The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. By Andrew McCormick NEW YORK ( TheStreet) -- Contrary to very popular opinion and in conjunction with their 30-year bull market, buying U.S. Treasuries could be the best investment of 2011. Few times in history has an investor been able to invest with a major trend and simultaneously be a contrarian. When these opportunities arise, they must not be passed over. This means seriously considering funds such as the Vanguard Long-Term Treasury Fund ( VUSTX), iShares: Barclays 20 Plus Years Treasuries ( TLT), ProShares Ultra 20+ Year Treasury ( UBT) and Direxion Daily 30-Year Treasury Bull 3X Shares ( TMF). This investment opportunity holds three major drivers. First, U.S. Treasuries hold the benefit of a safe haven during a stock market decline and periods of uncertainty; if they naturally resume their upward trend, any market sell-off could accelerate the upward move. Second, they remain in a massive 30-year bull market; major bull markets tend to continue further than expected and well past traditional valuations. Finally, buying U.S. Treasuries is a major contrarian play; an overwhelming majority of analysts and fund managers loathe this asset. Rarely does an investor see an opportunity with so many factors simultaneously available: the synergy aspect could be impressive. This investment view on Treasuries isn't common. Often professionals and amateurs alike state the following reasons why a continuation of low rates and a Treasury bull market are impossible: Government bonds are in a bubble, inflation is just around the corner; the government is a debt junkie with an out-of-control deficit; and the U.S. dollar is going to devalue into oblivion. The data these bond bears lean on isn't necessarily wrong: They just have the timing incorrect. At some point interest rates will absolutely rise for a prolonged period. It just won't be right now. So, I don't disagree with the critics; I disagree with their ability to time the trade.
The United States is smack in the middle of a secular bear market, although most wouldn't know it after a spectacular two-year cyclical rally. When stocks again work their way lower during this secular bear market, growth investors will be looking for returns, and conservative investors will be looking for yield and/or a vehicle to preserve capital. U.S. Treasuries seem to be the most obvious vehicle to satisfy both types of investor. Treasuries played this role like clockwork during the last two stock market declines in 2000-2003 and 2007-2009. With yields at almost 4.5%, 30-year Treasuries are actually quite attractive from a yield perspective, as well. Using current earnings, the P/E ratio of the S&P 500 stands in the top 10 percent of all historical valuations. Poor stock market performance always follows historically high P/E ratios. Data shows the average 10-year inflation adjusted return following a top-10% valuation period as an entry point is less than -8%. At this point in time, stock market investors should certainly expect sub-zero percent returns over the next decade.
If the U.S. 10-year note falls to a yield of 1%, the bond price will rally to over 140 -- a massive 17% rally. To put that trade in perspective, if the MKC Global Fund assumed a standard conservative position size in the 10-year note futures and yields dropped to 1%, our fund as a whole, not just the individual trade, would earn about 18%.
Bill Gross certainly isn't alone. Other major market players who are either short U.S. Treasuries or maintain a negative view and won't buy any time soon include Warren Buffett, Marc Faber, Jim Rogers, Nassim Taleb, and John Paulson. Again, these are only a handful of individuals, but they collectively manage more than $300 billion. It is unknown how much capital Faber, Buffett, and Rogers influence with their financial views. Buying U.S. Treasuries should prove to be a profitable investment. Certainly, nothing is a guarantee, but the risk-reward ratio for this asset is heavily skewed in the proper direction. Investors face an investment environment where, starved for yield, they have been forced to speculate in stocks. When stocks begin to decline, Treasuries will become their asset of choice. The contrarian component of this opportunity only creates a more exciting scenario for investors, as long as the masses don't incorrectly convince them otherwise. Disclosure: The MKC Global Fund, LP holds a long position in June 2011 British Gilt Futures Andrew McCormick is a managing member of MKC Global Investments.