Peter Boockvar: "We're Seeing the Unwind of the Largest Financial Bubble Ever”
A burgeoning bond crisis, the markets strike back against central banks, and where to find opportunities
We’re in a bond bear market and have been since 2022, Bleakley Financial Group CIO and
author Peter Boockvar said yesterday (January 8) on Talking Markets.(Side note: A huge thank you to Peter for battling through a cold to deliver a fantastic session.)
Basically - the old playbook needs to be thrown out and markets are revolting against central banks. But there are opportunities to be found…
Understanding the Big Picture
With the UK bond sell-off deepening, investor eyes are on WTF is happening in the bond universe - and why. Peter says the not-quite-but-getting-there bond crisis has its roots in 2020.
“The world had a Covid shutdown, central banks cut rates to zero, Europe and Japan were at negative rates,” he said. “We had more rounds of QE that culminated in December 2020. We had 18 trillion dollars of negative yielding securities. I termed that the biggest financial bubble in the history of financial bubbles in terms of dollars, where central banks literally turned an asset (owning a fixed income bond) into a liability, where you had to pay interest on what you owned.”
Peter says that the ginormous bubble has been pricked by inflation, central bank rate increases, and the end of QE (outside of Japan), and that we’re in a bond bear market that started in 2022.
It’s a global phenomenon:
The Bank of Japan, which Peter says “has had its foot on the neck of interest rates for years,” is expected to raise rates this year
Rates are rising in the UK, with the 30-year UK gilt yields at multi-decade highs (which started right after the release of the chancellor’s budget)
Also elsewhere in Europe, with a big spike in the past month in German and French yields
💡 Peter: “It’s very important for US investors to not just analyze growth and inflation expectations to help you understand where you the 10-year yield is going, but to understand the big picture and that rates are rising everywhere except in China. Also of note, the BOJ is reducing the pace of their asset purchases by about 400 billion yen per quarter, which is a major reduction in the liquidity spigot around the world.”
🪢More from Peter on rates in The Boock Report here.
Throw Out the Old Playbook
A common playbook Peter hears from people is “Oh, growth is slowing and inflation is decelerating and you’ve got to buy long bonds.” “No, no, no,” Peter says. “That’s the old playbook. You have to throw that out - we’re in a different ballgame here.”
Peter says the market has “turned its back against these central rate cuts.” In the US, he points out that 10-year yields went “straight up” after the Fed cut 50bps in September. “The bond market revolted,” he said. “And when they followed through with more cuts, the market continued to revolt. There is a clear repudiation of what the Fed has done on the short end.”
💡The TL;DR: “We’re in a bond bear market, and they last a while,” Peter said. “And I think markets are finally pushing back against all this debt that we have in the world and there is just too much duration supply relative to the demand for this paper.”
Spotlight on the US
Growth: Peter says growth in the US looks strong because of the headline GDP number of around 2.5%, but that you have to look under the hood. “Some parts are doing fine - upper income spending, anything related to AI spend, anything related to government spending,” he said. “Outside of that, I don’t see any growth, and in some areas I see downturns - there is a recession in anything related to existing home sales, for example.”
🪢Peter talked more about this “two-lane highway” last time he joined us on Talking MarketsInflation: Peter’s forecast is that inflation is going to further decelerate over the first half of 2025, driven by a slowing in rental growth. However, due to low supply of multi-family homes, he sees rents going back up in 2026. Additionally, he thinks tariffs could clog up economic supply chains reinvigorate inflation.” So after this year’s deceleration, he thinks inflation “picks back up to 3-4% and get stuck there.”
The Dollar: The dollar’s strength is “all a tariff trade,” Peter said. (Or as put it, there is a “binary disequilibrium in the dollar.”) Whether this strength in the dollar can continue “will depend on what tariffs are implemented,” Peter said. “One day we’re going to wake up and Trump’s not going to like the strong dollar. In one tweet, he’ll like tariffs. In another, he’ll dislike the strong dollar. Well, it’s hard to have both.”
Tariffs: Peter "understands “the desire to protect American industry, but I don’t necessarily agree that tariffs should be the only tool to do that.” “I would rather focus on lowering the cost of doing business in the US,” he said. “Cutting the corporate income tax, easing regulations. I just don’t like the tariff tool because there are just too many unintended consequences.”
The Search for Opportunities
Thankfully, they do exist.
On the defensive opportunity side, Peter says bonds are “fine to own,,” especially on the short end, but even on the long end - as long as you’re willing to hold them to maturity and accept a drop in value before it matures.
Gold should also “benefit from the rise in interest rates and pressure on government finances,” he said.
In terms of the stock market, “the value/growth discrepancy has gotten the widest it’s ever been,” he said, and “if there’s one thing that’s gonna close that gap, it’s higher interest rates that meet high PE multiples that leads to a compression of those multiples. So from a stock picker’s perspective, I do think there are a lot of opportunities now outside of the big cap tech stocks.”
Speaking of big cap tech stocks, quite the comparison to chew on from Peter:
“The market caps of Nvidia, Microsoft and Apple are north of $10 trillion, which is about 12% of global GDP. Can they continue to carry the weight? I just don't think that's possible.”
Overseas, Spain “is probably the best GDP growth story outside of Greece,” Peter said. (Reminder - last time on Talking Markets, Peter said: “If you're going to invest in Europe, make sure you're investing in companies that are big multinationals.”)
In Asia, China is “struggling with the downturn in residential real estate,” but some parts of manufacturing like EVs, solar panels are doing very well.” (More on the China story from the wonderful here.)
And India is still strong, though their growth is slowing to about 6%, down from 7%.
💡”Overall, it’s a mixed bag,” Peter said, “[But] there are very cheap stocks overseas relative to the US.”
DJT’s First 100 Days: Remember to Breathe
“We try to invest long term,” Peter said. “So while it could be disruptive on a very short term basis, whatever comes out, over time, we'll digest that. There's definitely going to be positives on the tax side, the regulatory side, for sure. To me, the one concern is just tariffs and how they perceive global trade.”
So - keep calm, and keep your eye on your time horizon to avoid feeling seasick…
To watch the full episode, right this way.
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.