January 2012_issue_08
Even bond guru Bill Gross didn’t foresee this: contrary to all equity and bond market theory, in the 30 years to the end of September 2011, bonds performed better than equities. While the S&P 500 Total Return index returned an annual average of 10.8%, the Merrill Lynch US Treasuries 10+ returned 11.4%. The last time this happened was for the 30 years to 1861, suggesting the capital market environment of equity, bond and property market bubbles over the last three decades is comparable to that created by the industrial revolution and an impending civil war. According to Jeremy Siegel, professor of fi nance at the Wharton School of the
University of Pennsylvania, whose research in long-term stock and bond returns is credited by many as contributing to and expanding the great bull market of the last two decades, it would be mathematically impossible for bonds to continue in this manner.
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