I have been a bond bear for a while. Back in the summer of 2016, I spoke at a small conference out in San Diego. My topic: how interest rates were going to go up.

It didn’t go over very well with people.

One guy in the front row got really upset, and started sputtering about how I was totally wrong. He seemed pretty angry. I was actually a bit scared. I’ve been to some conferences where people were scratchy, but I never before thought I was going to get my ass kicked.

I haven’t been invited back to speak, which is too bad—because I was right.

When I gave that talk, yields on 10 year notes were about 1.6%. Today they are about 2.4%. That may not seem like a lot, but it is.

The evidence is starting to pile up that yields may be going even higher.

Quantitative Tightening

As you know by now, the Fed is letting assets roll off the balance sheet. A little at first, but more later. This is not a small thing! New Fed Chairman Jay Powell wants this to be smooth as a gravy sandwich, but let’s see how it plays out before we take any victory laps.

Meanwhile, the ECB is tapering, and will taper more…

The BOJ has pegged the yield curve and buys bonds when the market forces them into it…

The Bank of England seems to be finally lifting off…

What had once been a flood of global liquidity is now starting to run in reverse.

So, if you remember all the complaints about central banks, that:

1) They had inflated asset prices

2) And worsened inequality

Then you can expect:

1) Asset prices to deflate

2) And rich people to get poorer

This is what you have been waiting for, right? Rich people to lose money?

Rich people will lose money because asset prices will deflate. What kind of assets? Financial assets—stocks and bonds.

Yes, in the next bear market, stocks and bonds will likely go down together.

People have become accustomed to an inverse relationship between stock and bond prices. Funny thing about stock-bond correlation. The long-term average is zero. But sometimes it is 1, and sometimes it is -1.