Warren Buffett, Larry Fink, and Mike Holland All Call Bonds a Bad Bet

TOM HUDSON: Now the chairman’s comments, Ben Bernanke, or lack thereof, also
caused bond prices to slide today, pushing up interest rates. He’s not the
only one stirring up trouble in the bond market these days. Suzanne Pratt
explains.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is what
billionaire investor Warren Buffett thinks of U.S. Treasuries. He calls
them dangerous and says they should come with a warning label. And Buffett
is not alone. Earlier this month, Blackrock CEO Larry Fink told investors
to be 100 percent in stocks. Investment pro Mike Holland says they’re
making an observation about the bond market, one that Holland agrees with.

MICHAEL HOLLAND, CHAIRMAN, HOLLAND & CO.: The reason it’s important
is he’s observing that today, when you buy a 10-year Treasury or 30-year
Treasury, you lose money every day you own it. That’s a really bad
investment.

PRATT: What are these guys talking about? Aren’t U.S. bonds
supposed to be safe? Here’s the problem. A 10-year bond yields less than
2 percent these days. And most of us would agree inflation is about 3
percent. So even if you hold that bond to maturity, your purchasing power
erodes. Simply put, you lose. Experts say the potential loss for bond
fund investors is even worse. And that’s worrisome because investors are
gobbling up bond funds like it’s their last meal.

HOLLAND: If you own a bond fund, you should probably sell it. If
you’re in a bond fund and bond prices go down as interest rates go up, you
are locked into that loss. You never get it back.

PRATT: To be clear, what Buffett and others are talking about may
not happen today, tomorrow or even next month. You might not even lose
money right away. Still they believe bonds are a very risky place to be.
Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.


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