Last week I was in Las Vegas for an internet entrepreneurs conference. 
It has been years since I’ve been to Las Vegas and it was astounding to me how built up it is! The developers really went to town putting up high rises and casinos. It was interesting to see that the strip was crowded and amazingly busy. Although the high-end steak houses were packed and people partied like it was 1999 (and had $100+ seafood platters being delivered to tables all around us), the jewelry and designer clothing stores were absolutely empty…people have their priorities you know!
Back in Palm Springs I went to the outlet mall at Cabazon (doing research for the blog, of course), and found the shops packed – with foreigners! Italian, Korean, French and other languages were heard while they were buying up the designer duds. With the dollar so weak, foreigners can buy a lot of expensive goods for less. Heard about the designer shoe shopping junkets from Europe to New York?
My observation is that we need to look to the strong trends coming in the future and invest accordingly (not in the rear-view mirror). Beginning in 1982, we had inflation peak and it has been in a 26 year, long-term, declining trend (good). Interest rates have declined from 18% to near zero (looked at CD rates recently?). It was this long-term deflationary trend that caused the stock market/financials to boom.
Right now the Federal Reserve is printing money and providing stimulus to re-inflate the economy (cash for clunkers and the home buyer credit, among others). The money has filtered into the economy and provided a higher rate of growth (GDP). So right now, we are near the opposite end of the business cycle that peaked in 1982 and perhaps somewhat close to starting a new trend, eventually: rising interest rates.
U.S. Treasuries are in a pickle because once interest rates start increasing (either as the economy recovers OR to entice more investors to buy our government bonds), since bond values move inversely to interest rates, we could see bond values decline.
That’s why it is impossible to get the returns on bonds that we have had in past years. The track record on bond funds cannot be repeated in a rising interest rate environment.
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