain objective, look at the data, and stick with what we know rather than speculate on what we don’t. Remember, the sky is always “about to fall” somewhere if you ask enough people, smart or otherwise. I think we should remember the teachings of Socrates and take solace in “knowing that we don’t know” while doing our best to ignore those who are less aware.