because it’s very good for an individual investor. i’m talking about closed end bond funds. i’m talking about mortgage reits. these areas that are trading at 10% discounts to the value of their underlying bonds or in the case of the mortgage reits, more than 10% discounts to their book values. so they have a cushion of safety, and they’re generating yields. it’s not that hard to put together a portfolio that yields 8% using a basket of these types of vehicles. that sounds pretty good, but nobody wants to buy them because of the sentiment and the fear and loathing. so there’s plenty of yield in the bond market. it’s not really in short-term treasuries obviously or even in the ten-year, but one of the signals i’m looking for that would signal an end to the interest rate rise is some interest in these types of vehicles and it isn’t there. i think investors are supposed to be accumulating these things in the current conditions, but i think the ten-year could go to about 3.10% or so somewhere between now and year end. steve weiss? jeff, why couldn’t the bond market yields go to 3.50% in the next six months or so, particularly if you have an improving economy? it’s been a market of excess that brought us to levels, low levels that we hadn’t seen before ever. so why can’t that reverse? well, of course, anything can possible. i think this concept the economy is so great is not something i really believe in. i know the gdp was revised upward but that’s a rear-view mirror. if it had been revised downward all people would talk about is that’s a rear-view mirror. it was revised upward because of exports and inventories. what josh was talking about at the top of the hour, something i really think is very important, and that is that this belief in the housing market, which has been correct and i have certainly been part of that belief for the past 18 months, the belief in the housing market seems really overextended at this point given how low home sales really are, how the contracts — the new applications for mortgages are down by two-thirds from where they were in 2006-2007. new hoales are down by two-thirds. the statistics are not really that good yet home prices are back to where they were on the national average all the way back to where they were in ’06-’07. there seems to be a real disconnect between home prices, rising mortgage interest rates, and so i think that’s something of an achilles’ heel to the economy. but about 3.50% on the ten-year, specific to your question, i think after we get the tapering, i think we’re going to be in a nervous condition because what happens if interest rates spike to 3.50%? is the fed going to instantly reverse curtailing their bond buying program because interest rates rise? i don’t think they can. i don’t think they have — that gives any credibility to their policy machinery if they do that. what happens if there’s a weak economic print? can they go back to buying bonds? i don’t think they can. so the markets are going to start operating doctor they will still be walking on a tightrope regarding the economic problems, but there won’t be a net underneath the market. i think if the ten-year goes to 3.50%, i think you’re going to see serious downward movement in risk assets. you ca agreement based on a call for 3.10%, the equity market seems to have having a difficult time accepting rates where they are even now. i think that’s right. there’s fear and loathing in the markets right now. it’s hard to find anywhere that you can make money. right now what’s making money is gold. that’s what’s been making money in the last few months, and it’s interesting when we talk about real estate, real estate and gold have been interestingly negatively correlated really since housing started to fall back in 2007. when housing was falling, starting in twev, gold went on a rip upward and it went up, up, up into 2011 and it peaked right when housing bottomed. and it’s interesting. it’s like real estate became the new gold. gold suddenly wasn’t an asset class. there was no confidence. big money was moving to real estate because real estate is something you can put big money into and there was confidence in real estate in the later part of 2011 and then gold started to fall. when gold is falling, suddenly it’s just another element on the periodic table. suddenly when there’s confidence again in gold, which seems to have started to happen again, weirdly real estate seems to be softening a little bit. if you look at new home prices, they’re actually down over the last three months. they rebounded in the most recent print but they were down the two months before. jeff, it’s josh. way tonight ask you about bonds as an asset class before we lose the chance because that’s really what everyone wants to know from you at the current moment given all the fear and loathing that you referenced. so the nightmare scenario for an asset allocator is stocks and bonds go down at the same time either because of tapering or after it happens or whatever the case may be. if you think one of those is offsetting the other in your portfolio and they both start to act together to the downside, then what? so what are your thoughts on that, if you could? well, i think that there’s real risk of that happening in the short term. i don’t think that can happen in the intermediate term. i don’t think you’re going to have — if bonds fall and stocks fall, i think ultimately that curtails the bond rate increase. i think that’s going to happen. but it’s true, in the last couple of months or last several weeks, like i say, there’s fear and loathing, and people are losing money in most categories. i think that that can definitely continue if interest rates rise. so the answer to that actually is look for cash and look for some of the asset classes that are really down a lot. i mean, a lot of times investors say they want to diversify into international markets, and then they don’t want to do it when they’re down. the s&p 500 has mightily outperformed many stock markets and many of the stock markets look kind of scary, but buy low, right? isn’t that sort of the mantra of investing. buy low, sell high. it shouldn’t be that complicated. i think you’re supposed to be looking at doing some of that diversification now. but relative to bonds, specific to your question, i think some of these things i talked about have a very interesting 12-month return profile if you’re looking at some of the mortgage reits, like some of these closed end funds, even that are trading a the big discounts from an asset value, i think those preserve capital. i can see returns on some of these things of 15% pretty easily as the discounts shrink when fear and loathing starts to ebb. you would be a buye
