CAT BONDS, LONGEVITY BONDS, We Need Kids Not Bonds
It was a year ago when my friend, Dialastrategist, wrote a piece on Catastrophe bonds and how nicely they would fit into a portfolio, for the random uncorrelated risk that they present.
One year later, Warren Buffet says they have become too expensive.
With 22% net returns (i.e. including the catastrophes) over 2 years that rivals junk bond returns, it really does not matter what Buffet says especially when the percentage of 60 year olds are expected to double in the next 30-40 years.
And longevity risk is the most underestimated risks or challenge the global economy will face.
Koreans will have the highest life expectancies and the country intends to introduce a longevity bond that is pegged to life expectancy by the year 2016.
The best case scenario that is practical to envisage is a slow halting economic growth which fits in with the case for secular stagnation of the economy which I have been writing about.
The best bonds would still be the good and long ones which we should wait for times of correction to accumulate. https://tradehaven.net/market/strategy-bonds-for-secular-stagnation/
Buffet is right that “The hurricane does not know the rate that was charged for the hurricane policy, so it’s not going to respond to how much you charge”. And it does not mean that buying high risk instruments at high prices can turn junk into investment grade.
The second best scenario would be to wait for the highest ever 139 million babies born this year to grow up and take some of that weight off the markets.