Debt Committee Failure Positive for Economy: Bond Strategist
The failure by the congressional super committee to reach a debt dealcould end up being positive for the U.S. economy because it would mean less austerity, according to a bond strategist and investment advisor.
"By putting more austerity — that certainly and probably isn't the answer," Robert Kessler, the CEO of advisory and brokerage firm The Kessler Companies told CNBC on Tuesday. Instead, Kessler said the economy needs time to heal as consumers are going to take an “awfully long time” to deleverage before they begin spending again.
Kessler said the failure to agree on plans to rein in the country’s ballooning debt isn’t a surprise given the long-standing differences between Democrats and Republicans on whether the economy needs more stimulus or forced austerity. He also noted the striking similarities between the austerity debate raging in both the U.S. and Europe.
"You have two diverse groups of people — those who want austerity and those that need stimulus and that's what the fight is all about," Kessler said. "Is Germany going to make Spain German, is Germany going to make Italy German? It's not going to happen."
Kessler, who has been bullish on Treasurys, believes the asset class will continue to do well amid the process of deleveraging that banks in Europe and the U.S., and consumers, are going through.
"Three years ago, everyone said don't buy Treasurys. But Mr. Bernanke said: go out and buy all the Treasurys you can because I'm going to lower the rates. Did anyone listen to Mr. Bernanke? Relatively few people. And the Treasury market has put on a spectacular performance since."
Investors who have steered clear of U.S. government bonds argue that the market is a bubble and the Federal Reserve's money printing could ignite inflation. But Kessler disagrees.
"Prices are coming down and surely. Unemployment isn't improving and the central banker says we're going to keep rates at zero indefinitely," Kessler said. "When people say: ‘I wouldn't buy a Treasury,’ they're just dead wrong, and they have been dead wrong for the last 3 years."
Kessler is especially bullish on 25 or 30-year Treasury STRIPS, which pay no coupon payments until maturity and trade at a discount to face value.
"For the last 30 years, a 25-year STRIP — if you had owned it and kept buying a new one — would have returned you a 19.5 percent annualized return," Kessler said. "There's no asset class that comes close to that."