Bonds have been outperforming stocks for the past 30 years, but that’s about to change, warn experts. Bonds are not the safe haven that they used to be. Interest rates have been declining since the early 1980s but now we’re heading into a period of rising rates, which means that investing in the bond market will be a lot more challenging over the next few years.

Investors with stakes in long-term Treasuries are already feeling the pain. As the 10-year Treasury yield recently crept up to 2% from its record low of 1.4% last July. If the 10-year yield rises back to the level it was before the financial crisis (around 5%), bond funds could plunge 25. The threat of rising yields is especially worrisome for individual investors, who have poured more than $1 trillion into bond funds in the aftermath of the financial crisis, according to the Investment Company Institute. That trillion-dollar inflow has led to an overcrowded market. They’re invested in bonds for their perceived safety, so they’ll likely be extra sensitive to the price moves.

The risk is even more alarming when you consider valuations adding that the bond market looks similar to the overvaluation of the stock market at the height of the dotcom bubble, when the S&P 500 was trading at 30 times trailing earnings.

In my opinion its not a matter of what Bernanke specifically will say, but more a underlying fundamental result that will turn this 30 year bull market into negative territory. Sooner or later those interest have to come up from their artificial rates that have been kept low for helping the “recovering” of the economy.

—
Sven Van Tongeren
Sven@KeeneOnTheMarket.com

Paper sold 19,723 TSM April 17.5 Calls they were long and bought 39,446 TSM April 20 Calls for $.40 (33.8 times usual volume) when stock was trading $19.18
Paper sold 14,978 CHTP Sep 1 Puts for $.20 (596 times usual volume) when stock was trading $1.27
Paper bought 7500 DIN June 85 Calls and Sold June 65 Puts for $.25 debit (85.4 times usual volume) when stock was trading $75.20
Paper bought 1600 OCZ June 2 Calls for $.45 when stock was trading $1.88
Paper sold 3000 DISH April 36 Puts for $1.60 when stock was trading $36.22

GMCR has taken a huge hit since the highs put in around September 2011, just up over $100 a share. Currently they are trading at $45.35 a share, which is up from the lows at $18, which was last seen June 2012. Its pretty clear that this stock has been extremely volatile in the past couple years. I believe the main reason for this, is there initial first move introducing K-cups… people love to wake up and have their cup of coffee ready in 20 seconds. The negative part about GMCR was when their patents ended for the K-cups and allowed anyone to produce their own versions of the K-cup. It really adds insult to injury when Starbucks is one of your main competitors and they start to sell the same product, but with their brand behind it. It basically leaves Green Mountain without a true identity, and just another company in the coffee industry.

So, this comes back to the new CEO, Brian Kelley. Yes, I do believe that Coca-Cola would be a good fit for Green Mountain, and here’s why….

Coca-Cola obviously has enough cash to buy-up GMCR, which sits at a market cap of 6.75B + debt. Coke is also currently far from selling just a singe-beverage, as they have hundreds of brands under their name. Another argument is that Americans are shying away from consuming soda, and turning towards diet drinks, tea, and you guessed it…coffee.

Coca-Cola doesn’t necessarily ‘need’ Green Mountain, but the upside for it could be tremendous if marketed correctly. Obviously, they have Starbucks to compete against but people still know who Green Mountain Coffee is, and as time passes and Starbucks starts to take up more of the market share, that memory will slowly fade of GMCR even existing. A move needs to be taken soon if there is going to be Green Mountain on the shelves five years from now.

Author: Peter Nitso

pnitso@yahoo.com

Twitter: @PeterNitso

Paper bought 1070 PVR March 25 Puts for $.45 (6.4 times usual volume) when stock was trading $25.75
Paper bought 5200 FST May 6 Puts for $.65 (2.1 times usual volume) when stock was trading $6.34
Paper bought 800 LINTA March 21 Puts for $.40 (29.5 times usual volume) when stock was trading $21.59
Paper bought 900 ARLP June 50 Puts for $1.05 (23.1 times usual volume) when stock was trading $62.46
Paper bought 2145 AVID March 7.5 Puts for $.30 (29.4 times usual volume) when stock was trading $7.99

Paper bought 1200 AMKR March 5 Calls for $.15 (3.0 times usual volume) when stock was trading $4.79
Paper bought 2880 June 2.5 Calls for $1.85 (22.2 times usual volume) when stock was trading $4.22
Paper bought 1200 FCS March 16 Calls for $.25 (4.1 times usual volume) stock was trading $15.51
Paper bought 4500 KKR Jan 2014 17 Calls for $2.33 when stock was trading $17.91
Paper bought 1978 APO March 22.5 Calls for $1 (8.9 times usual volume) when stock was trading $22.78

Paper bought 20,000-40,000 TSO April 55-65 Call Spread for $2.30 1×2
Call Spreads (8.5 times usual volume) when stock was trading $55.09
Paper bought 20,000 HNZ June 75 Calls for $.10 (15.2 times usual volume) when stock was trading $72.13
Paper bought 39,800 CBS June 50 Calls for $.85 (3.9 times usual volume) when stock was trading $44.76
Paper sold 2800 GPS April 32 Puts for $1.17 when stock was trading $32.20
Paper bought 106,080 BX Jan 2015 30 Calls for $.43 (9.4 times usual volume) when stock was trading $19.32