Jeremy Siegel: Bonds Are The Next Bubble

Jeremy Siegel and Jeremy Schwartz have some interesting thoughts on the next bubble being blown in the United States and that is debt. Both corporate and government bonds. They're not alone. In an

Siegel and Schwartz say that bonds, and in particular Treasury bonds are extremely overprice, similar to what the tech bubble experienced in the late 1990's. As investors become disenchanted with stocks, equity outflows and bond inflows continue to widen. From January 2008 to June 2010, outflows from equity funds totaled $232 billion while bond funds have seen $559 billion worth of inflows. They go on to point out that the yield on Treasury Inflation Protected Securities (TIPS) is now under 1%. This bond is now selling at more than 100 times its projected payout, similar to the tech companies in the dot com era. Siegel and Schwartz believe that economic growth will accelerate much faster than the markets expect as long as people pay what is owed on their houses. He writes that the market has discounted that the majority of it will never be paid back, and if it is, banks will see hundreds of billions of dollars worth of writeups in their loan portfolios. The authors believe that those who buy value stocks with strong dividend yields will be rewarded, as dividend yields tend to outpace inflation as the economy grows. They mention companies such as AT&T

, Exxon Mobil

, and Chevron

as value stocks with strong dividends. I am of the opinion to agree with Mr. Siegel and Mr.Schwartz. I do agree that eventually the bond bubble will burst, and inflation will start to creep back in to the economy, setting the stage for further growth. Eventually bond rates will start to rise as investors want return on capital, not just the return of their capital. Investors would do well to look at some of the stocks mentioned in this op-ed, as well as companies that have strong earnings growth, like Apple

and Priceline.com

.