A debate not for the faint hearted - bonds

American bonds have been the hot topic of the news lately: are you bearish or bullish? Is there really a bubble? When will buying stop? I will set out both sides of the argument and then you as the reader can decide.

Bearish:
-US Treasuries have continued to yield less and less, with inflation-adjusted bonds for the next four years even having a negative yield
-Bond funds for the past three years have had massive inflows, while equity funds have been experiencing an exodus, making a bubble resembling the tech disaster 10 years ago
-Capital losses on bonds are looming as every rate increase by the government will devalue bonds and rates can go nowhere but up at this point

Bullish:
-Many people believe that the US will never default making this situation quite different from the tech crash, as capital is nearly guarenteed
-There are also other investors who believe that aging demographics increase the number of risk averse assets demands, therefore bond buying will continue as the baby boomers age
-With the economy at its current pace there is a good chance that rates will not be increasing anytime soon.

Both sides present good points, so now its up to you to decide.

Bacon for Breakfast again

In May of this year, the debt problems of Europe were the front page story of every newspaper you could think of. The PIIGS (Portugal, Italy, Ireland, Germany, Spain) piling debt seemed to be an insurmountable problem looming over Europe, until much of the European Union compromised on a bailout to solve the problems that were on the verge of breaking out of control. Throughout the start of August headlines have avoided the Eurozones debt difficulties, but is it too early to writeoff those problems just yet? Credit Default Swap (CDS) spreads are one of the best ways of measuring the likelihood of a European country's default. When these spreads rise the likelihood of default increases, and vice versa. From July to August CDS spreads for the PIIGS countries had been in decline, but since the start of August CDS spreads have quietly started to climb back up again. Investors beware the PIIGS are back.

Are you eating your Wheaties?

A possible great buy right now would be 1 month call options on wheat, with fires ravaging the crops in Eastern Europe so far this summer. It has been the hottest summer on record in Russia, Kazakhstan, and Ukraine creating a great number of fires in the European region. The extensive fires have caused Russia to ban grain exports because of the need to keep existing wheat in the country. These fires in addition to huge rainfall in Canada, another large wheat producer, has spiked demand for the commodity worldwide and prices are starting to increase. With the hot weather and fires not expected to drop till the end of August, buying a 1 month call option for grain commodities is a no brainer, as demand can only increase from here. Other grain products are also on the rise as well, acting as substitutes for the precious grain at the moment, making rice and corn pretty good bets to appreciate as well. Next time you eat breakfast, don't take that bowl of cereal for granted.