At times like these, I’m reminded of a quote from Howard Marks, the most successful value investor you’ve likely never heard of: “What’s clear to the broad consensus of investors is almost always wrong.”
This quote has been on my mind lately because everyone is convinced that Trump 2.0 will lead to higher inflation.
I’m sure you can see where I’m going: Higher inflation begets higher interest rates. And since bond prices and interest rates move in opposite directions, the new administration will be bad for bonds. Hence, the mini-selloff in fixed income since the election.
My take? This is a short-term overreaction. The narrative against bonds is assumed. When this happens, markets tend to move in the opposite direction of conventional wisdom.
Which means we should bet with bonds—at least in the near term. When the rally comes, it will surprise everyone but us!
Today we’re going to look next door to bonds, to our favorite “bond proxies”.
This post originally appeared at Contrarian Outlook.