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Special thanks to Robbert Van Batenburg of Newedge who Co-Authored this report.

How could Wall Street economists have been so wrong? On January 1st the consensus forecast of the 66 most senior economists for the year end 10-year US Treasury yield was 3.44%. At the time, 10 year Treasury yields were hovering around 3%, their highest level in almost three years. Since then the benchmark interest rate has declined as low at 2.34% last week, Treasury bonds have outperformed practically all major asset classes in 2014.

The US 30 year Treasury is up nearly 17% in 2014, triple the return on the S&P 500 SPY EFT. The iShares 20+ Year Treasury Bond ETF TLT is up 15.4%. The Pimco 25+ Year Zero Coupon US Treasury Index ETF ZROZ is up 27% year-to-date. If it was a fight they’d stop it, long term bonds are crushing US stocks this year.

Late last year we made a very public, bullish call to buy US Treasuries. It was really hard to do in the face of the explosion of conventional wisdom calling for higher yields.

The lesson? An investing virtue we live by; whenever you see the crowd bunched together on one side of the boat, run, don’t walk the other way.

Many Wall St. analysts feel safety in numbers, they often gather together in large groups. This presents an opportunity for investors; if you’re on the other side of the trade, just a slight shift in sentiment can create substantial profits.

Dangerous Crowded Wall St. Themes

“Buying right, never feels good.”

Hedge Fund Legend Seth Klarman

Whenever you see popular Wall St. theme centered investment ideas, beware. In your mind, try and measure just how many people are invested the same thing? The more popular, the more analysts trying to sell the idea, the more dangerous the investing outcome will likely be.

In December of 2000, analysts loved Merck Merck as she approached $90 a share. We were told the US’s aging population would fill Merck’s pockets with profits for decades to come. The stock lost 70% of its value over the next 5 years.

In April 2011, we were confidently told to buy companies like iron ore miner BHP Billiton BHP Billiton. They screamed at us, “FIFTY Chicago’s are being built in China!” The historic, relentless growth would propel shares to $150 they said, nearly every analyst on the Street had a “buy” on the stock. The shares lost 42% over the next 12 months.

In January 2014, we were told an improving US economy and the Fed’s tapering plans for their quantitative easing bond purchase program would lead to a spike in long term interest rates. Incredulously, Wall Street economists still believe 10 year rates will be at 3% by year-end. What are they missing?

10 Reasons Why US 10 Year Yields are 2.40%, and Why They’re Heading Lower

1. Geopolitical risk: While US government bonds have rallied all year, the turmoil in the Ukraine, Iraq and other hot spots around the world (Azerbaijan, Syria, Israel) have accelerated the flight into US Treasuries. The alternative flight to safety assets, such as gold, oil or the dollar, have lost their reputation in recent years, due to their diminished resilience in times of turmoil. After peaking in September of 2011 at $1900 per troy oz. gold has declined by 31% and no crisis (Libya, Cyprus, Syria, government shut-down) was able to reverse the slide. Many investors have been burned by these historic, flight to safety heavens, pushing US Treasury demand higher in times of stress.

2. Foreign Demand: The Chinese, Japanese and OPEC countries continue to hold and buy US Treasuries as they sterilize the flows of dollars into their countries. Combined, the three hold $2.7 trillion of US Treasuries. The US is still the deepest and most liquid place to park cash on earth. If you need a safe place to park $20B, it’s a lot easier to use liquid US markets than others such as those in Canadian or Australian. In some respects it’s the only game in town.